Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Q1 FY '26 Earnings Conference Call of Alembic Pharmaceuticals Limited. We have with us today Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Executive Director; Mr. G. Krishnan, CFO; Mr. Ajay Kumar Desai, Senior Vice President, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti. Thank you, and over to you, sir.

Thank you. Am I audible?

Yes, sir. Please go ahead. Yes.

Thank you, everyone, for joining our first quarter '26 conference call. I'm very happy to introduce my colleague, Mr. G. Krishnan, who has joined us as our CFO effective 7th of July 2025. And I'm pleased to hand it over to him for the opening remarks. Krishna?

Thank you. Thank you, Mr. Baheti, for the introduction. Good afternoon, everyone. This is my first earnings call and interaction with all of you as the CFO of Alembic. I'm truly pleased to be here, and it's a honor to join a company with such a rich legacy of innovation, operational excellence and strong stakeholder trust. Over the past few weeks, I've been spending time engaging with various teams, understanding our business levers, appreciating the disciplined approach that the company brings to execution. So I look forward to working very closely with the leadership team to continue driving sustainable growth, operational efficiency and long-term value creation. So now let me briefly take you through the numbers for the quarter ended June 30, 2025. We delivered a good start to the financial year. Total revenue for the quarter grew by 10% year-on-year to INR 1,711 crores. The growth was broad-based across businesses despite pricing pressure in U.S. generics and API. Gross margin, that is net of material cost improved from 74.8% in Q1 last year to 76.2% in Q1 this year, primarily driven by product mix, and we also embarked on cost improvement programs in manufacturing operations that drove the margin uplift. EBITDA margins before R&D expenses were at 25% of revenue at INR 424 crores for the quarter. It grew by about 23% over the last year, reflecting revenue growth, better gross margins and improved utilization in some of the facilities that were launched last year. R&D expenses increased by 26% compared to the previous year to INR 145 crores. And this is in line with the full year guidance that we gave at the beginning of this year, which is supposed to be around INR 600 crores to INR 650 crores in R&D expense. So EBITDA after R&D expense was at INR 288 crores, which is 17% of revenue and grew by 20% year-on-year. Profit before tax grew by 21% to INR 191 crores. Net profit growth was at 15% to INR 154 crores. EPS for the quarter stands at INR 7.85 per share compared to INR 6.84 for the previous year. Working capital as of June was broadly similar to what we had in March. We had better collections, which was partially offset by increase in inventory in line with our strategic approach on managing working capital. Borrowings. The gross debt was at INR 1,185 crores, while net debt stands at INR 967 crores for the quarter as of June 30. With this, I have given a broad overview of the financials, and I'll now request Shaunak to take you through the India branded business. Over to you, Shaunak.

Yes. Good afternoon, everyone. I think this quarter on India, we underdelivered with only a 5% year-on-year growth, reaching INR 599 crores in revenue for the quarter. There are some specialty areas which have shown some momentum. But I think in terms of building a more robust, sustainable business to deliver a strong double-digit growth going forward, there have been some challenges which we've tried to tackle, including adjusting some underlying factors as well as having a far more rigorous and robust mechanism of what we bill, how we capture in-market inventory also along with that, a more rigorous alignment to UCMP norms that we have to follow as an industry. As a part of these, we also understand that certain execution levels were not up to standard, and we are working on those and trying to move people, but getting 7,000-plus people to move overnight does take a challenge, but we are definitely working on it. We have a very clear idea on where the gaps and what we need to do to get back into a double-digit kind of growth number that we have promised for the year. We are working on it on a daily basis, and I'm sure that very soon, we should start seeing some of these start flesh out in terms of our growth numbers. Highlight, obviously, Animal Health care continues to do well. because of our robust execution in that area. And we hope to match rest of the product categories to that level or that standard of growth going forward. Thank you. I'll pass it on to Pranav. Thank you.

Thanks, Shaunak. I'm pleased to present the performance of the first quarter of FY '26 for the international business and the API. We began the first quarter on a strong note. It was driven by a 21% increase in the rest of the world generics. This is reflecting our strategic expansion and execution across the geographies. Despite ongoing pricing pressure in the U.S., our U.S. business also grew by 13%, supported by volume gains. We launched 4 products in the market, and we also picked up market share in some other products. We expect the U.S. to continue growing in the next couple of quarters on the back of some interesting launches as well. The API business was flat. I've said that it's been a little muted due to some issues due to data availability in India and was flat at INR 261 crores for the quarter. As we ramp up the utilization of our new manufacturing facilities and continue to drive cost optimization initiatives, we expect to benefit with improved operating leverage, which will help our margins as well. We filed 2 ANDAs during the quarter. We received 6 approvals and launched 4 products in the U.S. We expect to launch 4 to 5 more products in Q2 of this year as well. With that, I would open the floor for Q&A.

[Operator Instructions] The first question is from the line of Mr. Tushar Manudhane from Motilal Oswal.

