Innova Captab: Q2-25 Earnings Call Highlights
Strong Q2-25 performance. Growth, driven by expansion of Jammu facility, CDMO, growing presence in domestic & international markets. Management focus on strategic acquisitions & greenfield projects
innovacaptab.com | NSE: INNOVACAP
1. Key Takeaways
1.1 TLDR
Innova Capab delivered a strong Q2 and H1 FY25 performance.
The company is well-positioned for future growth, driven by the expansion of the Jammu facility, a robust CDMO business, and a growing presence in domestic and international markets.
Management's focus on strategic acquisitions and greenfield projects indicates a commitment to long-term value creation.
1.2 Operational Highlights:
Strong Financial Performance:
Driven by volume growth in CDMO business, sustained momentum in domestic branded generics, increased uptake in the Sharon business, and solid progress in international markets.
Consolidated revenue of INR 318.2 cr (12.5% YoY growth), EBITDA margin improved by 80 bps to 16.3%, PAT grew 52.8% YoY to INR 35 cr.
Revenue of INR 612.5 cr (19% YoY growth), EBITDA margin increased to 15.7%, PAT grew 59% YoY to INR 64.5 cr in H1 FY25.
Jammu Facility Update:
Received drug manufacturing license.
Manufacturing validation and trial batches have begun.
Commercialization expected within Q3 FY25.
Expected to generate INR 400-500 Crores in revenue in the next fiscal year.
Full revenue potential of INR 1200-1300 Crores expected in the next 5 years.
Debt-free (excluding Jammu project loan): The term loan for the Jammu project carries an interest subvention benefit of up to 6%.
New R&D Facility: A new R&D facility is being set up in Panchkula, focused on expanding product offerings and complex formulation development.
Business Segment Performance - CDMO: 10% YoY revenue growth in Q2, driven by volume growth and stable pricing.
Domestic Branded Generics: Record high quarterly revenue of INR 59.1 Crores, a 19% YoY increase.
International Branded Generics: 13% YoY revenue growth in Q2.
Sharon: 11% YoY revenue growth in Q2.
1.3 Key Themes:
CDMO Business Growth and Pricing Stabilization:
CDMO business achieved 10% YoY growth in Q2, primarily driven by volume growth.
Pricing impact is now neutral, indicating stabilization after a period of decline due to API price fluctuations.
Management expects continued growth momentum in the CDMO segment.
Entry barriers in CDMO include regulatory compliance, significant capital investment, and long-standing customer relationships.
"The growth that we have received 10% year-on-year on CDMO business is mainly driven by volume growth and you're right it is mainly driven by volume growth so there is not any negative impact of pricing so year-on-year pricing impact is more or less neutral." - Management response to analyst question.
Jammu Facility Expansion - Growth Driver and Margin Accretion:
Management is confident of achieving INR 400-500 Crores revenue next year and reaching full potential within 5 years.
The Jammu facility is expected to be a key growth driver, contributing INR 500 cr in revenue in FY26.
The facility will produce a wider range of products, including new offerings like BFS, Large Volume Parenteral and respiratory therapies.
Margin expansion is anticipated in the long term as the Jammu facility ramps up and reaches a steady state, with EBITDA margins expected in the 17-19% range.
The facility benefits from a 12% GST incentive, contributing to profitability.
Jammu's interest subvention benefits and GST incentives will positively impact margins.
75% of the facility's portfolio will be new offerings for CDMO customers.
Facility is compliant with international guidelines and will cater to both domestic and export markets.
"On a long-term basis we are looking our gross EBITDA margins in the range of 17 to 19%." - Management, on long-term margin expectations.
Capital Allocation and Future Growth Strategy:
With a strong balance sheet and debt repayment (excluding Jammu loan), Innova Captab has surplus cash available for future growth initiatives.
Management is considering strategic acquisitions in areas like hormones or liquid injectables, complementing existing offerings.
Greenfield projects are also being explored for further expansion.
"So this can be deployed towards the acquisition or the green field project. So, the acquisition could be some strategic fit for us." - Management, on plans for deploying surplus cash.
Domestic Branded Generics and International Expansion:
Domestic branded generics achieved strong growth, driven by a mix of seasonality and organic growth initiatives.
The business is expected to continue its growth momentum in the coming quarters.
