J B Chemicals & Pharmaceuticals : Q1 FY 23 Earnings Call Transcript

J B Pharma

Q1 FY23 Earnings Conference Call Transcript

August 5, 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 Q1 FY'23
	Earnings Conference Call as on 5 August, 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:	Thank you. Thank you, Stephen. Welcome to the earnings call of J.B.
	Pharma. We have with us today the management of J.B. Pharma, Mr. Nikhil
	Chopra, CEO and Whole Time Director; and Mr. Lakshay Kataria, Chief
	Financial Officer. Mr. Kunal Khanna has taken ill today, and as a result, is
	not able to attend this call.
	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 Q1
	FY'23 results presentation that has been sent to all of you earlier.
	I would like to hand over the floor to Mr. Nikhil Chopra to begin the
	proceedings of the call and give his opening remarks.
Nikhil Chopra:	Thanks. Thank you, Jason, and good afternoon, and a warm welcome to
	everyone joining us today for the discussion on the operating and the
	financial performance for J.B. Pharmaceutical during Q1 FY'23. I shall

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commence with a review of our first quarter performance and share some thoughts on our business. Later on, our CFO, Mr. Lakshay Kataria, will continue with the financial highlights. After our remarks, we would be glad to engage with all of you over a discussion.

Gentlemen, we are all on the call, we are pleased to report a healthy growth in top line underlined by strong sustained trends in the domestic business and complemented by robust improvement in our international business. It is heartening that we have been able to deliver this perf ormance despite the challenging operating environment.

During Q1 FY'23, revenues on a reported basis increased by 30% year-on- year to INR 785 crore. Domestic formulations delivered good growth and crossed a revenue INR 400 crore in a quarter. This is all-time high revenue that we have generated for India business as on today. Organic growth for domestic business was in mid -teens as compared to flat growth as reported in IPM for quarter 1. We continue to be the fastest growing company among the top 25 as per IQVIA MAT June '22 data. Our approach on enhancing field-force productivity is yielding intended results, so also our focus on driving our chronic business.

As we nurture our new product launches in the adjacent therapies, our big brands continue to get bigger. Just to give you some perspective, our brands like Metrogyl, Cilacar-T, Nicardia have each further improvement their rankings within Top 300. J.B. Pharmaceuticals has also announced its prescription ranking and now stands to number 15 in IPM as per IQ. And also happy to report that J.B's. prescription base increased from 2.6 crore prescription in quarter 1 FY'22 to 4.09 crore in quarter 1 FY'23, growing at 57%.

Just to give brief highlights on what has been happening in our inorganic business that we acquired in last 6 to 8 months. The acquired product portfolio from Sanzyme has performed well, whereas in Sporlac, which is a leading brand in Sanzyme, we have seen market share gains. Azmarda represents an extension of our leadership portfolio in the cardiology segment. Heart failure is relative a new sub -segment and vastly underserved. 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 an end-to-end portfolio from hypertension to the prevention of heart failure.

In keeping with our outline strategy to be present in high potential categories, we have also completed the acquisition of 4 paedia brands, on a combined basis, this account for INR 33 crore in sales in FY'22. This acquisition will provide J.B. a comprehensive portfolio with well-known brands to cater pediatrician as a specialty. It will increase our market coverage and align with our go-to-market model.

Moving along, our international operations have demonstrated a healthy uptick in focus markets. South Africa is showing attraction in the generic segment across both public and private market. We are also seeing robust demand in tenders and new launches in private market in South Africa. Russia and CIS has shown a stable demand trend given the challenges. As all of you are aware, in the geopolitical realities, we continue to have a

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cautious approach, and I'm happy to note that our receivables position is positive.