There was an under if you could throw some light on specialty segment in particular, where after many quarters, we've seen some muted performance for this quarter. That was first. And secondly, in terms of you highlighted rebuilding the team, if you could just elaborate in terms of what exactly are we trying to do?

Yes. So I think what I was trying to alert to is that the way we build sales, we are trying to keep it far more strict compared to what the industry norm is as well as where we used to be in the past. So in terms of our primaries versus secondaries, we also implemented a mechanism to capture secondaries from the market automatically. So we have a better control on what our inventory levels in market. So some of that also impacted our sales in Q1. But largely, like I said, I think we have to focus more on execution, and we're more committed to driving underlying growth through our prescribers and prescriptions for a sales that is more sustainable in the future.

Is this impacting a particular therapy or this has been across the therapies within...

No, this is across the therapies. This is across the therapies. It's for the whole organization. So there's no specific therapy which will have it. But like I said, we're quite confident. We have full visibility on what's going on, and we're quite confident of where the gaps are and what we need to do to address these.

Got it. And sir, acute has been better. So any particular attributes to this?

I think acute, we're coming off -- I think if you know the history, I think we came off a very high base. And then last year was a very -- market was extremely low base for us. Sorry, it was extremely bad. So I think from a base point of view, there is some advantage there. But again, like I said, I think a little better execution on the acute side also, along with some better stability in the market has allowed us to do this.

The next question is from the line of Nirali Shah from Ashika Stock Services.

Questions. on the pet -- so now that we have a dedicated block which is commissioned and correct me if I'm wrong, we have allocated almost 35% of R&D towards this peptide and complex injectables. I just wanted to know if you could update us on the time lines for the first peptide filings. Also, any update on filings for semaglutide and ROW markets? And like you had indicated about tirzepatide, so we are planning for a day 1 launch in U.S. So any filings or any progress on that front?

So I think we haven't said that we allocated 35% of R&D to peptides. I think that's not what we've said. But yes, peptides is something that we are looking and pursuing. What I have said is that we were late for the first peptide, which is semaglutide for the U.S. market. So we won't be there in the first wave of launch for semaglutide. Tirzepatide, which is the second one, Mounjaro is something that we're looking at and the follow-on GLP-1s that we're doing. Apart from that, we have other peptides in the system as well that we are working on, which are going into some of the complex injectables.

Yes. Understood. It's like you mentioned we are late for semaglutide, but we were aiming for ROW markets.

Yes. So we are looking at some of the ROW markets for semaglutide. As I said, we were a little late for the first wave markets. After the second wave market is something that we will pursue.

Any specific -- if you can name which ROW segment are you looking at, which market?

I would not like to name them right now because I just want to get the filings done and ensure that the regulatory strategy is in place before we give a comment on that.

Okay. And my second question is, you had earlier indicated that we do have limited competition injectable launches, which will probably start contributing by FY '27. So any launch expected in FY '26? And if you can elaborate more on the segments are the niche segment or any complex dosage forms?

Yes. So we have a few complex injectable filings that we will get. one approval that we did receive is in the public domain is on the doxorubicin product. So like that, we'll get a few more as we go along, story slowly as we keep getting approvals.

The next question is from the line of Damayanti Kerai from HSBC.

My question is again on India business. So Shaunak you mentioned you are clear about the gaps and you are working towards fulfilling those gaps, et cetera. So according to you, how long it will take before you can catch up with the market growth rate first and then may outpace the IPM growth. So approximately, this will be how many years of effort according to you?

No, I think what we're talking about is not years. I think we're talking in months in terms of time frames.

So when do you see your India growth going back to, say, market level growth and...

I can't give you exact comment, but like I've said, I think some of these things, it's -- India is a big country. I think executing in the country is challenging. I think to get to 100% of execution for every district in the country is that we cover. I think that I can't give you exact time frame. But like I said, I think it's a matter of months till we start seeing double-digit growth and beating or matching market growth.

Okay. But you're confident about the steps which you might have outlined and which can help you to really pick up from here on?

Yes. So we've benchmarked the couple of the top 2, 3 companies which we feel have said an example of this and a lot of the work we've done is based on those benchmarks. And in terms of companies which we feel are UCMP compliant and have been able to deliver strong growth over the last few years. So we have benchmarked those kind of companies, and we have worked on operations to ensure that we meet those benchmarks so we can get the people line to drive double-digit growth.

Okay. And on the people part, you don't need to add any more representatives?

We don't need to add any more people. We don't need to add any more people.

Okay. So it's basically more execution, more expansion on...

Yes, it's more about better execution, like I said, in every district and every headquarter we cover in the country.

Okay. That's helpful. My second question is on India -- sorry, international business. So first on the U.S. Pranav, I just want to understand, you have seen pickup in the U.S. sales despite price erosion, which you mentioned due to volume expansion, et cetera. So a couple of your peers have mentioned that in the U.S., they are seeing channels destocking a bit. I think in anticipation of this tariff, et cetera, they were stocking up and now it's getting unwind. So do you see a similar situation?

