J B Chemicals & Pharmaceuticals : Q1 FY 22 Earnings Conference Call Transcript

J.B. Chemicals and Pharmaceuticals Ltd.

Q1 FY22 Earnings Conference Call

August 13, 2021

This transcript is published as is what we have received from our vendor who manages the conference call. We would request you to go through the audio recording in case you want to reconfirm anything that has been mentioned in the transcript

Moderator: Ladies and gentlemen, good day and welcome to J.B. Chemicals and Pharmaceuticals Limited Q1 FY'22 Earnings Conference Call as on the 13th of August 2021. As a reminder, all participant lines will be in the listen-only mode and there will 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 '*' then '0' on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jason D'Souza, Head of Investor Relations at J.B. Chemicals & Pharmaceuticals Limited. Thank you and over to you sir.

Jason D'Souza: Thank you, Lizann. Welcome to the Earnings Call of J.B. Chemicals and Pharmaceuticals Limited. We have with us today, Mr. Nikhil Chopra -- CEO and Wholetime Director; Mr. Kunal Khanna - President, Transformation, and Mr. Vijay Bhatt -- Chief Financial Officer at J.B. Chemicals and Pharmaceuticals Limited.

Before we begin I would like to state that some of the statements in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detail statement in this regard is available on the Q1 FY'22 Results Presentation that has been sent to you earlier.

I would like to now hand it over to Mr. Nikhil Chopra -- CEO to Begin the Proceedings of the Call and give his Opening Remarks. Over to you, sir.

Nikhil Chopra: Thank you, Jason and good afternoon to everyone. A warm welcome and thank you for taking time to join us for this discussion on the operating and financial performance for J.B. Chemicals and Pharmaceuticals in this First Quarter FY'22.

Before we begin, I hope all of you along with your families are keeping safe and healthy and we hope that the worldwide vaccine drive will enable humanity to conquer COVID and we always come out stronger from this whole experience. We look forward to better times in the future.

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I will start with an Overview of our Performance and Share Some of Our Perspective on the Businesses, following which our CFO, Mr. Vijay Bhatt will take you through the Key Financial Highlights, after that we'll be more than happy to take your Questions.

Friends, we have begun the new financial year on a strong note. Taking forward the momentum from the previous year, revenue has grown by 16% to Rs.606 crore during the first quarter which is the highest ever top line recorded in any one quarter in the history of the company. While the operating environment remained challenging during the course of the quarter with lockdowns and supply chain-related limitations, both in India and some key international markets, the strategic initiatives undertaken over the last few months are starting to play out to create a long runway for the growth in the businesses. We reported EBITDA margin 27% for the Q1 and the margin performance takes into account normalized cost structure and higher logistic- related expense in the quarter under review.

We continue our efforts to institute the building blocks for sustainable growth of our organization. You would have noticed a significant number of new product launches, new divisions being introduced, cost efficiency initiatives implemented across the organization, various people-centric initiatives launch and focus on building the robust R&D team.

Friends, while we continue to deliver in the short-term, it's imperative for us to put in place a sustainable long-term growth strategy, thereby creating value for our shareholders continuously.

Coming to our domestic business, which recorded another sterling performance during Q1 growing by 39%. All our big brands continue to record high growth rates which have significantly benefited the businesses. Further, due to limited sales of our COVID portfolio, we feel confident about sustaining our market beating performance. This also is indicative of sustainability and resilience of our revenue streams in the medium to long term once this heightened pandemic phase is behind us and life returns to normal.

As per IQVIA MAT in June 2021, our growth is 24% versus market growth of 19% for the Indian pharma market. And this growth of what we have demonstrated has very limited contribution from the COVID portfolio. Majorly, our growth is supported by therapy diversification and other transitions that derive leverage from the established organizations strengths.

During the quarter, we announced our foray in the world of nephrology segment with the launch of new division, RENOVA, covering chronic kidney disease to end state renal elements.

Also, we have launched our Nova division which will focus on pediatrics and respiratory segments in India with a 350-member team, focus on antivirals, corticosteroids, anti-allergic and nicotine replacement therapies, both of these are the expansions aligned with our core strengths.

Having implemented our new go-to-market model, we also continue to evaluate several new growth opportunities that will further drive productivity on a relatively stable cost base.

