Marksans Pharma Limited (MARKSANS) Earnings Call Transcript

We have our next question from the line of Dr. Bino Pathiparampil from Elara Securities.

You mentioned about doubling the U.S. revenues from current level of $100 million to $200 million in a couple of years. So how would this mean -- how would this work out? Would it be about penetrating into the existing customers? Or would it be new customers?

So obviously, it's a mix -- Doctor, it's mix of both. Our order book status is quite healthy. So we have a good order book status to give us visibility of reaching to this number. And -- but it is a growth on existing plants as well as new customers coming in. And it's a mix of both, actually, that is feeling us to achieve this objective. It's still a very small number for a market like U.S. So it's not something that is novel or is unique in any way, but it's still at tip of the iceberg.

Understood. And when you say penetrating the existing customer further, is it to buy new products to the customer? Or is it that in the same product you will get more market share from a single customer?

So when it's a new customer, it's normally with existing products that we are supplying to another customer because that becomes our strength and our visibility for the new customers to see the performance and consistency. So it's normally the existing molecules, but there are cases where they have gone and opted for new molecules altogether.

Understood. Okay. And this is a big jump in -- jump in number from $100 million to $200 million in 2 years. So what would be the key risk to this -- achieving this in your mind?

What will be -- I'm sorry, you were not audible. What will be...

The key risk to this -- achieving this in your mind.

I don't think that's much of risk because, obviously, when we talk of these numbers, it is with a good understanding on the visibility of contracts, the order book status and where do you standby within the next 12 months and what will fuel the balance 12 months. So I can safely say that we are quite confident of achieving these objectives.

We'll take our next question from the line of Darshil Jhaveri from Crown Capital.

Firstly, congratulations on a great set of results. So sir, I just wanted to ask that I think we -- our target is to grow to INR 3,000 crores by FY '26. But also other target is to double the U.S. market from $100 million to $200 million. So majority of our growth on the full basis is going to come from U.S. because that only will account for around INR 700 crore or INR 800 crores plus revenue coming directly to us from U.S. and North America. So can we overperform on our INR 3,000 crores because U.K. is also growing at a good pace. So I just wanted some color on that.

Yes. So this rapid growth, obviously, when you talk of it, you're right, UK's also growing. But based on this high jump within a short span of time, the U.S. will be our growth drivers to achieve this objective. This will constitute like we said earlier, INR 800 crores, the balance INR 200 crores will come from U.K. and other markets. But definitely, there's the possibility that U.K. may contribute more. But here again we are talking of literally in the next 24 months. So U.K. may need a little more time as the base is already very big in U.K. compared to the market size. The U.S., the base is very small compared to the market size. So it's easier to go out there.

Fair enough. That makes sense, sir. And sir, just one another part, like once we scale up to this level, will our margins also improve because we'll get some leverage, right? So because currently also, we were impacted by...

So our margins will improve because of operational efficiencies will increase. Leverage -- operational leverage will also increase. So definitely, we are anticipating a much more robust bottom line.

So that can go to [ 23% ] roughly, right? Because in December quarter, we were able to get that with a higher revenue. So just wanted to...

It's difficult to actually put a number and say, but on a consistent basis -- are you talking of EBITDA?

Sorry?

Are you talking of EBITDA?

Yes, EBITDA.

I didn't get you. When you're saying margins...

EBITDA margin, sir.

So I think, yes, EBITDA margins will improve. I think it is possible to achieve those numbers. So we are willing for better numbers, obviously. So I think it is doable.

Perfect. Perfect, sir. And just a final question, sir, with some geopolitical risk as well as some wars going on. So will our -- how will that impact on U.S. business as well as elections coming up out there also? Is there like any sort of a risk for us out there or just anything that you could see in the environment that can hamper us?

Jhaveri, if I had that answer, I would have been a global leader right now. I honestly can't predict geopolitical issues and force measures which may be beyond our control. I don't have a crystal ball, unfortunately. And we literally have no saying on the wars that are happening. And hopefully, we all look for better times, and we don't like -- we'd like not to think of the worst case scenario, because -- I mean, we all want peace and growth.

Next question is from the line of Akshat Vijay from Hem Securities.

So, I just went through your financial number and see this -- at the stand-alone level, the business has delivered a very strong growth in this quarter. But at the consolidated level, I mean it's a subsidiary share, the performance has been on the muted side. So can you throw some light on it, like why the subsidiaries have underperformed in this quarter and maybe this is not the right way to look at the operations.

Akshat, can you mute once you're done with your questions, there's some background noise on your line.

Yes. So stand-alone, obviously, there is a consolidation that happens at the corporate level -- at the group level. So stand-alone -- while stand-alone looks positive, subsidiaries and everything at the end of a consolidation that takes place basically results into the end numbers and subsidiaries that are in U.K. and U.S., these are all related to again seasonal product mix that I mentioned about. I would say we are flattishly okay. But that's said and done. Again, we have to look at the overall metrics of what we have projected and where we are, what we've achieved not so much quarter-to-quarter because the third quarter is the peak season in -- where you talk of cough and cold and everything of that stuff. The winters are always the better months compared to the summer.

