Mega Lifesciences Public Company Limited (MEGA) Earnings Call Transcript

Hi. Good morning, good afternoon, everyone. A warm welcome to everyone to the third quarter 2025 earnings call. We thank everyone for their participation. So today, the way that we'll be having this earnings call is we will be starting with the introduction. I have our CEO, Mr. Vivek Dhawan, joining this call.

Good afternoon, I'm Vivek here. Welcome to the call.

We have our CFO, Mr. Thomas Abraham, joining this call. We have Mr. Francis Rego, Senior Vice President.

Hello, good afternoon.

And our Corporate Secretary, Ms. Sunjitana, joining this call and myself, Manoj Gurbuxani. So what we'll do today is we will start with the synopsis of financial statements for 9 months 2025 and third quarter 2025. I'll give you a brief of how we have performed in these 2 periods. And thereafter, we will have remarks from our CEO on the financial performance and the outlook for the year and a few business updates. And thereafter, we will move the forum to the Q&A. We would request when you're raising your question-and-answer questions, please let know your name and the company you represent. So going by the agenda, first, explaining the financial performance. So first 9 months 2025 performance. So with the Myanmar distribution and branded business showing an improved sales momentum in the third quarter, the overall revenue for 9 months 2025 is at THB 10.4 billion and with the stabilization of business, the overall decline, which we experienced in first half at 14% has narrowed down to 10.3% in 9 months 2025. Going by segments, the branded business for 9 months 2025 was at THB 6.3 billion, reflecting a growth of 4.3% on a Y-o-Y basis. If we normalize the decline of Mega We Care business because of business in Myanmar and the currency impact due to appreciation of Thai baht to U.S. dollar on a Y-o-Y basis, actually, the Mega We Care business in volume is growing at low double digits in other markets. which is a positive sign. The distribution business revenue on a 9-month basis has declined by 27%, but with the improved sales momentum in Myanmar in third quarter and stabilization of Maxxcare business revenue, the decline in distribution business has narrowed down from 34% in first half to 27% in 9 months 2025 because in 9 months -- in third quarter, the distribution decline is very, very marginal. Coming to the overall gross profits, the 9 months 2025, our overall gross profits have been at 51.8% of the operating revenue compared to 49.6% in 9 months 2024. And the improvement in gross margin is mainly because of the segmental mix because branded business grows -- has a better gross margin than distribution business. So segmental mix has resulted in better overall operating gross profit which is at 51.8% on 9 months 2025. The branded business gross margin has remained stable and is within the norm. We generally guide a gross margin of 63% to 65%. So 9 months 2025, our gross profits were 64.4%. And the distribution business gross margins improved to 26.2% on an adjusted basis, adjusted for the dual currency rate effect in Myanmar as compared to 23.6% in 9 months 2024. The SG&A expenses have been at THB 3.3 billion, flat on a Y-o-Y basis. If you look at us, we have very controlled spending on SG&A in all the 3 quarters. All the quarters have experienced flattish SG&A spending. However, as a percentage to revenue, the SG&A expenses has been higher as compared to last year, which is primarily because of the decline in the operating revenue because of Maxxcare business in Myanmar. The reported net profits have been at THB 1,335 million, which is very close to 9 months 2024, which was at THB 1,373 million. So