J B Chemicals & Pharmaceuticals : Q3 FY 22 Earnings Call Transcript

JB Chemicals and Pharmaceuticals Limited

Q3 FY22 Earnings Conference Call

February 15, 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 the JB Chemical and
	Pharmaceuticals Limited Q3 FY '22 Earnings conference call, as on
	the 15th of February 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 star
	then zero on your touch-tone phone. Please note that this conference
	is being recorded. I now hand the conference over to Mr. Jason D'souza
	from JB Chemicals and Pharmaceuticals Limited. Thank you, and over
	to you, sir.
Jason D'souza:	Thank you, Margreth. Good afternoon, everyone, and thank you for
	joining us on the Q3 FY '22 results conference call at JB Chemicals
	and Pharmaceuticals Limited. We have with us today, Mr. Nikhil
	Chopra, Chief Executive Officer and whole time Director; Mr. Kunal
	Khanna, President Operations; and Mr. Lakshay Kataria, Chief
	Financial Officer.
	Before we begin, I would like to state that some of the statement 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 Q3 FY '22 investor presentation that has been sent to
	you earlier. I would now like to invite Mr. Nikhil Chopra to begin the
	proceedings of the call. Over to you, sir.

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Nikhil Chopra:Thank you. Thank you, Jason. And good afternoon, everyone. A warm welcome and thank you for taking time to join us for this discussion on the operating and financial performance of JB Chemicals and Pharmaceuticals Limited for Q3 FY '22. I will start with an overview of our performance during the quarter and share our perspective on the business, following which Lakshay Kataria, our CFO, will take you through the key financial highlights. Then we'll be happy to take all your questions.

We believe that our performance in third quarter reflects a strong business momentum in macroeconomic environment that has continued to be challenging. Revenue growth in India saw positive traction from our renewed go to market model and new product introductions. This resulted in JB becoming the fastest growing company among the top 30 in the industry in current year 2021 as per IQVIA MAT December '21. Further, major parts of our international business, including CMO business witnessed a gradual demand revival.

During Q3 FY '22, revenues on a reported basis have expanded by 10% year-on-year to INR 601 crore and by 19% to INR 1,800 crore in the nine month ended 31st December 2021. Here it is important to highlight that excluding the revenue which got deferred in quarter three FY '21 from quarter two FY '21 in the previous financial year, our revenue growth for quarter three of FY '22 was 23%. So, at an organization level, the positive business momentum was maintained during the reported quarter as well.

Coming to our domestic formulation business as per IQVIA data, JB was a fastest growing company among the top 30 companies for the calendar year 2021. This was in continuation of our ongoing sector outperformance. As per MAT December 2021 JB chemical grew at 27% versus market growth of 18%. For quarter three FY '22, we grew at 27% versus market growth of 10% as per as our realigned go-to- market model continued to deliver positive results. Also, it would be pertinent to highlights that our growth is sustainable given that the contribution from our COVID portfolio is insignificant for the India business. Our new product introductions are performing well in the market and this is reflected from the fact that new product contribution is now close to 4.2% to our domestic sales in quarter three FY '22 and 4% for nine months FY '22.

These initiatives have been backed up by implementing go-to-market model that has repurposed existing resources in an efficient manner via initiatives such as Salesforce automation, Salesforce excellence,

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data digital adoption, hybrid digital strategies, expanded through geographical coverage. Also, entry into new therapeutic segments have accelerated the new products introduction. During quarter three, the domestic formulation business launched approximately new products including Molnupiravir, Cilacar TM, Azovas-T.

These initiatives may gather further pace after the recent announcement acquisition of brands and related asset from Sanzyme Private Limited in the area of probiotic, therapeutic nutraceuticals and reproductive health market. As you know, Sanzyme is a leading player in probiotics and hormone segments with a portfolio of brands that includes SPORLAC, LOBUN, GYNOGEN, Pubergen, and NANO- LEO. Post this acquisition, we are among the top five probiotic player with additional synergies across a strong prescriber base in gastroenterology and nephrology segments.

In addition to this, we have also entered into IVF segment. We will also derive leverage from JB coverage and reach into states like West Bengal, UP, Bihar, Kerala, where overall, the Sanzyme presence is negligible. Overall, we expect to jump two ranks in our IPM ranking as we start reporting combined numbers.

Coming to our international business, we witnessed steady revival across geographies, except for muted demand in U.S generic business. South Africa, our home market continues to record in both public and private market by leveraging retail pharmacy relationship and our access in both in-house as well as third party products. In Russia and CIS region, we delivered strong growth within our prescription branded generic portfolio during third quarter.

