J B Chemicals & Pharmaceuticals : Q2 FY 23 Earnings Call Transcript

J.B. Pharma

Q2-FY23 Earnings Conference Call Transcript

November 14, 2022

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. Pharma's Q2 FY'23 Earnings Conference Call as on the 14th of November 2022.

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 phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Jason D'Souza, Vice President at J.B. Pharma. Thank you, and over to you, sir.

Jason D'Souza: Welcome to the Q2 Earnings Call of J.B. Pharma. We have with us today, Mr. Nikhil Chopra, CEO and Whole Time Director; Mr. Kunal Khanna, President; and Mr. Lakshay Kataria, Chief Financial Officer at J.B. Pharma.

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 detailed statement in this regard is available on the Q2 FY'23 investor presentation that has been sent to you earlier.

With this, I would like to hand it over to Mr. Nikhil Chopra to begin the proceedings of the call for his opening comments, after which Mr. Lakshay Kataria will address the financial highlights. Over to you, sir.

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Nikhil Chopra: Thank you, Jason, and good afternoon to everyone, and a warm welcome to those joining us today for our discussion on the operating and financial performance for J.B. Pharma during Quarter Two and H1 FY23.

I will begin with a commentary on our quarter two performance and share the perspective on the business. I will be followed by our CFO - Lakshay Kataria who will bring the financial perspective to you. Following the remarks, we will be happy to address queries that you may have over a discussion.

Dear friends, I am happy to, I am pleased to share a healthy set of numbers on the top line during quarter two supported by healthy traction in domestic market and continued momentum in the international operations. In quarter two FY23, our revenues showed 36% improvement to INR 809 crore.

In the domestic market, we continue to see buoyant trend for our business with a revenue of 434 crore. Organic growth for the quarter was mid-teens, once again, JB outpacing industry growth in quarter two FY23, and we remained to be the fastest growing company in top 25 as per IQVIA MAT September '22 data.

Our key brands have continued growing larger, and to share some statistics, Metrogyl gained 56 ranks to rank at 149 number. Cilacar T gained 76 ranks to be 212 number. Nicardia gained 27 ranks to be at 218 number. Cilacar gained 6 ranks to be 48 ranked brand and Rantac gained 4 ranks to be 41st rank brand. These are all MAT figures for our key top five brands.

Prescription wise JB ranked 15th in IPM with quarterly prescriptions increasing to 4.12 crore in quarter two FY23 from 2.65 crore in quarter two FY22 showing a growth of 55%.

Just to give a brief highlight on what has been happening in our inorganic business that we acquired in the last six to eight months:

Our portfolio of acquired brands have shown a robust 25% growth in quarter two FY23 as per IQVIA data, and on a like-to-like basis. As per IQVIA data, the acquired portfolio from Sanzyme has performed well, where Sporlac grew 50% and retained number one rank in its covered market space.

Azmarda, which represents an extension of our leadership portfolio in the cardiology segment, has delivered 46% growth. Heart failure is relatively a new sub-segment and vastly under served. During September '22, Azmarda featured in IPM Top 300 list also. We are presently in the investment mode for Azmarda and are witnessing good results month-on-month. Our teams on the ground are fully geared up with a portfolio from hypertension to the prevention of heart failure.

Coming to international business:

Our international business reported a strong trend with growth across all segments. CMO revenues were the highest that we recorded, and that was translated into best ever sales in our International results. CMO revenue were 64% higher in quarter two FY23 year-on-year. This segment today accounts to 28% to our international sales, and in H1 FY23 from 20% in FY22.

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Within the CMO segment - JB has earned a global niche in production and marketing of lozenges, especially in medicated and herbal varieties. Our teams are constantly at work with research in lozenges and liquid formulation with important clients, and we shall continue investing for further scale of this business.

Our formulations and API segments also delivered double-digit performance with our home markets of South Africa and Russia performing as per our expectations. Momentum continues to build up in our international operations, despite the situation that we are facing in Russia and CIS region, has presented us with a favorable demand scenario. Our approach in this region is that of caution, and we are mindful of managing the health of our operations and have been keeping watch on key parameters including receivables.

JB's progress is built on a solid foundation with emphasis on core therapies. We are seeing strong traction in our top performing brands and acquired brands in the domestic market which are consistently delivering market leading performance. With the combination of line extensions and forays into new products, we are driving this momentum forward.

Moving on to how do we see the business shaping in the coming period:

Within domestic markets, we seek to make our key brands even stronger with a sharp focus on building brand franchise in terms of market share and higher prescriptions. We have already completed the integration of our acquired brands and are also well placed to manage post LOE events for our acquired brands like Azmarda.

With the extensive portfolios we offer in focus therapies, we are better placed to manage product life cycles with a view of building upon our shares in those therapies. We expect our domestic business to continue outperform the market growth. Thereby a mix of organic and inorganic growth will allow us to maintain sustained momentum in our domestic business.

Our view on our international operation is also attractive. As you all know, we have focused on select markets with the right products. We are optimistic about driving good sales growth. Our position in export formulations, especially the ROW market has improved quarter-on-quarter. The traction we are seeing in our portfolio.

Over the next six months, we will also focus on finding new products for our export formulations market which would help us for long-term perspective. Our revenue levers are in place, and we are emphasizing better operating efficiencies and higher productivity in businesses, which together are forming the base for our sustaining our operating margins in the light of cost pressures across businesses.

I does draw to close my opening remarks and would like to request our CFO - Mr. Lakshay to address you with a perspective of financial performance. Thank you, all, and over to you, Lakshay.

