Innova Captab: Q1FY25 Earnings Call Highlights

Strong Q1 FY25 performance and future growth prospects, driven by expansion by the Jammu facility & focus on CDMO services. Monitor commercialization of the Jammu plant and its impact on business

Money Muscle

Sep 24, 2024

innovacaptab.com | NSE: INNOVACAP

Key Highlights:

Strong Financial Performance: Q1 FY25 revenue grew by 27% YoY and 10.5% QoQ, reaching Rs 296 crores. EBITDA increased by 37% YoY to Rs 44 crores.
Business Mix: CDMO services constituted 57% of the revenue, followed by Domestic Branded Generics (17%), International Branded Generics (11%), and Sharon Bio-Medicine (15%).
Capacity Utilisation: Group level capacity utilisation stood at 52%. Existing facilities in Baddi are nearing full capacity, highlighting the importance of the Jammu expansion.
API Pricing: While API pricing has been declining for the past few years, the company observes stabilization in Q1 FY25. However, it is still under observation.
Jammu Expansion: The greenfield expansion in Jammu is progressing as per schedule, with commercialisation expected in Q2 FY25. Full revenue contribution is expected from Q3 FY25 onwards. This facility will significantly expand manufacturing capabilities, particularly in Cephalosporin production.
- Growth Drivers: CDMO Segment: Strong demand in the CDMO sector, with Innova focusing on both domestic and international markets through its Sharon Bio-Medicine subsidiary. The company sees significant opportunity in providing CDMO services for generic and complex generic products.
- Branded Generics: The company is expanding its domestic branded generics business, leveraging its pan-India presence and a dedicated sales force.
- International Expansion: Innova is actively expanding into regulated markets like the UK and Canada, focusing on exports of both branded and generic pharmaceuticals.

Key Management Commentary:

On the Jammu expansion and anticipated growth: "With the addition of our new Jammu facility, we are optimistic about maintaining this strong growth rate [35% CAGR] over the next 3-4 years." - Vinay Lohariwala, Managing Director
On CDMO pricing trends: "As far as our API pricing is concerned...we have been seeing a declining trend...over the last 3-4 years especially post-COVID. So, talking about this quarter, we are seeing a more or less stabilization level of APIs." - Lokesh Bhasin, CFO
On the impact of Schedule M regulations: "We see it as a great opportunity in the CDMO space...Those who will comply with the regulation will go ahead into the curve and will attract the good business... I think that it will help the industry to further consolidate towards the bigger CDMO players." - Vinay Lohariwala, Managing Director

Key Takeaways:

Innova Captab is well-positioned for continued growth, driven by robust demand for CDMO services, expansion into new geographic markets, and a strong pipeline of generic products.
The Jammu facility is expected to contribute significantly to Innova's future growth, with revenue estimates of Rs. 800-900 Crores in the next 3-4 years.
The management is actively monitoring API pricing trends and expects stabilisation in the near future.
Innova is committed to complying with evolving regulations like Schedule M, which they believe will create opportunities for industry consolidation and benefit larger players like themselves.

Looking Ahead:

Investors should focus on the successful operationalization of the Jammu facility and its contribution to revenue and margin expansion in FY25 and beyond.
Monitoring the CDMO market dynamics, particularly pricing trends and demand from both domestic and international clients, will be crucial.
Tracking Innova's progress in securing new clients and expanding its product portfolio, especially in the regulated markets, will be important to watch.

Innova Captab Limited Q1 FY25 Earnings Call FAQ

1. What is Innova Captab’s current business mix across its four segments?

CDMO: 57%
Domestic Branded Generics: 17%
International Branded Generics: 11%
Sharon Bio-Medicine: 15%

2. What is the anticipated revenue contribution from the Jammu facility over the next 3-4 years?

The Jammu facility is expected to contribute Rs 800-900 crores in revenue over the next 3-4 years, primarily driven by domestic CDMO sales.

3. How will the new Schedule M regulations impact Innova Captab?

Innova Captab views the Schedule M regulations as an opportunity for consolidation in the domestic CDMO market. The company believes its commitment to quality and compliance will attract new clients seeking reliable partners.

4. What is Innova Captab’s strategy for growth in the domestic branded generics segment?

The company plans to expand its geographical reach across India, focusing on remote areas where their presence is limited. Additionally, they will continue enhancing their product portfolio based on market demand.

5. What is the rationale behind the acquisition of Sharon Bio-Medicine?

The acquisition of Sharon Bio-Medicine aligns with Innova Captab's strategic goal of expanding into regulated markets. Sharon Bio-Medicine's existing infrastructure and focus on international markets, particularly the UK and Canada, make it a valuable asset for this expansion.

6. What are the expected margins for Innova Captab in the coming quarters?

The company expects margins to remain consistent with historical trends, ranging from 13% to 16%.

7. What is the current capacity utilization at Innova Captab’s Baddi facility?

The older blocks (cephalosporin and general) at the Baddi facility are operating at near-full capacity (70%-85%). The newer general block, expanded in 2017 and 2021, has available capacity, primarily for oral solid dosages.

8. What is the expected timeline for commercial production at the Jammu facility?

Commercial production at the Jammu facility is expected to commence in September 2024. The initial focus will be on technology transfer for the cephalosporin block.

Source: Link to Earning Call Transcripts

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