NATCO Pharma Limited (NATCOPHARM) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the NATCO Pharma Q1 FY '27 Earnings Conference Call. [Operator Instructions] Ladies and gentlemen, a reminder that this call is hosted by 360 ONE Capital Market Private Limited. I now hand the conference over to Mr. Hrishikesh Patole from 360 ONE Capital Market Private Limited. Thank you and over to you, sir, Hrishikesh.

Thank you, Danish. Good evening, everyone. On behalf of 360 ONE, I welcome you all to the Q1 FY '27 Earnings Conference Call of NATCO Pharma. Hope everyone is in good health and doing well. On behalf of NATCO today, we have with us Mr. Rajeev Nannapaneni, Vice Chairman and CEO; Mr. Amit Parekh, Chief Financial Officer; Mr. Rajesh Chebiyam, Executive Vice President, Crop Health Sciences; and Mr. Rajeev Menon, Investor Relations. I now hand over the call to Rajeev Menon for the opening remarks, post which we'll open the session for Q&A. Over to you, Rajeev.

Thank you, Hrishikesh. Good evening, and welcome, everyone, to NATCO's conference call discussing our earnings results for the first quarter of FY '27. I'm Rajeev Menon, lead Investor Relations at NATCO. We hope you have received the press release that was sent out earlier. It is also available on our website. Let me draw your attention to the fact that on this call, we may be making certain forward-looking statements which are not necessarily historical facts and anything said on this call, which reflects our outlook for the future, must be reviewed in conjunction with the risks that the company faces. We undertake no obligations to update these forward-looking statements. I would like to state that the material of the call, except for the participant questions, is the property of NATCO and cannot be recorded or rebroadcast without NATCO's expressed written permission. We'll begin with the financial highlights and then follow up with an interactive Q&A session. With that, I will request our CFO, Amit Parekh, to discuss the financial highlights. Over to you, sir.

Thank you, Menon. Greetings to everyone, and thank you once again for joining NATCO's quarter 1 FY '27 earnings call. The company recorded consolidated total revenue of INR 794.4 crores in quarter 1 FY '27, compared to INR 1390.6 crores in the corresponding quarter last year. The decline is largely attributable to lower lenalidomide revenue during the quarter, which was partially offset by double-digit growth in the base business. EBITDA including other income for the quarter stood at INR 245.7 crores, with EBITDA margin of 30.9%. There has been an improvement in EBITDA margin quarter-on-quarter, which can be attributed to the performance of our international and domestic business and lower in major operating costs. Consolidated profit after tax stood at INR 206.5 crores compared to INR 269 crores in quarter 4 of FY '26, which included a onetime benefit of [ INR 115 crores ] arising from remeasurement of deferred tax assets on max credit and other deferred tax assets in liability following the company decision to move to the new tax regime from FY '26. On a normalized basis, excluding this onetime tax benefit in quarter 4 last year, consolidated PAT grew by 24% quarter-on-quarter. With regards to our associate company, Adcock Ingram Holdings Limited, South Africa, revenue for the quarter stood at INR 1,582.8 crores, and profit after tax at INR 242.2 crores. Net cost share of profit based on 35.75% holding as on 30th June 2026, was INR 84.3 crores. In July 2026, we acquired additional stake of 13.25% in Adcock Ingram, taking our total holding to 49%. This, we believe, will further strengthen our strategic position in South African market and increase our participation in the performance of Adcock Ingram. Our domestic formulation business revenue stood at INR 126 crores. We also saw strong growth in our Brazil business. Revenue from revenue stood at INR 178 crores, representing the growth of 98%. Thank you all. And now we will take questions and answers.

[Operator Instructions] Our first question comes from the line of Wamsi from ASKIM.

Congrats on the good set of numbers. My first question is in terms of the [indiscernible] of your export revenues. So can you please give me a constant currency growth across your key geographies of Canada and Brazil?

So Brazil has grown, as I said, it has grown by 180%. The revenues of Brazil, as I mentioned earlier, was INR 138 crores.

And Canada sales?

Canada sales for the quarter was around INR 56 crores.

Understood, sir. Also, if you were to just look on a quarter-on-quarter basis in currency or constant currency terms, there seems to be a 14% kind of decline. Any specific geography which you would attribute this to?

[indiscernible] could have said that again.

Yes, sir. So basically, I was trying to understand the quarter-on-quarter decline that has happened in the export sales. So there seems to be a constant currency decline of almost 14%. Is this attributable to any specific geography?

No. Just a seasonal cycle. I think we have different [indiscernible]. I think the increase in the profit did come from the Indian company. It came from the associate company. You see the numbers. Normally, the Adcock profit sale is around INR 35 crores to INR 40 crores a quarter [indiscernible] I came -- this quarter it came to INR 80 crores. So that is why [indiscernible] way from there, and that's the reason[indiscernible] . And the orders themselves, I mean, it's all cyclical. And reason why Adcock delivered a good set of numbers because there's a strong boost in South Africa. So are [indiscernible].

So even on a constant currency basis in the Adcock business, there is a healthy growth, sir, of, let's say, high single digit?

In this particular quarter, yes, because the [indiscernible].