Lakshay Kataria: Thank you, Nikhil. A very good afternoon to all of you, and welcome to our earnings call. I shall now cover the highlights of our financials for Q2 FY23:

On the revenue front, the domestic and international business stood at a mix of 46/54 of the total revenues respectively. While the domestic business recorded mid-teen growth organically, strong performance of acquired portfolio that Nikhil mentioned

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earlier, helped maintain another quarter of 400 plus crore revenue in the domestic business.

JB Pharma 's international business continued its strong momentum and grew at 28% year-on-year to deliver 375 crore in Q2 on the back of good performance in all the three business segments, that is export formulations, CMO and API.

Gross margins for the quarter were at 63%, similar levels of last quarter, and compared to 65% in the previous year. The margin saw an impact of inflationary pressure on input costs and packing material cost and also impact of low margins from Azmarda.

As the quarter progressed, we witnessed further softening in areas like international scrape, how the raw material costs largely continue to hold at elevated levels. The global scenario remains volatile. We are cautious and continue to monitor this situation specifically with respect to fuel and energy prices.

As we had mentioned earlier, we aim to maintain our EBITDA margins between 24 to 26% for FY23 with a focus on revenue growth. During the quarter, our operating EBITDA for the quarter was at INR 202 crore compared to 140 crore and was the increase of 44% year-on-year.

During the quarter, other expenses as a percentage of sales improved despite normalization of marketing expense on a lower COVID base in the same quarter last year, and higher utility and fuel prices. As indicated in prior quarters, depreciation during the quarter was high because of amortization of acquired brands.

Profit after tax for the quarter was at INR 111 crore, which is an increase of 13% from INR 98 crore in quarter two FY22.

Lastly, on the cash flow front, for H1 FY23, the cash flows were sturdy. The borrowings of the business increased to 350 crore compared to 26 crore as of March '22 on account of acquisitions. Cash and investments as at end of September '22 was at 203 crore compared to 57 crore as at 31st March '22. The strong cash flow momentum for the business continues, and we are seeing a healthy conversion from EBITDA to free cash flows for the organization. Our working capital metrics, that is inventory and receivables, saw improvement because of March '22. We are confident that the cash flow momentum from operating business will continue.

With this, I may now request the moderator to please open the forum for discussion.

Moderator:Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Rahul Jeewani from IIFL Securities Limited.

Rahul Jeewani: Thanks for taking my question, sir. Sir, can you please comment on what has led to strong growth in your required brands of Sporlac and Azmarda? You spoke about the fact that you are in the investment phase for Azmarda. So, what are some of these investment measures which you are taking? And given the strong growth which we have seen on Azmarda this year, how do you view, or how do you see this brand growing next year given the fact that Jan '23 the patent for Azmarda expires?

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Nikhil Chopra: Rahul, overall, let me first answer your question on what is happening for Sporlac and Azmarda, what is happening on the ground? As what earlier we had commented that when we acquired this enzyme as a asset, there were three, four levers that we thought would help us in terms of inching up the revenues and improve the profitability which has helped us. First off, that was overall synergy that we see in the prescriber base. We already have experience of handling mass brands, which is a combination of Rantac and Metrogyl, which overall has helped us to manage Sporlac brand very well in this last six to eight months.

Also overall, Sanzyme as an asset was under presented and underrepresented in many parts of the country. So, in some parts of the country, we have looked at in terms of how do we improve the share of voice with the help of team members on the ground? That also will help us, and we have also got into some of the life cycle management for Sporlac as a brand.

Not only Sporlac, but if you look at other parts of the Sanzyme asset that we have acquired, which is a combination of specialized probiotic like Lobun, Oxalo, our infertility portfolio, each part of that portfolio has given us a good jump in revenue.

So, that has overall helped us for Sporlac and Sanzyme, from a perspective of what is happening in the field of heart failure, I think the share of voice has overall improved with a strong team of 200 people on the ground.

What we saw the opportunity majorly in the clinic of cardiologists in many of the big hospitals getting into account the point of care diagnostic for 2D and 3D Echo, more and more patients getting diagnosed, adoptions of patients to adhere to the therapy that overall has helped us in terms of what we started with when we acquired this brand was close to around 6, 6.5 crore, and today, we have close to around 9 to 10 crore. So, this is where we stand.

Post LOE, what is going to happen, and this earlier also we have shared in terms of we will see an influx of around 50, 70 Brands coming in. Overall, the cost of therapy will come down. Volumes over a period of time in the next year should go up by two to three times. So, we see a huge opportunity.

Talking more from a patient perspective, the suffering of heart failure in India is big. Around 12 to 15 million patients are potential sufferers of heart failure, when we talk to the cardiologists and what data suggests. And today only 10 to 15% of them are getting the treatment. So, diagnosis, looking at what more we can do, looking at how we can closely work with cardiologists as a specialty, that all things we have been doing, and we will continue to do all those things, and that is where we stand with these two acquisitions what we have done.

Rahul Jeewani: Sure, sir. Just two follow-ups on Sporlac and Azmarda. So, for Sporlac, have you launched the liquid probiotics, which you were supposed to launch in the domestic market? And given the strong growth which we are seeing in Azmarda this year, do you think that this high base will become a headwind for us going into next year as far as Azmarda's growth is concerned?

Nikhil Chopra: So, let me answer the first part of the question. Second part of the question, Kunal will take over. Sporlac we have launched a couple of formulations. We have launched a version of a sachet that is in the form of Sporlac GG. That is what we have launched. We have not, that also goes for pediatrician as a specialty only. That is where we

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