In the CMO business, where we address both pharma and consumer sectors through our presence in lozenges, JB performed well due to demand revival in key markets. Our API business run rate has also improved significantly versus quarter run rate as seen in H1 of the current year. Overall, supply chain disruptions impacted the business during quarter three as well as freight costs increased significantly for all key markets. However, with COVID situation normalizing, we are seeing strong signals of demand revival especially in our CMO segments for our international business.

We now see multiple levers for our continued outperformance. This includes leveraging our existing go-to-market model strength in India business, maximizing new product introduction, lifecycle management opportunities and strengthening our international market through portfolio augmentation. All these initiatives should start

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translate into enhanced long-term value for our stakeholders. Going ahead, we continue to remain upbeat about the domestic formulation business, the successful implementation of go-to-market model, new product introductions, lifecycle management of our big brands, and Sanzyme portfolio requisition will enable us to continue to record market-beating growth for the business.

Post COVID, our international market should bounce back which we are seeing early signs of revival. We also see medicated lozenges segment picking up as our order book from our global customers have gathered momentum. Our focus will continue to drive faster top line growth with healthy EBITDA margins, which will enable us to create further value for our shareholders. On this note, I conclude my opening remarks. I will now request Lakshay to share with you a brief perspective on our financial performance. Over to you, Lakshay.

Lakshay Kataria: Thank you, Nikhil, and a very good afternoon to all of you, and welcome to our Q3 FY '22 earnings call. I will now take you through some of our key highlights during the quarter. So overall, during Q3, we recorded a revenue growth of 10% at INR 601 crore, and for nine months at INR 1,800 crore with a growth of 19% year-on-year. As mentioned earlier, the underlying revenue growth is 23% due to revenue deferral from Q2 to Q3 FY '21 in the previous financial year. Our strong revenue momentum continues for the overall business and both domestic and international business saw double digit revenue growth during the quarter.

Domestic formulation revenue was up by 20% led by large plans and market leading performance in non COVID therapies. In the nine months, domestic formulations grew 32%. Going forward, with the acquisition of Sanzyme brands, we expect domestic formulations to contribute more than half of company's turnover.

International Business reported a revenue of INR 315 crore during the quarter, which was up 3% due high base last year, as explained earlier. Within this, the export formulation business revenue came in at INR 241 crore, CMO at INR 50 crore, API at INR 24 crore. Within formulations, there was a positive growth contribution from both Russia and South Africa. Our gross margin profile during the quarter remained steady at 66%. Though there was a significant inflation witnessed in API and packing material cost across the industry, we managed to maintain gross margin through cost optimization initiatives, and judicious price increases.

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Our major fixed operating costs are now running at normalized levels. We have now completed our build out of the organization and thus employee benefit expenses, excluding the non-cash ESOP charges that have increased marginally. Other expenditure witnessed sharp increase during the quarter on a year-on-year basis because of significant escalation in logistics and freight cost, as well as substantial increase in power and fuel cost. This trend I believe, stands out not just for JB, but also for our peers in the pharma sector.

Despite the sharp surge in expenses, we largely maintained our operating EBITDA margins, excluding non-cash ESOP cost at 25.5% for the third quarter, with the operating EBITDA of INR 153 crore, similar to the previous quarter. While operating EBITDA seems to have declined year on year from INR 171 crore to INR 153 crore, after adjusting for the base impact due to revenue deferral, the operating EBITDA has grown by 7% to 8% on a year-on-year basis.

While cost pressures are expected to remain in the short term, in the medium to long term, any future benefits and normalization of material and packaging cost will allow us to improve our margin profile or provide adequate opportunities to invest in growth opportunities with similar margins going forward. Also, as fixed cost overheads are now stable, we can expect other expenditure to provide further room for operating leverage in the medium to long term.

Other income during the quarter was significantly lower on a year-on- year basis due to Treasury yields being lower in quarter three and a one off income of INR 34 crore in the previous year, on account of sale of certain trademarks. As you know, JB's acquisition of Sanzyme's brands, we have invested our cash resources on our balance sheet, we paid the consideration for the transaction in the first week of February. This is a part of our strategy to expand our footprint in India, and will serve us financially well as we grow the Sanzyme portfolio profitably, especially in this volatile financial environment.

I would also like to take a moment to explain the overall PAT development for the quarter. Sequentially, the PAT softens from INR 98 crore to INR 84 crore due to Treasury yield softening. The year-on- year decline from INR 154 crore to INR 84 crore in PAT can be explained by three large factors. A non-cash ESOP expense of INR 25 crore during the quarter, trademark sale of INR 34 crore in the previous year, and the revenue deferral impact in the prior year base.

Going forward, we expect the business to expand by leveraging the existing base of manufacturing, distribution and relationships. The

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