No. We haven't seen as yet. At least the channel stocking or destocking. We haven't seen because it's been so uncertain, right? It's sometimes you talk about tariffs and there's no tariffs and the tariffs side. We have not seen that. At least from our buyers, we haven't seen it so far. I think where we saw growth in the U.S. is, as I know -- as I said, we launched 4 products. Apart from that, some of the other older products where there was some uncertainty in the market is where the buyers came to us, and we managed to pick up accounts at pricing that worked for us.

Okay. And going ahead also, while the uncertainty remains on the tariff part, you will be focusing more on new launches, right, to see pick up from...

Exactly, I think, right? So on the tariffs, there's nothing you can do about the tariffs. I have a theory that it's going to be tough for pharma, right? Because what's going to happen is that the issue is going to be on the high-volume wafer and margin products where you will have an issue with the tariffs. And by putting tariffs there, those -- because of wafers and margins, we're not going to be viable to manufacture in the U.S. as well. So that's a catch '22 that's going to come. As for us, we're continuing with what we do, just trying to get whatever products we can, work on better supply chain, work on being a better supply chain partner. And as we get a little more complex and a little more injectable business, that will help a little bit as well.

Sure. And some of your peers are again focusing on engaging a bit of manufacturing footprint in the U.S. as a risk management strategy. Any thoughts from your side?

No. So that's something that I'm not -- okay. So let's put it this way, increasing manufacturing footprint in the U.S. just because of tariffs is something, in my opinion, not something that we are considering. If there was a strategy based on U.S. or U.S. government business or something that you can get at a better pricing, then we would look at a manufacturing strategy in the U.S. But purely for a derisk perspective, it doesn't make sense to allocate so much capital for setting up manufacturing in the U.S. And again, if there's going to be more generic pricing and competition. So we are not approaching it from that angle.

Okay. That's helpful. And my last question is on your API business. So you mentioned pricing erosion is something which impacted the performance during the quarter. So it is something specific to your portfolio or it is an industry-wide phenomena which you are observing?

It's a good question. I think it's an industry-wide phenomenon. And it's not the quarter. I think it's over the last 6, 7 quarters. If you see our API business has been quite muted and it's degrown because the API business, our API business over the last decade or so has been a fantastic business, a very high-margin business, very high EBITDA for us. And so what's happening is because, again, we had a good supply chain record, good compliance, you could get better pricing in the market. Now with this data that is getting leaked through Chinese traders, everyone knows what price you're selling at what -- to which buyer, and that's really caused a lot of upheaval and a lot of uncertainty in terms of our pricing.

Sorry, Pranav, what is this update from Chinese players you mentioned? Can you elaborate a bit?

Yes. So since as I mentioned, there's a lot of data that is leaked by Chinese traders who give data about all exports from India. And I think that is what is causing this. Actually, it's not just pharma, it's every sector they have data from, and that is what is causing this issue in the API business.

And how do you see this business in coming quarters? Maybe in near term, we can see similar trends to continue, but any scope of improvement?

Of course, I think what's going to happen is we will continue doing well. See, it's just the pricing that has come to the issue, right? Pricing has come in and we may have lost some accounts. But the inherent business and our strength of being a good supply chain partner, development partner, that continues, right? So you will see it. I think it's a couple of quarters, it will be tough and then slowly, we will start growing again from there.

The next question is from the line of Foram Parekh from Bank of Baroda Capital Markets.

My first question is on ROW market. We have been doing very well in this region. So is it possible for the management to give us detailed idea why -- I mean, what's going right in this region?

Thank you. Yes, the ROW part of our business has been a good business for us. If you see over the last decade or so, the CAGR has been well over 15%, almost 20-odd percent, if I'm not mistaken. So it's been a very good business. I think it's nothing -- no rocket science per se. I think just a clarity and strategy in terms of what markets we wanted to go, number two, an execution in terms of supply chain. At the heart of everything, what's worked for us has been the supply chain execution. I think good supply chain execution has led us to good partners who trust us with the products, and we've been able to supply and grow in these markets with a better margin profile.

So this kind of growth rate, is it sustainable going forward also?

So Q1, if you see Q1 of last year was a little muted quarter for the ROW business. That's why this quarter, it looks much higher. But having said that, I expect for the full year, we will grow. We will grow close to about 10%, 15%, at least in the ROW market.

Okay. And my second question is on the raw material cost contribution, which has come quite low in this quarter, which has aided in gross margin. So going forward, how should we look -- I mean, should we look at this contribution as the base or a benchmark and go about it? Or how should we look at it?

Sir. So see, raw material cost is a combination of product mix and how things happen between API and generics, right? So I think it will be anywhere between 25% to 30%, depending on which quarter we're looking at and how the product mix is going on, right? And historically, we've been in that range. I think we'll continue to be in that range going forward as well.

Okay. And lastly, on the APR, if you can just guide us for full year EPR rate?

So I think current quarter, we are at around 19%. I think we'll be in the range of 17% to 18% overall for the full year.

The next question is from the line of Mr. Sanjay from Renaissance Investment Managers.