IOL Chemicals and Pharmaceuticals Limited (524164) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to IOL Chemicals and Pharmaceuticals Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prachi Ambre from MUFG Investor Relations. Thank you, and over to you, ma'am.

Thank you, Uda. Good afternoon, everyone, and welcome to IOL Chemicals and Pharmaceuticals Limited Q1 FY '27 earnings conference call. Today on the call, we have Mr. Pardeep Kumar Khanna, Chief Financial Officer; Mr. Abhay Raj Singh, Senior Vice President and Company Secretary; Mr. Kushal Kumar Rana, Director, Works; and Mr. Rakesh Mahajan, Finance Adviser and Strategic Head, to provide insights on the company's operational and financial performance. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs and expectations as of today. The statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. With this, I would like to hand over the call to Abhay, sir, for his opening remarks. Over to you, sir. Thank you.

Thank you so much, Prachi, for introduction. Good afternoon, everyone, and welcome to the Q1 FY '27 earnings call of IOL Chemicals and Pharmaceuticals Limited. Thank you for joining us today and for your continued trust and support. I hope you have had an opportunity to review our financial results and investor presentation filed with the stock exchanges and also available on our website. We have started FY '27 on a strong note with healthy demand across key products, improved capacity utilization, favorable product mix and continued focus on operational efficiency. In Pharmaceutical division, we continue to make good progress in diversifying our API portfolio beyond Ibuprofen with healthy demand across key products, including Paracetamol, Pantoprazole, Metformin, Fenofibrate and Clopidogrel, et cetera. Non-Ibu products continue -- contributed 43% of Pharmaceutical revenue in Q1 FY '27 compared with 36% in Q1 FY '26 with revenue growing 67% year-on-year basis and emerging as a key driver of growth in our Pharma business. Importantly, this performance also demonstrates the benefits of the initiatives that we have taken over the past few quarters to strengthen our manufacturing platform and diversifying our API product portfolio. While Ibuprofen remains an important part of our portfolio, our strategic focus is increasingly on building IOL as a diversified and integrated API platform with multiple products contributing to our growth. Our international business also strengthened during the quarter with exports increasing to about 28.5% of revenue, while the NMPA approval for Clopidogrel in China further expands our regulatory reach and market opportunities. This progress is particularly encouraging against the backdrop of continued geopolitical uncertainties, supply chain challenges and inflationary pressure across select raw materials. Our Chemical business also delivered a strong performance during the quarter, supported by improved realizations, efficient raw material procurement, higher exports and operational efficiencies. Capacities enhancement across key product lines further strengthen our integrated manufacturing platform and provide us with greater flexibility to cater to demand across key end-use industries. Going forward, our focus remains on scaling our API portfolio, improving capacity utilization, expanding our presence in international regulated markets and driving operational efficiencies through our integrated and backward integrated manufacturing platform. Our objective is not merely to add capacities, but to build meaningful and sustainable positions across a diversified API portfolio. The manufacturing capabilities, process expertise and backward integration that we have developed over the years provide us with a strong foundation to scale these businesses. With that, I would now request Mr. Pardeep Khanna, our CFO to take you through the financial performance for Q1 FY '27.

Thank you, Mr. Abhay. Good afternoon, everyone. I will now take you through the financial performance of the company for the Q1 of financial year '27. Following this, we will open the floor for questions and answers. During quarter 1 of financial year '27, the company reported revenue from operations, INR 756 crores as compared to INR 551 crores in quarter 1 of financial year '26, registering a year-on-year growth of 37 percentage. On the operating front, EBITDA stood at INR 111 crores compared with INR 69.5 crores in quarter 1 of financial year '26, representing a growth of 60.7 percentage. EBITDA margin improved to 14.6 percentage compared with 12.4 percentage in the corresponding quarter. Coming to the bottom line, PAT stood at INR 64.5 crores compared with INR 34 crores in quarter 1 of corresponding year, registering a growth of 89.9 percentage. PAT margin consequently improved to 8.4 percentage compared with 6.1 percentage in quarter 1 of financial year '26. The improvement in profitability reflects the benefit of higher operating leverage, better capacity utilization, improved product mix and continued focus on operational efficiencies. Our export contribution also increased to 28.5 percentage of revenue compared with 24.4 percentage in same quarter of last financial year, reflecting the continued strength of our international business. From a segment perspective, both Pharmaceuticals and Chemicals contributed to overall performance, supported by healthy demand, improved utilization and operational efficiencies. Going forward, our focus will remain on sustaining the growth momentum through better capacity utilization, continued improvement in product mix, operating efficiencies and prudent cost management. At the same time, we will continue to maintain a disciplined approach towards capital allocation and investments with a focus on projects offering attractive long-term returns. For financial year '27, we remain confident of delivering 15% to 20% revenue growth with an EBITDA margin in the range of 14% to 15%, and exports contributing approximately 25% to 30% of the revenue. With this, we'll now open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Abu Rafe ] from Wealth Catalyst.