Okay. Fair enough. And my second question is regarding these USFDA observations that we have received for our Goa facility. Could you please share the status of the same like how severe they are and do you see any impact on that operations in the short term? And by when are you expecting, any idea?

I don't see any impact on our operations, number one. Number two is, obviously, we replied to all the observations. And we don't foresee any issues in exhibitions. Now we have to wait for FDA to come back. But as far as we are concerned, there are just normal observations that were there.

Okay. And one final question which I had is that in your previous calls you mentioned that you're expecting some additional INR 600 crores of revenue from the Teva facility in FY '25. Will you reassure that you're expecting the INR 600 crores?

Well, we should be hitting, let's put a run rate number. I will not say we will hit INR 600 crores for the full year because these are ongoing CapEx. We never landed up spending INR 200 crores on Teva, we said only INR 125 crores like I mentioned in our call. We did only INR 125 crores, which is literally slightly more than half of what we have presented that we will be doing. We have achieved the first phase target of 3 billion tablets. And now we have to hit the 5 billion tablet plus mark. So once we start hitting that, we will definitely start hitting the run rate that would see us to this number that we used to talk of.

Next question is from the line of Viraj Mahadevia from MoneyGrow India.

Congratulations on stable results. Mark, a question for you regarding the new Teva facility. What is the envisage product portfolio? Is it likely to be a higher-margin product portfolio with better mix versus the rest of the Goa? Or is it likely the same?

It will be most likely the same, maybe slightly better. So I will put average -- at the end of the day, even our Goa is doing decent margins, and we are doing a decent EBITDA and -- contribution on gross margin. So I would like to maintain it at the same portfolio, it may be slightly better depending on the product mix. But the product mix will be slightly different. So I'm hoping for a better margin to come out of the plant.

Right. And Jitendra, you touched upon this, but you likely break even at the EBITDA level in Goa in the next 6 months?

Yes, definitely. We are expecting in this quarter itself.

Right. Okay. And look forward to you using those cash balances for that acquisition.

We'll take our next question from the line of Aditya from MSA Capital Partners.

Congratulations on a good set of results. So I wanted to understand a few things. First is on Teva. So that -- now that Teva is in India and will be manufacturing in India and exporting majorly to U.K. and Europe, do we envisage a better gross margin profile? Not a lot, but a slight uptick from here because of Indian to export market?

It's pretty much what the other gentlemen, Vijay had spoken in the previous question. Yes, I mean, we do -- we have a product mix that we are planning -- that we are launching from this facility. So we do see better product portfolio and product mix coming out of the facility, but that's said and done our margins are quite decent. First thing, I mean, the most important thing in the Teva facility that we've acquired is to first breakeven. And basically, then you have operating leverage kicking in to see that profitability kick in. First, we have to cross that bridge when [indiscernible].

So what I was trying to understand was, definitely you had answered the previous part of the question that the product profile will be similar. But just wanted to get a feel that because this facility is located in India, do we have any margin advantage when we'll supply to U.K. and Europe?

No. I mean all our facilities -- this is not the first facility we have in India. So in comparison, we have another facility, which does literally 100% of our facility what we manufacture goes to Europe and U.S. And I think from that standpoint -- point of view, our product portfolio in terms of gross margins will be very similar, maybe slightly better, like I said. So -- but I mean from a comparison, we are supplying into these markets. So what you see is what you see our historic numbers will basically increase, but the margins will remain relatively same.

Sir, in the previous few con calls, you had mentioned that U.S. is operating at a bit lower EBITDA margin than our overall company margin. Do you -- what would be the margin and where do you -- do you think that once we double the margins would be better?

Last year, we had a relatively better EBITDA margin in the U.S. as well. And as we increase our revenues in U.S., we are seeing like a lot of improvement in our EBITDA margin because of the operating leverage, which will get kick in. So I think we will see a much improved margin in the U.S. from this year onwards.

Sir, on that question only, just as an addition, because U.K. also we have similar revenue, but the margin profile is higher. So what is the -- is there an idiosyncrasy in U.S. because having the same revenue but a lower margin profile than our U.K. and Europe operations?

The U.K. and U.S. are 2 different markets. So I think we can't compare the 2 and the product portfolio is also different. But on an average, I think if you can see that trending of the U.S., what is it showing, it is showing the same amount of gross contribution on margins, but the operating leverage had to be kicked in. And now that the operating leverage has kicked in and will -- it will improve from there on. But from a margin portfolio point of view, it's very similar. It is only -- the operating cost in the U.S. is different and that in U.K. is different.

Understood. Understood. And do we plan to take a U.S. FDA audit on Teva?

Maybe in the near future, yes.

All right. Any thought process, maybe in the next couple of years? Or it is much -- it is a longer thought process that you have?

Probably a shorter thought process, like in a couple of years. I hope we can get it next year.

Our next question is from the line of Kashish Thakur from Elara Capital.

Sir, just one question. Like I was just going through your annual reports of past few years. So like in FY '22, you had given time cap of financials, you have given EBITDA number and PAT number. So similarly, will it be -- will you be able to give us the EBITDA and PAT number of FY '23 and FY '24?