with the improved sales momentum, which we experienced in quarter 3 in Myanmar, both in distribution and branded business, the reported net profits have remained similar as compared to last year. And if you look at the decline, which was at 15.1% in first half on a Y-o-Y basis, that decline has come down marginally to 2.8% as on 9 months 2025. The adjusted net profits for 9 months 2025 have been at THB 1,435 million as against THB 1,595 million last year, a decline of 10.1% on a Y-o-Y basis. The decline in the adjusted net profit is mainly coming because of a decline in Maxxcare business in Myanmar and increase in tax expense, which is primarily because last year, we had a tax privilege from Board of Investments, which is no longer there in the year 2025. We continue to remain a strong balance sheet company with a net cash of THB 3.4 billion. Our operating cash flows have been at THB 1.7 billion, representing 128% of profits. On 9 months 2025, we have spent THB 430 million towards CapEx, which is majorly towards acquisition of land in Vietnam for constructing the manufacturing facility as we had guided earlier. And some portion we have spent towards maintenance CapEx and capacity expansion for manufacturing operations in Indonesia, Thailand and Australia as guided. Overall, in terms of CapEx plan, apart from the normal spending maintenance CapEx of THB 3 million to THB 4 million, which we do, we intend to spend THB 483 million, which is mainly towards expansion of Indonesian manufacturing facility by adding new dosage forms and plant upgradation. Looking at the third quarter 2025 performance with -- again, with the improved sales momentum in the third quarter, our overall operating revenue has been at THB 3.8 billion, which is growing 14% on a Q-o-Q basis. The branded business revenue in third quarter was THB 2.2 billion, reflecting a growth of 7.7%. Again, normalizing the impact of currency impact due to appreciation of Thai baht to U.S. dollar, the Mega Care business is, in fact, growing at low double digits in all the markets. The distribution business revenue in the third quarter stabilized with a very small decline of 7.3%. And the decline, again, is coming because of the Maxxcare business in Myanmar, but the decline, which was at 34% in first half has come down only to 7.3% in third quarter 2025. The overall gross profits also have remained stable at 52.3% as against 53.4% in third quarter of last year. The branded business gross margins, again, within the norm, which we always have within 60% to 65%. So branded business had a gross profit of 65.6% in third quarter 2025. And the distribution business gross profits were at 23.1% on an adjusted basis, improved compared to 20.5% on an adjusted basis for third quarter of last year. SG&A expenses continue to remain flat on a Y-o-Y basis at THB 1.1 billion, representing 28.5% of the operating revenue in third quarter '25 as compared to 27.5% last year. The reported net profits have been at THB 494 million as against THB 383 million last year with improved sales momentum in third quarter in Myanmar in distribution and branded business, the reported net profits have improved by 26.4% on a Q-o-Q basis and 29.1% on a Y-o-Y basis, which is primarily coming because of stabilization of distribution business, growth in branded business and lower ForEx losses. The adjusted net profits are at THB 514 million, very similar to last year, third quarter 2024. And overall, our adjusted net profits grew at 18.3% on a Q-o-Q basis. So this is in very brief, the synopsis of third quarter and the 9 months performance. Now I'll request our CEO to provide us guidance for the year as well as the financial performance. Thank you.

