Capitaline

Analyst Meet / AGM 08-May-21

Conference Call

Hikal

Expects 15-20% growth in topline over next two to three years

Hikal conducted conference call on 07 May 2021 to discuss the financial results and performance of the company for the quarter and year ended Mar21. Mr. Sameer Hiremath- Joint Managing Director and the CEO, Mr. Anish Swadi - President, Business Development & Strategy, Mr. Kuldeep Jain – Chief Finance Officer of the company addressed the Concall.
Highlights of the Concall

Revenue recorded an increase of 40% YoY and 15% QoQ in Q4FY21 to Rs 532 crore led by better sales volumes of key existing products and strong performance in newly commercialized CDMO as well as own generic products

The company reported robust EBITDA margins of 20.5% led by higher volumes, favorable product mix, better sales realization and business excellence initiatives

Pharmaceutical sales up by 32% to Rs. 298 crore as compared to Q4FY20 and 11% compared to Q3FY21 led by strong growth in volumes of own API's and CDMO products. Business excellence initiatives have resulted in cost and capacity improvement enabling it to meet increased market demand and better margins

The company commercialized a new fungicide in its crop protection CDMO business during the quarter

The company filed enzymatic process DMF for Sitagliptin Phosphate Anhydrous which has a strong customer interest in various regulated markets

The company filed US DMFs Favipiravir API and is now ready to supply commercial quantities to both the global and domestic markets. Currently it is being approved in many countries as a primary line treatment for COVID-19. Favipiravir has proved to be effective in mild cases

The company is also de-risking its supplier concentration for key raw materials and is being carried out and done strategically

The company has signed multi-year contract with a leading global pharmaceutical company entailing the development and supply of a portfolio of niche APIs in Animal Health vertical over a period of 10 years. The development will start this year and commercial supplies will commence post successful development and plant commercialization estimated to be in FY 2024 onwards. Hikal and its customer will be jointly investing at its Panoli, Gujarat site to setup a multipurpose manufacturing asset for manufacturing of these API's.

The company is optimistic about the animal health business, and plans to create this into a new vertical. It sees strong traction in the coming year with multiple new projects and new clients.

The company CDMO pipeline is healthy, and it is evaluating various new opportunities for early stage molecules. The company is in talks with several new customers, including some promising prospects in the US, Europe and Japan.

Crop protection sales up by 54% at Rs. 235 crore as compared to Q4FY20 and by 21% compared to Q3FY21 as orders deferred in H1 due to pandemic were executed in H2. New capacities have come on stream through the capex incurred over last 12 months

The company has commercialized a new fungicide for a Japanese customer in CDMO business. The company expects significant scale-up of this product in FY22

The company is in final stages of discussion with a leading US-based crop protection company for a new long-term contract for supply of a fungicide.

Gross debt as of 31st March 2021 stood at Rs 610 crore as compared to Rs 646 crore as on 31st March 2020

Return on equity improved by 450 basis points to 15.2% in FY21 for from 10.7% in FY20. Return on capital employed has improved substantially to 16.1% in FY21. With capex coming on stream a new high value product is gaining traction. The company is confident of improving the returns required for the over the next two to three years.

For FY 21 the company generated a strong net cash flow from operations of Rs 180 crore, majority of which has been used towards capital and debt repayment

The company has recently completed the construction of an additional plant to new development and launch facility at Bangalore.

The company has completed the construction of majority of a balanced capex program and started the commissioning process for many of these units. The commissioning will be completed over the next two quarters starting this quarter. The capex will be fully on screen from the second half of this financial year. The new capacities will enable the company to grow its top line and improve profit margins, along with return ratios sustainably over the coming years

The company has selected a leading global consultant to work with us on a business transformation exercise which will enable it to pivot its growth in a sustainable manner. This strategic exercise will work on bringing in efficiency in operations, identifying and executing new opportunities to meet strategic goal in the next 4-5 years.

The company expects to grow its topline 15-20% along with improvement of 50-100 basis points EBITDA margins per annum over the next two to three years. This growth will be driven by its ability to convert a sizable number of inquiries and projects from global customers into concrete businesses backed by the global shift in strategy of creating an alternative to China.

The company had announced capex of Rs 350 crore in FY21 out of which it has spent Rs 160 crore. The company expects capex of Rs 200 crore in another 18 months period.

The company expects tax rate of 26% in FY22.

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