So I just have 2 questions. So my first question is given that Paracetamol has seen a relatively weak demand over the past few years, what is the current outlook for Paracetamol, sir?

So the Paracetamol for the IOL, we started around 2 years back, 3,600 MTPA capacity, which we doubled -- which we tripled in fact, last year. And this was 10,800 MTPA. And this year, as of now, we are operating around 55% of this enhanced capacity utilization, which we expect by the end of this financial year, we will be reaching to around 70%. And if you see this Paracetamol is contributing significantly in our non-Ibu products portfolio. So the demand is growing and IOL is also getting its position into the Paracetamol business verticals across the India. Also, we are getting traction in the exports. So we are foreseeing good demand in the Paracetamol.

Sir, my next question is given the sharp rise in Ethyl Acetate and Acetic Anhydride prices following the U.S.-Iran war, could you please update on the current pricing environment for both these products?

Due to war, the prices were increased substantially in the month of March itself. But after that, it is stable to some extent. And now the prices are, you can say, not on the upward trend from the last 1 month. So we think that's ultimately the prices of Ethyl Acetate and the delta between raw material and Ethyl Acetate will remain constant in the upcoming quarters.

The next question is from the line of [ Pahel Sharma ] from DD Capital.

Yes. So sir, my first question is that export contribution increased to around like 28.5% of revenue like from 24.4% Y-o-Y. So like do you see this moving towards 30% plus of revenue in the term -- like in the near term? Or would you prefer to maintain a more balanced domestic export mix?

So I think we are targeting this year around 25% to 30% range of the export revenue. And we're hopeful that we will be achieving it. Pahel?

Yes, yes, sir.

You heard it?

Yes, sir. Yes, sir. And my next question is that like this Q1 EBITDA margin at 14.6%, like ahead of the FY '27 guidance range of 14% to 15%. So what are the key factors that could either sustain the margin above this range or lead to moderation in the coming quarters?

We have achieved the EBITDA margin, 14.6 percentage in this quarter. And the key factor for this rise in EBITDA margin are higher capacity utilization, better product mix, operational efficiency and also stronger non-Ibu segment API demand. Also some improvements in the finished product prices. So these all factors are contributed in the EBITDA margin.

The next question is from the line of Vignesh from Sequent Scientific Limited.

Sir, my question firstly is regarding the Pharma. If I see in quarter 1 FY '27, there is around 42% growth, if I have to compare -- 37% -- 42% growth, if I have to compare Y-o-Y. So can I get the split of what percentage of this growth is due to volume growth and what is the percentage which is due to realization?

We can't say exact numbers. But as if you can say calculate, the majority number contributed by the increase in the volume of our Pharma product as compared to final finished prices. The capacity utilization of API products are having an increase including non-Ibu segment also. Okay?

Okay. And -- yes, yes. So sir, we don't have the exact number, right, as to what percentage would...

We have a number, but it is not -- we are not...

So basically, we need to understand the sort of capacity utilization of all our assets is currently operating. So apart from Paracetamol, most of the assets are operating around 80% to 95% capacity utilization. And I think that is the more important factors is contributing towards the operational performance of the Pharma sector. Rather than going into the -- what sort of the prices and what sort of the -- this is happening because of the capacity utilization, what is the mix. So I think we do not share that detailed information over the call. So I think we will not be able to share it. But as a broadly, if you can take it, this is mostly on the capacity utilization and better operational efficiency.

Okay, sir. Okay, sir. Yes.

And also this is coupled with the increased export realization during this quarter.

Okay. And would it be correct to say that the mix towards regulated market has gone up in this quarter, I mean, aiding towards higher EBITDA margin?

For our other API products, it is yes.