Thank you, Manoj. I think you've got all the background on how the performance has been in the last quarter and the last 9 months. So the good signs are branded business is growing, and that's where our focus is. And as adjusted -- as Manoj has confirmed, the adjusted growth is higher in what we call low double digits or higher than single digits. So we are moving in the 10% to 12% range growth rates, which is a good sign. Other than the baht, which is impacted compared to last year, and that's one reason the tax Bprivilege is going away BI and that's impacting our bottom line if we compare. But if we take those 2 away and we compare our plan in 2019 and today, somewhere around 2.080 should have been at double profits if we compare the profits then on an adjusted basis. And we should probably reach 95% -- 93% to 95% of that by the end of this year. So we are fairly close in spite of all the problems in countries and war and Myanmar situation, which in '19 was not the case. It was a very large part of our growth plan. But in spite of all this, I think we are holding up very well and growing our branded business. But that's one part. Going forward, I think that next quarter generally is a better quarter in terms of sales and bottom line. So we expect to get to that with the present numbers are at about THB 1,435. So we should get to a number which is close to THB 1,950, somewhere in that range. That's the guidance. Going forward years after that, we are working on a strategic plan and are focused on building our branded business on both Consumer Health and Pharma health care, both divisions. In the Consumer Health, we have vitamin supplements, herbal medicine, which are complementary medicine, largely focused on medicines. They are not foods. We don't do a lot of food and cosmetic products unless there are a few areas we do operate in, but largely medicines, and we are focusing on that and building some of the brands we already have, large categories that we are involved in from Gofen, Go Gas, Gut Health, Norma nuclear. So cold cough, pain, allergy, all these areas where we are investing money, and we hope to focus more, go deeper into certain therapeutic categories and build global, especially in our 33 markets, larger brands of what we already have. And the pipeline that we are developing are all adjacent. So either going different doses form the same area or going to children, adult areas so that we can concentrate and bring a lot more focus in building our branded business. Consumer side, OTC drugs and the pure pharmaceutical area also, we have a few focus areas that we operate largely in orthopedics, osteoporosis as we call it, ortho urology, we are spending time and money in building a pipeline there. There's derma, we are very serious player in the derma category with a few unique drugs and more pipeline coming in. We are also in diabetes where we operate in a few markets where we play a major role, and we have a huge pipeline in that area. And there are certain other categories where Mega has ventured into respiratory, which is a new area that we are working on. So I think those certain categories where we see a large opportunity for us to build a sizable business, specializing in some of them. And we are going to spend a lot more time, including our pipeline is also directed towards developing new products in that area, our own in-house and licensing in. So with that kind of a direction, I think over the years, you'll see probably the pharma business becoming nearly 50% OTC business, anywhere between 10% to 20% in that range. and consumer -- the real vitamin supplement mineral, which are dedicated to certain categories like B, C, D, Livolin, other products which are large areas for us, Norm, et cetera, and those areas, that also taking up the 30%, 40% range. So we are a very balanced consumer health and pure pharma play and operating in 33 different countries. The growth will come from the markets we are already in. We don't see a lot of expansion in new markets coming up. Where we are there, we go to dig deeper, take our -- put our boots and heel and dig in and do more. And hopefully, with that focus, we will be able to grow and develop our business to double the market size we have now in the next 5 years to come. That's the plan. We are working on more strategic clarity on this and working on a strategic plan over the last 8 months, we've been doing that. And hopefully, by February, March, when we meet you again, we'll come back with more clear focus and clear answers for you. So that work is going on. As Manoj mentioned, we've already started our manufacturing site because of various reasons we have mentioned to you to play in Indonesia. We have a site. The site is developed now and the final internal work is going on. And hopefully, by June next year, we should be installing machines and we're ready to increase capacity and bump up all the new products that we are doing. Meanwhile, product development, registration work for imports and local manufacturing is going on there, and we are moving towards our plan that we have projected approximately $50 million by the year 2030. So that's still in force, and we are working towards it with the pipeline we have. Vietnam, we already have a business, but with the local laws and change in regulations and all the requirements and the tender business that we play in and many products that are locally sold in Vietnam, the requirements of making storing and delivering and doing marketing for the products made locally is growing. So we are investing in a facility in Vietnam to make medicines to begin with a large part of our business is tablet hard gel for a drug part. We also plan to put a soft gel line and some other dosage form that we are not in other countries. So the plant has been -- we have just inaugurated or just pressed the button today, the construction to start cleaning up the site and appointed contractors and designers. So work is beginning. Hopefully, in 15 months, the plant will be ready, and we take with all the operational another probably 15 months. So 30 to 36 months from now, we hope to see the Vietnam manufacturing site up and ready and also producing in 36 months. That's the plan. Myanmar, we are still in the final stages, the land we have that's already done. We've applied for licenses. And hopefully, that will also begin -- we hope to sign up and tie up all the design work is done. So by next year, March, I hope we can also start the building of the site in Myanmar. Largely, as we understand, imports are difficult, and we are going to be playing in that market, which is a large market for Mega and the brand -- mega brand is there for the last 30 years. So that's the plan. And hopefully, doing all that investment that we are making for long term, next 5, 10 years, 15 years from now, we believe with this, we should be able to reach our goals and deliver double profits in the next -- or at least 80% higher profits in the next 5 years. So that's something that we are working on. We are very confident that we should be able to do that. So from my side, I think this is a lot of -- this is most of it that I have to tell you if there are questions, we'll be happy to answer them. Beyond that, I think we are ready to take questions. Now like Manoj said, please tell us who you are and where you are from whichever organization you represent. And tell us what we want to know and we'll try and answer them as well as we can. Whatever we miss, we are always available to reply to your queries on a one-on-one basis. Thank you so much. That's all from my side. Let's hear from you and reply.