	In the CMO segment, we enjoy global leadership in the world of lozenges,
	more so in herbal and medicated varieties. We have grown the scope of our
	relationship with our key clients through continued new product development
	in both lozenges and liquid formulations during quarter 1 FY'23 as	we
	reported. Also happy to share that we could surpass a revenue of INR 100
	crore for quarter 1 FY'23 in the world of CDMO segment, which is ever
	highest that we have achieved. With a strong order book position, we are in
	a comfortable position to drive this business further.
	The CMO	business tends to be front-loaded with first 2 quarters	of the
	financial year performing better than the later half . We are pleased with the
	progress that we have made in last 2 years in transforming our company and
	business. There is a scope to further improve our share in the domestic
	market through a combination of better growth in core therapies, whereas
	we are continuing to support the line extensions and developing new brands.
	The emphasis on growth is clearly coming across with operating parameters
	building up as per plan. Our aspiration in domestic market is to make our big
	brands bigger, focus on both market share and prescription gains for our
	acquired	portfolio and	organic	portfolio, target focused	life	cy cle
	management in existing brands and pursue new brand launches, which will
	continue to do as committed.
	There is an exciting opportunity to be had in the international operations as
	well, where we have selective approach and are focusing identified
	geographies as well. In case of international market, we will	continue to
	benefit from consistent execution in the world of CMO segment through new
	launches as well as adding new partners, healthy mix between private and
	public market in South Africa and continued demand revival in selected RoW
	markets. As the corporate growth accelerates and the business	mix
	enhances,	we shall see	a transition into maintaining or increasing	our
	EBITDA margins, given our disciplined focus on cost optimization initiatives.
	That brings me to the conclusion of my remarks, and I would like to call upon
	now Mr. Lakshay to share his views more on the financial performance for
	the quarter. Over to you, Lakshay.
Lakshay Kataria:	Thank you, Nikhil. A very good afternoon to all of you, and welcome to our
	Q1 earnings call. I will now take you through the financial highlights of the
	quarter. On the revenue front, the	domestic business and international
	business reached new highs during the quarter. The reported revenue
	growth of 30% comprised of 20% organic growth and the rest coming
	through the new acquisitions made last quarter and this quarter.	The
	depreciation in rupee vis-a-vis dollar also aided our growth.
	Overall, for the quarter, the domestic business reported a revenue of INR
	418 crore, and international business reported a revenue of INR 366 crore,
	which is a growth both year-on-year and quarter-on-quarter.	The	gross
	margin for quarter 1 came in at close to 63% compared to 64% in the
	previous year. Excluding Azmarda,	gross margins for the business were
	relatively flat.

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	The gross margins, as you all know, have taken the impact of inflationary
	pressure in terms of input costs, packing material costs, which have been
	managed through a slew of cost management and pricing initiatives. The
	good news is that we've seen softening in certain packing materials like
	aluminums and also on the international freight costs. But given the
	continued volatility that we see on the geopolitical and the economic front
	globally, we continue to monitor the situation, particularly for the fuel supplies
	and API prices.
	Overall, we hope to sustain the gross margin closer to 64% for the fiscal with
	the March improvement coming through in Azmarda margins on the expiry
	of LOE. Given the high inflation prevailing across the world, we've been
	trying to maintain our operating margins in the range of 24% to 26%, and
	this quarter's operating margin was in line with our guidance.
	On the EBITDA front, the Q1 FY'23 operating EBITDA was at INR 190 crore,
	including an adjustment for non-cash ESOP charge of INR 17 crore. This,
	when compared to Q1 FY'22, operating EBITDA of INR 164 crore is a growth
	of 16% year-on-year. During the quarter, the employee expenses, excluding
	ESOP charges, have increased by 19% on account of the annual increments
	and the integration of the workforce from acquisitions. Operating expenses
	have now largely normalized with the normalization of operations post-
	COVID, baking of operating expenses of acquired businesses and increase
	in freight and power and fuel expenses.
	Depreciation during the quarter was at elevated level due to amortization of
	acquired brands. The PAT for the quarter came in at INR 105 crore, which
	saw a year-on-year decline of 12% on account of higher treasury income in
	the previous year, non-cash ESOP cost, which was not present in the same
	quarter last year, depreciation of the acquired brands and finance costs. On
	the cash flow generation also, I'm happy to report the business continued its
	strong trajectory. Overall, we ended with a debt of INR 325 crore, which was
	largely to fund the acquisition of Azmarda. And on the cas h and investment
	front, we ended with cash of over INR 180 crore compared to INR 56 crore
	last quarter.
	That's all from my side for now. We would now like to open this forum for an
	interactive session with all of you, and we'll be happy to res pond to your
	questions. Thank you.
Moderator:	The first question is from the line of Rahul Jeewani from IIFL Securities
	Limited. Please go ahead.
Rahul Jeewani:	Now on the CMO business, we saw a very good traction this quarter. So if
	you can just comment on what led to the growth on the CMO business this
	quarter in terms of which clients and which markets contributed to growth?
	And then the second part on the CMO business, you have indicated that the
	CMO revenue tends to be front loaded in 1H of every year. But last year, in
	fiscal '22, the second half was heavier for the CMO business. So given the
	growth which you have seen on the CMO business in 1Q, what is your
	outlook for the CMO business for the full fiscal '23?
Nikhil Chopra:	Yes, Rahul. This is Nikhil Chopra. So overall, we saw the demand coming
	across all the markets outside India because the CDMO business, what we
	do is outside India. And this was overall more happened because of the