Yes, definitely. It will be like the subsidiary annual reports will be available on our website. So definitely those numbers will be shared.

Understood. And sir, like just following up on the question which previous participant asked. Sir, what kind of EBITDA margin we might be generating from our OTC segment in the U.S.?

See, we are at -- like we are at 10% plus EBITDA margin in the U.S. as well in terms of our overall U.S. portfolio. And that stands -- that is going to increase. That is what we are expecting in this year as we increase our revenues.

Understood. And sir, any bifurcation, can you provide us like what percentage of sales in the U.S. will be from prescription business and what will be from OTC business?

See, broadly, the mix in our U.S. revenue for OTC is 80% and Rx is around 20%.

Next question is from the line of [ Shyamal Patel ], an individual investor.

Few questions. I know you must be -- I don't know what to say but I cannot keep everything to my heart, that's why I keep on asking, of course, for the betterment of the company. In a INR 314.9 crore profit, just INR 27.18 crores is given as dividend. Don't you think you can improve the percentage of dividend linked to the shareholders who have been with your thick and thin, just 9%? Good companies give 85%. Okay. I don't expect 85%. But can't we have a benchmark of giving 25% back?

So Shyamal, we had a formula free cash flow that we have mentioned, and we are going -- actually, we have gone above that formula itself. Our free cash flow -- based on a free cash flow basis, it would have been much more lesser, but we've actually improved over the last year. So a lot of from a free -- we always do it based on free cash flow. We invested like we mentioned a substantial amount in CapEx. And based on the free cash flow that we've generated, we basically then distributed the balance amount -- full balance amount after that into dividends.

But we can't have a policy of 25% of the profits of the company, because we already have INR 674 crores in cash. I'm just asking.

The profit figure, basically, like eventually the funds get utilized in various areas, so working capital adjustment is an important aspect we need to see. The tax payments also are huge. And the CapEx is also there over and above that. So basically, as a company, we have decided -- we have a policy of distributing 1/3 of free cash flow to the shareholders. And we will definitely stick to that. Definitely, we are investing more money in CapEx and other growth-related avenues. So that also has a priority. So basically approach will be eventually to mix and follow the policy which we have established at those levels.

Yes, Mark and Jitendra ji. But then till the people turn into buyers, Marksans share price cannot improve so much. And the people always see what is the return the company offers. I'm not trying to be selfish. I put it on record without knowing, I could be one of the largest shareholders of Marksans. I don't know individually. I'm not talking like Mahavir Prasad Agrawal or something. But as individual shareholders, I must be one of the largest shareholders of Marksans. And I try to see the benefits which the company would get. Because if the company gets I will get. And what we are asking is not much. See 25% if you stick on -- even 20%, okay, we will get 20% of our declared profits. That should even offset the peace of shareholders. [indiscernible] I don't want to speak because much -- because this is already on record. Not that I have made any money.

We've lost the connection from Mr. Patel. [Operator Instructions] Next question is from the line of Deepak Jain from SKS Research.

So one more question that I had was regarding the backward integration, which is a great move. So I just wanted to understand when will the benefits start kicking in for this move?

So we have filed, like I said, 1 DMF already on one of the items. We have to basically get an approval to fill to basically use that DMF of that active into our formulation. So we are now taking batches and we are going to put it on stability and file it for past -- we have to file a prior approval to FDA. So we are looking at a good 6 to 8 months -- a minimum 8 months and above time lines needed for that.

Okay. Understood. Sir one more question is regarding, I think raw material prices have been on the lower end, at least the last few quarters that's been the trend. So do you expect the same trend to continue going forward? Or is there any correction -- like changes that you would be expecting?

I think the raw material has hit its bottom low. So I do believe that it will be stable. Another gentleman spoke about war or something like that, that we can't predict any of the post-major part of it. But right now, based on our outlook, I do believe it will be stable.

Okay. Sir, one last question from my side. Do we have any substantial launches coming up in FY '25? And can you just let us know any revenue contribution for this?

So yes, we do have launches coming in FY '25, definitely, but the revenue contribution is difficult to pinpoint to a launch -- product launch, because we have multiple products that we will be launching into various markets. So it's difficult to actually say that which product will be give you more revenue on accounts basically.

[Operator Instructions] The next question is from the line of [ Jayesh], an investor.

Yes, so my question is when 2 years down the line, when we will be achieving our desired revenue of INR 3,000 crores plus, so will we be able to maintain the sustainable net margin rate of 15% and more? Or will the Teva Pharma dent a little bit on the net profit margin?

I think if we hit our -- we were talking of 2 years down the line, I think it should be -- we should be able to maintain the margins. It may improve only, it is not going to go down.

[Operator Instructions] As there are no further questions, I now hand the conference over to management team for closing comments. Over to you.

Thank you all for participating. I know it's always tiring in the evening to get on the call. But once again, I'd like to thank you for your continuous interest and support in our company and be safe. I'm looking forward to talking to you soon. Thank you.

Thank you, members of the management team. On behalf of Elara Securities Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.