We have implemented our new go-to-market model without any increase in manpower. The transformation story is supported by the continuous efficiency driving initiatives like salesforce automation, salesforce excellence, incremental digital

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adoption, which is a combination of digital and physical, consolidation of resources not only across therapy areas but also in terms of geographical coverage and control.

Coming to our international business, the situation remains challenging because of the uncertainty surrounding the second wave of COVID-19 and shipment challenges that we face which impacted revenue growth for selected pockets in the international business and the CMO business; however, the silver lining is the US and the South Africa business continue to show a strong momentum, each of them delivering a growth in excess of 20% during the first quarter. Overall, the international business delivered flattish top line. We expect these factors to be transient in nature with the underlying demand drivers and our market position remaining intact.

We are also strengthening our R&D capabilities and that should support medium to long-term growth opportunities in the international market where we stand today.

The outlook for the rest of the year remains highly positive. We see continuing growth momentum along while continuing our best cost efficiency initiatives. We are also strengthening our R&D capabilities that should support the medium to long-term growth opportunities in the international market. Consequently, we expect stable margins even as cost structures revert back to normalized level. This will enable continuing cash generation and high return ratios. Overall, we remain well positioned to drive long-term value for our stakeholders based on sustainable gains and some key strategic initiatives.

With this commentary I would like to conclude my opening rematch remarks and I would like to now hand over to Mr. Vijay to share with you Brief Perspective on our Financial Performance. Thank you. Over to you Vijay.

Vijay Bhatt: Thank you, Nikhil. Good afternoon, everyone and welcome to J.B. Chemicals Q1's Earning Call. I will now take you through some of the key highlights of our financial performance for the quarter ended June 30, 2021. During Q1, we have recorded revenue growth of 16% year-on-year to cross the threshold of Rs.600 crore for the first time in the quarter as indicated by Nikhil earlier. Domestic revenue growth was 39% and led by large brands and market beating performance in non-COVID therapies. However, uncertainty surrounding the show, second wave of COVID impacted the growth in some of our international markets.

Most importantly, the gross margin profile remains healthy during the quarter which was aided by a positive shift in product mix. Despite our cost base returning to normalized level EBITDA margin continues to remain strong; compared to the preceding quarter EBITDA margin during Q1 significantly improved to 26.9% against 23.4% in Q4 of FY'21. It also measures up well against full year of FY'21 margin level of 27.4%; however, the decline in EBITDA margin on a year-on-year basis is primarily on account of sub-optimal cost base in Q1 of FY'21 due to the COVID-19 lockdown. Going forward we expect that the margin to remain healthy and in the range of last year's margin level despite cost structures reverting to the steady and normal levels.

I would also like to highlight that the lower other income in Q1 FY'22 is reflection of normalized bond yields in the fixed income funds compared to the volatile yields during the same quarter last year. We expect that this normalized bond yields level to continue throughout the current financial year. Based on the higher revenue and higher cost base, profit before tax of Q1 FY'22 came in line with corresponding quarter last year. Effective tax rate remain unchanged at 25%, therefore profit after tax is also at the same level of Rs.119 crore on a year-on-year basis.

Going forward we will continue to pursue our strategic business objective, that is of delivering profitable growth on the back of multiple business initiatives and