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	cough and cold, which where our major dominant portfolio is. Equally, if you
	look at in quarter 4 last year, we could see the surge happening, which has
	continued in quarter 1. And as I see, because this all businesses, we do with
	all the multi-national partners and for them, quarter 3 of ours is the last
	quarter for them. So the way we are seeing trajectory this year that the
	orders for our CDMO business are more front-loaded, that is what we see
	and that is what I commented that we have a robust order book for at least
	next 3 to 4 months.
	And overall, as the year-end comes and Christmas comes in, there we see
	overall demand overall being tepid, and they keep enough stocks to cater
	the market. Our guidance for overall year for CDMO business, the way
	trajectory we are looking at and this quarter, we could plunge INR 100 crore,
	we will continue to see plus/minus 10% demand for which we have order
	book for next 3 to 4 months. And overall, the contribution that, Rahul, we
	have been talking from this business, which was last year 10%, and this
	year, we are seeing this business contribution should be close to around
	13% to 14% for overall business. That is what I can say at this moment of
	time.
Rahul Jeewani:	So you are saying that FY'23, the CDMO business contribution to full year
	revenues will be around 13%, 14%?
Nikhil Chopra:	Yes.
Rahul Jeewani:	And sir, second question on the India business. You spoke about the organic
	growth for our India portfolio being mid -teens. But if you can also comment
	quantitatively on how Sanzyme and Azmarda have grown during the quarter
	because on Sanzyme, you have been trying to implement this prescriber
	overlap as well as geographical synergies, which you see between your and
	Sanzyme portfolio. So anything which you could highlight on the growth
	trends for both Sanzyme and Azmarda?
Nikhil Chopra:	So overall, both the assets, Rahul, which is a combination of Sanzyme, let
	me start with Sanzyme, we are seeing a monthly render of around INR 12
	crore to INR 13 crore. And this is showing growth of mid to high teens, that
	is what I can say at this moment of time. And the overall plan that we have
	put in place with 3 benefits that we enjoyed , J.B. as compared to Sanzyme
	as an entity was more f rom a prescriber base, more from a geographical
	footprint and equally life cycle management. So we have started seeing
	some benefits coming out of geographical footprint and prescriber base.
	More from life cycle management, you should see a couple of more products
	coming into the market in next 2 to 3 months. That is where we stand from
	Sanzyme as an entity.
	Equally, when you look at Azmarda, our monthly run rate is now around
	close to INR 7 crore to INR 8 crore, that is where we stand. More so, we are
	in an investment mode as Lakshay stated, more so in terms of looking at
	how much more we can get patient pool and more and more patients getting
	diagnosed because as you are aware, last time also I had commented that
	the incidence of heart potential patients in India of heart failure are close to
	11 million to 12 million patients and the treatment today which has been
	offered is close to around 15% to 20% patients are getting treated. So the
	emphasis is how more and more number of patients can get diagnosed with
	the help of 2D and 3D echo, that is the intention. And we have a dedicated

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