The next question is from the line of Surabhi from NV Alpha.

So I have 2 questions. One, your other APIs, the non-Ibuprofen has now crossed a INR 200 crore kind of quarterly run rate, which is not seen in the last few quarters. So one, what is driving that growth? And second, of the INR 200 crores in the non-Ibu segment, how much of it is regulated market and how much more can we supply to the regulated markets?

Thank you, Surabhi, for asking this question. So basically, around 21% to 20% (sic) [ 20% to 21% ] is coming from the exports market. That also includes regulated and nonregulated, but majority of it from the regulated market. So as of now, not having the exact bifurcations what is from regulated and what is from nonregulated export market, but majority of this revenue is coming from the regulated market. And this year, we achieved around 43% of overall the Pharma from -- other than the Ibuprofen non (sic) [ non-Ibuprofen ] product portfolio, that enables to crossing the INR 200 crores mark. And as we were discussing for last few quarters that we are looking to achieve in mid- to -- near mid- to short-term range around having the 50% from Ibuprofen and about 50% from non-Ibuprofen. I think that we are very near to achieving it. And this is the result of our efforts which we are putting in for the last few quarters. So I think we are very near to that.

Yes. Just last question in the non -- sorry, just last question. In the non-Ibuprofen what is our biggest API? Is it Clopidogrel? Is it Pantoprazole? Which one is contributing?

So in this segment, Paracetamol, Clopidogrel, Pantoprazole, Metformin, Fenofibrate, Levetiracetam, these are key growth drivers in the key products.

The next question is from the line of Jainam Ghelani from Svan Investments.

Congratulations for a good set of numbers. So since we guided a CapEx of around INR 200 crores to INR 250 crores, how much would be for our maintenance CapEx and in terms of growth CapEx? Would it be for the new greenfield site that we were -- we had got EC approval or would it be for some other projects?

Jainam ji, we have a CapEx of approximately INR 200 crores every year, which is planned with the long-term view to support sustainable growth. Out of total CapEx planned, 60% is related to our expansion and new products and the remaining 40% goes to infrastructure, improvement for better efficiencies and reduction in cost. So you see we have from the last 4, 5 years, we are doing a CapEx of INR 100 crores to INR 200 crores approximately every year.

Okay. And sir, just to continue with one of the earlier participant's question. So in this quarter how much of the profitability would be attributed to the onetime inventory gain due to the surge in pricing because of the war?

Your voice is not clear. We are not getting the questions.

So just to continue one of the earlier participant's question. So in terms of profitability, how much was onetime inventory gain due to the surge in pricing for this quarter?

So basically, this is not due to the inventory gain. So we can have -- we might be having a little bit inventory gain during the later part of the last quarter around 10 to 15 days. But this quarter, we are not having the inventory gain. This is not the -- correct to allocate this profit towards that. This is the mix of our key factors having higher capacity utilization, better product mix. We also have some edge over the operational efficiency and also better performance from the non-Ibu products and increase in the export realization in the non-Ibu side as well. So I think put together, all these factors resulted into the better performance. This cannot be contributed or cannot be allocated against the inventory gain.

[Operator Instructions] The next question is from the line of Santosh from LGT Capital.

So my first question is non-Ibuprofen products increased their contribution to Pharma revenue from 36% in Q1 FY '26 to 43% in Q1 FY '27. At what point do you see this portfolio become large enough to materially change the overall Pharma margin profile?

See, what we are expecting in the near term, this vertical should achieve around 50% overall contribution into the Pharma. And that the 50% we expect must be further divided into the domestic as well as the export. So I think while we will be achieving the 50% and also the export realizations will increase, this will change the overall contributions towards the bottom.

Okay, sir. And my last question is with INR 26 crores invested in R&D during FY '26, what are the key commercial opportunities emerging from your R&D pipeline? And what kind of contribution can we expect from these initiatives over the medium term?

So R&D, basically, this is not the one-off expenses we are doing into the R&D. These are the regular expenses in the R&D. And this is not allocated to any specific development of any product or the [indiscernible].

I think the more important is out of this fund, we have allocated some of the funds for the -- purchasing the new analytical techniques. Like we have purchased XRD machine. We have purchased LCMS machine, GCMS machine. So basically, these are the high-end machines, which we have purchased to analyze the impurity profile at a very stringent level.