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	maintaining strong cash accretion. We expect that the business to expand by
	leveraging the existing base of manufacturing, distribution and relationships within
	our ecosystem. Further, we expect this initiative of continuously driving strong
	returns and create outstanding stakeholder value over the next few years.
	With that, I conclude my opening remarks. We would now like to open this forum for
	an interactive session with all of you and will be happy to respond to the questions.
	Thank you.
Moderator:	Ladies and gentlemen, we will now begin with the question-and-answer session. The
	first question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Prakash Agarwal:	Two questions. One is in terms of your international markets while you said US and
	South Africa has grown, we see it's still flattish. So, what are the moving parts here
	and what is the outlook in terms of a little qualitative and if possible quantitative in
	terms of your export strategy and growth numbers?
Nikhil Chopra:	Prakash, if you look at the entire mix of business in our international market, major
	issues that we face because what we shared because of the issues of COVID being
	hit in some of the geographies and because of the logistic issues in the BGx market,
	there things were down but if you look at US and South Africa there our growth was
	excess to 20%, that is what I gave the commentary. But from a perspective of future
	looking guidance, we are looking forward that things will stabilize and we will return
	back to low double digit growth in our branded generic market as we stand today
	because our order book for coming quarters looks very healthy.
Prakash Agarwal:	This is for the business which has declined you are saying, it will return to double
	digit growth?
Nikhil Chopra:	Yes.
Prakash Agarwal:	So, this is largely the logistics business or there is something more to this?
Kunal Khanna:	I just add, Prakash, here. When we look at our international business apart from our
	key geographies which is US, South Africa and Russia we have two main legs CMO
	and other branded generics markets such as Asia Pac, Central America and LATAM.
	The business which has been impacted is largely centered around our Asia Pac,
	LATAM Central America offtake in these BGx markets and also our CMO business
	because of the muted trends in the cough and coal segment. As we look ahead and
	based on the recent order flow, we are quite positive that we will see revival of these
	specific pockets in the coming four to five months as well.
Prakash Agarwal:	In the past we have commented that we have vision or strategy to take this logistics
	business to higher value geographies since our plant is quite qualified. So, where
	are we in that journey?
Kunal Khanna:	In fact, over the last four months, we have already tapped into one customer in one
	of our regulated markets. We are working on concepts which go beyond the
	conventional cough and cold extending ourselves into segment such as immunity as
	well. Now these things take time because we are talking about established CMO
	customers where right from the development to the approval at the customers and
	it's a 12 to 14 month cycle. But we have seen good traction with two customers being
	tapped to, new customers in red market being tapped into, and we are very confident
	about our plan. So, that is underway.

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Prakash Agarwal: Lastly on the India business, so we have a mega brand in hypertension, then in gastro. What we have done here is now entering some leads into other therapies, I mean, what is our strategy in terms of making another mega brand and which segment would that be?

Nikhil Chopra: So, we are trying to consolidate our position in the world of hypertension, if you look at, Prakash, we have a big brand that is Cilacar, and the line extension in terms of Cilacar T which conceptually is the life cycle management that we have done in the world of hypertension. Equally we have got into the world of metabolics that is with the launch of Vildagliptin and Dapagliflozin, Dapagliflozin as our brand has taken off well and we are getting good prescriptions from the medical fraternity. Outside this world, we have entered into couple of new therapies which I spoke in my commentary, that is in the world of pediatrics and respiratory where we are glad to share that we are seeing a good traction in first quarter of launch of these two initiatives, but building mega brands in India as you know it takes time, it is not easy but you have to influence the ecosystem. So, we are on that journey, but we are confident enough in terms of what we are projecting as guidance in the coming time, we will continue to deliver market-beating performance and also we will get some help in delivering this market-beating performance with some of the newer initiatives that we have put in place.

Prakash Agarwal: I totally appreciate that I do understand that mega brands take time. I was just trying to understand with the various initiatives and great initiatives you have taken over the last six months, in which category do you think the next mega brand coming is what I was trying to understand?

Nikhil Chopra: That is what I told you, within the world of hypertension, the life cycle management that we have done with Cilacar T that you will see, that brand already is gaining market share, gaining ranks. So, that is the next big thing that we are looking forward to and equally you will see not that mega brand but you will see some brands picking up in the field of pediatrics and respiratory in the coming time.

Moderator: The next question is from the line of Rashmi Sancheti from InCred Capital. Please go ahead.

Rashmi Sancheti: Sir, just a follow-up on international markets. When you said that there are logistic and the shipment issues, is it something that the revenues have been deferred and they are going to get recovered in the subsequent quarters like for the CMO segment and the geographies which you mentioned?

Kunal Khanna: See, it's a combination of international demand trends and partly because of logistics issues, given the freight cost is extremely high, some of the customers have kind of pushed their open orders because if you really look at the freight container cost, it's gone up from $2,500 per container to almost $10,000. Having said that one cannot run away from the fact that the end demand trends in specific pockets like Asia Pac, Central America, LATAM have also been slightly muted but we hope that things are going to normalize as the world kind of see through this wave of COVID.

Rashmi Sancheti: What about Russia market like you mentioned that there was a growth revival, so are we doing growth better than the Russian pharma industry growth or how is it?

Kunal Khanna: Yes, our growth is definitely better than the overall Russian pharma industry especially in our covered market we are much better than our counterparts. We are seeing revival trends, but the next three months are very critical for Russia market because these are the seasonal months for our product portfolio and some of the signs which we see have been positive. So, we are hopeful that Russia will recover from an extremely low base which we witnessed last year.

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