Somebody has raised his hands. Maybe request to ask your question, please.

This is Tan from PSI. I have a question on Myanmar. So in the third quarter, you have become a lot more successful in delivering sales into the country. So are there any recent changes or on the ground developments that we should take note of? And in your view, how sustainable is this recovery?

I think licensing is one area that matter to get products in the country. So if we have products in the country, our brands are strong. So licenses improve a little bit and you get period when you get more products in. And the consumer business also is getting some licenses. That's an improvement in getting licenses. And we hope this will continue for the next period to come. It will not be 100% like it used to be before, but there is definitely an improvement, and that's also showing some improvements that you see in the branded business that you see. But overall distribution is still not to the level that you want. It's just improved. It's not getting worse. So it's not stabilized. So we're saying it's there. And since we have a few principles that we are working with our larger partners and making sure that we can bring in those products and stay -- make sure they are strong. That's where our focus is. So with that both these things, limited numbers and focusing on certain areas and doing the big one, we are finding some stability there, but it's not to the same level. And at the same time, our own branded business where we are doing, that's also having -- when we have talks and it seems it better now, it will be better than before. So both these things are resulting in -- and overall, economically also, I mean, there's a bit of settlement. There's not as much fighting going on along the roads. So it's a little bit more eased out. People have probably gotten used to it and the business is a little bit better, I would say a little bit better, but it's still a long way away from where we were and where we were supposed to go in the old days. So that's the reason from our point of view. And it will be sustainable. We think it's going to be better. There's an election coming up. And hopefully, there will be some easing, but within limit because that's the situation in Myanmar at the moment.

Right. And if we look into the fourth quarter, can we somewhat expect top line to Myanmar to stay somewhere around the third quarter level?

I think so looking at our stock position that we have in the country, looking at what we already -- we are not basing on what I can get next quarter because to sell this quarter, we already should have stocks in there. So looking at that, we believe that we should be able to achieve the numbers that I mentioned that we should be able to deliver that above single digit -- single digit or high single digit or at the end, low double-digit kind of delivery number on the branded side. We still believe looking at the detail we have, it should be possible. And that includes Myanmar as well. So it's not -- some are a little bit higher than Myanmar, as Manoj mentioned, some of the countries are doing a little, but they are smaller. So they are doing maybe 14%, 15%, but the averages cannot go up. Soma has a role. It will probably linger around there as well. It's going to grow. But overall, we expect from all countries put together to be somewhere there.

Right. And what about the distribution side?

Distribution will probably remain the way it is. So it's not going to get worse. And it's going to be something that as we have seen in the quarter 3, right, very similar kind of numbers that you would see. Like other business we stopped maybe the slight jump up, but you will not see huge changes that is not the distribution.

Last year, fourth quarter was already very low because...

Compare quarter-to-quarter. But on an annualized basis, you probably look better stabilized and better...

Got it. Got it. And I think my final question is on Cambodia. So I think at the moment, there is no problem bringing goods into the country, but there have been some reports about inventory being built up in the country because of the boycott of products from Thailand. So does that affect your distribution business in Cambodia?

