Hikal conducted conference call on 02 February 2022 to discuss the financial results and performance of the company for the quarter ended December 2022. Mr. Sameer Hiremath – Managing Director, Mr. Anish Swadi – Senior President, Business Transformation and Animal Health, Mr. Kuldeep Jain – Chief Financial Officer, Mr. Manoj Mehrotra – President, Pharmaceuticals Business and Mr. Vimal Kulshrestha – President, Crop Protection Business of the company addressed the call.

Highlights of the Concall

• Hikal reported an 5% YoY increase in revenue at Rs 540 crore led by higher volume sales. EBITDA stood at Rs 75 crore compared to Rs 93 crore in Q2FY22 and Rs 70 crore in Q2FY23. Sequential QoQ recovery in margins was on back of cost improvement initiatives and softening of raw material prices.

• Margins continue to be impacted on a YoY basis due to steep increase in cost of raw materials, solvent and utilities. Also, the rapid rise in crude oil prices has significantly impacted energy costs.

• The company is witnessing softening of key raw material prices and expects the trend to stabilize in the upcoming quarters.

• Employee cost were higher due to new recruitments for the upcoming plants.

• Finance cost was higher during the quarter due to increase in capex and higher interest rates.

• Current capacity utilization is around 80-85%.

• Both businesses faced significant challenges during the first half of this fiscal year. But the company anticipates an improvement during the second half on the back of cost improvement programs and business excellence initiatives.

• Pharmaceutical revenue recorded an increase of 9% YoY to Rs 292 crore led by higher CDMO volume intake from leading global innovator companies. It acquired new customers in Latin America and Middle east market for the API Generics business segment.

• The company has a strong development pipeline in the pharmaceutical segment plans to launch three to four new products every year.

• The company expect to commission new multipurpose plant for Animal Health vertical at Panoli, Gujarat by Q2FY24. Commercial product will start from H2FY25 as there will be a period of validation for the products and that will take anywhere between about 11 to 12 months from the date of commissioning the plant.

• Crop protection revenue recorded flat growth of 1% YoY at Rs 248 crore. The company plan to commission the new multipurpose fungicide facility at Panoli, Gujarat by the end of current fiscal year and start revenue at early FY24.

• Hikal has partnered with a leading global ESG consultant to build the sustainability strategy for reduction of carbon footprint across the value chain of Hikal to better understand the needs of all stakeholders, colleagues, partners and communities in which it operate.

• The company is taking several initiatives to ensure clean energy, reduction of carbon footprint, reduction of waste generation across all its sites. It has further increased renewable power by signing long term agreements for its Panoli, Taloja and Mahad sites.

• Pinnacle, its business transformation initiative, is on track to create a robust roadmap across business verticals to drive a profitable and sustainable growth over the next five years through a focused strategic direction.

• The company continues to monitor the macro-economic environment, rising interest rates, impact of China opening, rising energy costs and the ongoing geopolitical unrest.

• The company mentioned that both businesses have a strong growth outlook and it aspire to deliver sustainable and profitable volume-led growth over the medium term.

• Total capex planned during the year is Rs 300 crores for both the upcoming plants. The company is anticipating an asset turnover of 1.4 to 1.5 at peak capcity utilization which should be after couple of years.

• Total debt stands at Rs 800 crore out of which Rs 500 crore is long term and Rs 300 crore is short term. Cost of funding for long term loan is 8.5% and 7% for short term loan.

• The company expects Ebitda margins to improve to 21-22% in next few years led by product mix rationalization and new capex which has higher gross margin and much better asset turns.