The next question is from the line of [ Soumya ] from Nirva Securities.

So Q1 revenue grew 37.1% year-on-year, while EBITDA grew 60.7% year-on-year. How much of the EBITDA outperformance was driven by operating leverage versus improvement in product mix? If you could throw some light on that?

Increase in EBITDA margins primarily due to the operational efficiencies of existing product with increased capacity utilization, and there is no major product mix change except more penetration in the export market. So the more EBITDA is primarily due to the internal efficiencies of the company, not primarily through the external factors.

Okay, sir. Sir, my next question is on PAT. PAT grew around 90%, 89.9%, if I'm not wrong, year-on-year in Q1. Apart from the operating performance, were there any one-offs or below EBITDA factors that contributed to sharp PAT growth?

Nothing.

No EBITDA, nothing.

It is a routine -- routine financial number, although there is no extraordinary thing which we've done, except the internal efficiencies.

Okay. Okay. Sir, my next question is on Pharma. The Pharma revenue grew 43% year-on-year in Q1. Could you help us understand whether the growth was broad-based across the portfolio or concentrated in a few key products?

No, so...

Across the portfolio. It is across the portfolio because all the products, the maximum efficiencies with respect to utilization has been achieved.

All right. Sir, just the last question from my side. If the current diversification strategy plays out as planned, what would be a reasonable target for non-Ibuprofen contribution to Pharma revenue by FY '29? And would you expect that mix shift to structurally lift consolidated margins?

For FY '29 only after 3 to 4 years, we are expecting that non-Ibu segment will contribute around 50% to 55% of our API segment with good margin equivalent to the other Ibuprofen margins.

The next question is from the line of Maulik Varia from 360 ONE Mutual Fund (sic) [ 360 ONE Capital Market Private Limited ].

Maulik here from 360 ONE Capital. Congratulations on a good set of numbers. Sir, a few questions from my side. So we've seen growth, strong top line growth across all products. So just wanted some qualitative idea from your side, why was this growth muted in the last few quarters? And you, of course, had indicated that demand is expected to revive and you had indicated about it. And what has led to this revival? And what is your visibility about how long will this strong demand sustain? Will it be there for the next 8 to 10 quarters, 12 quarters? Any qualitative direction, sir, on the demand?

So Maulik, both top line and bottom line growth was due to higher volumes along with better pricing of our established products as well as growth in new products. Also in spite of increase in input prices, we are able to achieve these numbers by passing the increased cost to customers due to healthy demand, both in domestic and export markets. So these are the main reasons for growth in both top line and bottom line. And taking into consideration of demand prices and experiences, we expect revenue growth around 20% and EBITDA 14% to 15%. This growth is based on better capacity utilization, product mix and operational efficiencies. And we have reasonable visibility into our order book for the coming quarter. So this gives us confidence in the overall guidance for the year. We think this growth is sustainable for the whole year.

Okay. Okay, sir. And any guidance, sir, on FY '28? Will we be able to grow in similar run rate of 15%, 20% in terms of top line and also on EBITDA margin, sir? Any guidance on that?

Definitely, we have a plan to grow about 15% to 20% in top line and EBITDA to 15% to 17% in '28 approximately.

Okay. Okay. Okay. EBITDA margin, you are slightly upgrading in terms of volume -- better volume and pricing scenario.

Actually, we cannot predict for '28 at this time, but we hope we will get better...

Sorry, sir, your voice has disconnected. Sorry.

Maulik ji, this is on the basis of the current scenario. Suppose down the line 6-month scenario got changed, maybe what we are saying may not be possible. But -- so this is as per the current scenario. So this is on the basis of the current plans we have. So the projections is on basis on that plan.

Noted, sir. Noted. Okay. Okay. And also one question is sequentially, we've seen a decline in gross margin. So is my assumption correct that last quarter, we had some inventory gains because of which our gross profit was higher -- gross margin was higher. And this quarter due to higher input costs, the gross margins were relatively lower on a sequential basis.

Yes. As I already explained to some analysts that in the March quarter, we -- in for few days, we get the inventory valuation benefit. But in this quarter, the input prices also increased and finished prices also increased and the margin is impacted due to certain variation in passing the increased cost to the customer because we already tied up some prices to a big customer for their final prices. So all these differences have been already been exhausted and there is no so -- future, any major variation in the prices, input and output prices now.