Yes, Cambodia is difficult. I would deny. I mean there is a lot of things going on, and I don't want to get into the politics of it at the moment because that's a problem. Locally, there is information being sent to them, a lot of Facebook ads and even there are some pressure on groups to stop buying and stop using Thai products. So there is a problem. But the good thing is a lot of our products are not only sourced from Thailand. We represent brands and distribution from Lal to other companies who are not manufacturing everything, and they have started to source from other sites. A lot of this also comes via sea. It doesn't go out of border, all of them. Yes, there is some impact but a lot of them could go to the border before. So they have been able to divert that. A lot of our products are also made in different countries, Europe here and there, Australia. But there are some that go from Thailand, and there is definitely a feeling of uneasiness. So we are trying to find some ways one of our products because we have other sites where we can get them from. If we can change them and to reduce some of that impact. Comodia doing well for us in the first 9 months. It's a growth country for us. But definitely, this is having some serious impacts, and we are looking at all the ways to ensure that the impact is not major, not -- doesn't have what you call a major impact on our business -- overall impact on our business. So that's our effort. And being there for 30 years and having a brand that's established and people have a very good relationship with Mega, there is going to be an impact. I can't say that we could have probably done a little bit better and many things would have been better by a couple of -- but something beyond our control, but only we are minimizing any kind of impact on the company. There's risk minimization is there. So that...

October, we are still double...

Yes, still double digits. So we -- I mean, we could have done a lot better, we think the kind of work that's going on there. And distribution, to be honest, it's there. But if you look at the contribution to bottom line on the distribution in Cambodia is though we look at turnover, the bottom line impact and if something drops also not very major, not very major on the bottom line. So...

Distribution business put together, all markets is around 15%, 17%.

So if you think of it, if the brand business doesn't get affected, it get protected, right? And that's where you see Mega, why are we getting to the numbers, the brand business. So in next 5 years, if we invest more time, more money on focusing on building larger brand in the categories we are not only just a great 200 product, but in the areas we are in, and if that happens, the chances of delivering this bottom line and making it a lot better is much higher. So there will be some impact in Cambodia. I'm not saying we can't stop that because if some shops don't keep shops don't buy. But if consumers are still buying the proate that they've been using, they're not anti yet. But if it becomes very bad and the government ban, but that ban hasn't come. We can still import. The borders are closed, but we are still allowed to import. We can get product by sea by air. So it's not bad.

I have 2 questions about Myanmar. I guess Vivek has answered a bit, but I just would like to be more specific. In third quarter, we saw the distribution sales recover Q-on-Q, about 40%. We know that it still decline year-on-year. But what caused the change in Q-on-Q?

I think as I said, if you look at annualized, don't look at Q-on-Q alone because maybe that quarter last year had no stock, so the sales were low. And the other quarter, we had enough stock when you have stocks in Myanmar, we have stock. It's the same thing. We have stocks available, sales go up because they are known brands, they are existing brands and there's a demand in the market, okay? Demand being replaced by cheap product because there's not enough money, that's one. But we have both. We are in the low end of the business also because we have the high-volume, low-end business with our partner. We do that. And we have the other side, which is the high end. So if we can have stocks. So I think quarter-to-quarter may not be very in a country like Myanmar, which depends on availability of import licenses and stocks being available on the ground. So with that situation, if you look at annually, it's down. But if you look at overall compared to last year, it's stabilized. It's not declining anymore, stabilized and getting slightly better, right? If I look at the 9 months or 9 months, it is better, right, compared to H1, the decline was 34%. Now it is down to around 26%, 27% all H1 compared to 9 months last year and this year -- the decline there is an improvement. So it still declined compared to that period.

And fourth quarter anyway was very low. So if you are able to maintain our third quarter and the fourth quarter, probably the decline will be less, even less.

So overall, you're going to get less decline compared to the fourth quarter was lower last year. So when you add up because based on our knowledge and stocks we have, we believe that there will be no decline. So I think the numbers will look even better in the last -- if you look at annualized basis.