International expansion remains a focus area, with plans to register the Jammu facility in regulated and semi-regulated export markets.
Revised Schedule M and Industry Consolidation:
The implementation of revised Schedule M is expected to benefit established players like Innova Captab due to stricter compliance requirements.
Management believes the industry will consolidate further, with larger players gaining market share.
"We see it as a positive trigger. Uh the industry will further consolidate to the larger player due to uh this uh implementation of the sticker norms." - Management, on the impact of revised Schedule M.
Margin Expansion: Management expects EBITDA margins to reach 17-19% in the long term, driven by:
Improved product mix.
Higher-margin products from the Jammu facility.
Benefits from Sharon acquisition.
Margin expansion is expected to begin when the Jammu facility reaches a steady state of INR 700-900 Crores in revenue.
Sharon Integration and Growth:
Sharon is currently operating at 45-50% capacity utilization.
Management plans to ramp up to 70-75% capacity in the coming years by:
Introducing new customers and products.
Leveraging R&D capabilities to develop new offerings for regulated export markets.
1.4 Key Quotes
On Jammu Facility Growth: "With the help of Jammu and existing business growing at a healthy rate, we see that the revenue could be double from here to 2500 Cr in the next 3 years time."
On Margin Expansion: "On a long-term basis, we are looking at our gross EBITDA margins in the range of 17 to 19%."
On CDMO Growth: "The growth that we have received 10% year-on-year on the CDMO business is mainly driven by volume growth... year-on-year pricing impact is more or less neutral.
Innova Captab Limited Q2 and H1 FY25 Earnings Call FAQ
1. What is driving the 10% year-on-year growth in the CDMO business?
The 10% growth is primarily driven by volume growth. Pricing impacts year-on-year have been neutral. The company is witnessing good traction in the CDMO business and is positive about its future growth potential.
2. How has the implementation of revised Schedule M impacted the CDMO business?
The stricter guidelines imposed by revised Schedule M have led to industry consolidation, favoring larger players like Innova Captab. This is because the company's facilities already adhere to international standards such as EUGMP, MH, and WH GMP. Consequently, they are witnessing increased inquiries and business from formulation players seeking compliant manufacturing partners.
3. When will the new Jammu facility be commercially operational, and what is the expected revenue contribution in the next fiscal year?
The Jammu facility is expected to be commercially operational within Q3 FY25. The company anticipates generating INR 400-500 crores in incremental revenue from this facility in the next fiscal year.
4. What will be the impact of the Jammu facility on the company's margins?
Initially, while the facility ramps up, margins might be in line with the company's overall margins. However, as the Jammu facility reaches a steady state, contributing INR 700-900 crores, the company expects to see margin expansion. Long-term, the company projects gross EBITDA margins in the range of 17-19%.
5. Will the product offerings from the Jammu facility be completely new, or will there be overlap with existing CDMO offerings?
Approximately 75% of the portfolio from the Jammu facility will consist of new offerings for CDMO customers. One block will focus on Cephalosporin, a product already offered, but this block will primarily serve regulated export markets. The Jammu facility will primarily cater to domestic demand, including supplying to the company's subsidiary, Univent.
6. What is the reason for the significant reduction in interest costs despite borrowings on the balance sheet?
The borrowings are primarily related to a term loan of INR 230 crores for the Jammu project, which benefits from an interest subvention of up to 6%. This subvention significantly reduces the interest cost reflected in the P&L. The full impact of interest costs will be visible post the commercialization of the Jammu facility, but even then, the net landed cost of interest is estimated to be around 2-2.5%.
7. How does the company plan to deploy its surplus cash in the future?
The company intends to deploy surplus cash strategically towards acquisitions or greenfield projects. Acquisitions would focus on areas that complement the existing business, such as hormones or liquid injectables. Greenfield projects would align with the company's overall growth strategy and market opportunities.
8. What is the rationale behind creating a branded generics business alongside the CDMO business?
The branded generics business, operating under the Univent Medicare brand, is viewed as a separate vertical. It provides several advantages, including early identification of product trends, valuable market insights, and closer proximity to the market. This, in turn, helps Innova Captab serve its CDMO customers better. Univent is treated as a regular CDMO customer within Innova Captab, contributing to the overall CDMO business while also driving growth in the branded generics segment.
Source: Link to Earning Call Recording
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