Understood, sir. So if I were to just ask a question on the domestic sales growth. Could you provide a breakdown of how the base business has grown and how Sema has incrementally contributed this quarter?

I think that base business normally is about INR 107 crores a quarter. I think this quarter [indiscernible] something. We believe we're able to maintain that 130 number. I think a lot of it has come, I think from some of our side obviously we have a pretty good run and some underpin and some third-party or someone. And also, our base business has also done well in oncology and other segments of the [indiscernible]. Overall domestic has done pretty well. I think [indiscernible] increased by about 25% in ratings. .

Understood, sir. Just one last question if basis [indiscernible]. Sir, during the quarter -- so basically, sir, we closed the year at about INR 2,400 crores of cash. And after having paid out for this incremental stake in Adcock, I think we still have a decent close to about INR 1,00,000 crore to INR 1,500 crores kind of cash setting. So any incremental insight on why the proposed fundraise of INR 2,000 crores is planned? Any specific target therapies or kind of assets that you're looking at?

Yes. So you're right, our cash -- net cash as of today is around INR 1500 crores. Obviously, last year, if you look at the kind of investments it's almost INR 3,000 crores primarily at Adcock. We had a 2 x acquisitions of [indiscernible] with around INR 3,000 crores. We have some goals to short-term loans to pay off and some capital expenditure. But at this tension, we are also looking at a couple of very interesting opportunities of acquisitions on some kind of an M&A opportunity. And we believe that this cash would be really required, and we believe that this would be helpful at the right hand. With this, we want to raise some money from the market. .

Understood, sir. Any color on the kind of [indiscernible]?

We'll give us a -- we'll come back to you again [indiscernible] . We come back again.

[Operator Instructions] Our next question comes from the line of Kunal Randeria with Axis Capital.

First question, Amit, so very sharp decrease in other expenses, both quarter-on-quarter, year-on-year. So if you can kind of highlight the reasons behind it. And is this the kind of a new update that we should expect going forward?

Thank you for the question. Yes, there has been a decline. Obviously, if you look at the last year Q1, there has been a high R&D spend, which happened. And R&D are not a very stable quarter-on-quarter run rate. It depends on a lot of milestones in the matches -- exit taxes, clinical trials, et cetera. So in last year's quarter, yes, there was a very high expense on R&D. And we also had higher legal costs in market. Current quarter is slightly lower, and this cannot be the run rate. There will be a little bit higher spend going forward. The current quarter will be lower than the previous quarter for sure.

On an annualized basis, [indiscernible]?

I think we -- sometimes, there will be an increased base on a project. For example, let's say doing a big clinical trial they would do with that. Sometimes [indiscernible] expenditure. We don't have any pain that particular quarter, then there are no expenses. So we plan according to the cash flow that we have. So we plan that project based on when we have cash flow and so on and so forth. So you got like an premises will be this quarter, it could be higher or lower. But typically, I think when we give our guidance, we assume these costs and then we build in the back number of ones based on what we believe we're able to spend in you. If you take an annual approach [indiscernible].

Got it. Second question, on the international formulation business. This quarter was INR 477 crores. You also mentioned that there was good growth in [indiscernible]. So what would explain the quarter-on-quarter decline? Is it the seasonality or the decline in [indiscernible] if you can throw some light on this?

I think the profit share was [indiscernible]. See, Kunal, I mean like -- there are different sizes of different products. I similarly don't give a product [indiscernible] we have 1 tender on 1 product. Sometimes you have obviously [indiscernible] in the previous quarter. So all the seasonal and water stuff happens, I think I would focus on the larger picture. I think I don't want to get -- we get give a guidance to be there and then maybe a guidance for the quarter.

[Operator Instructions] Our next question comes from the line of Rashmi Shetty with Dolat Capital.

Sir, out of your total export formulation business of INR 477 crores, how much contributes from the [indiscernible] -- you have given a Canada and Brazil number can also give the of the world number?

I don't have a split, Rashmi. I have the bigger one, the smaller one I don't have. So I don't have it [indiscernible].

Okay. And on the agro tech sales -- on the agrotech sales, that is your crop health sciences, have you break even in this business?

Say that again?

From the crop health business, are we still making an EBITDA loss or we have already done the breakeven?

No. So basically, for the quarter, there was a loss, right? But the growth and our expectation for the year is to break even. So if you look at overall scenario of our crop ages very, very seasonal, right, Rashmi. So as probably most of you are aware as we the El Nino [indiscernible]. So that's what actually caused a bit of delay in the cropping season. So we expect Q2 to be significantly better than Q1. And I think we are on track to, again, as we said, to breakeven.

And sir, on the revenue part, what will be the guidance?

[indiscernible].

So let me just give you an indicative number. See, last year, we had about INR 138 crores total. And we are about 40% in Q1 by Q2, Q3, I think we should be fairly close to that number. And [indiscernible] growth.

But again, this is -- I think Q2 will be a fair area of the Q2 is the strongest quarter for the agro business. So I think we will defer any particular guidance. I don't stick to the same guidance that we gave earlier in the year that we end and our gross sale will be in [indiscernible].

So on the total sales, which you are saying [ INR 33 billion to INR 34 billion ] when you just annualize the sales it comes to around INR 2,800 crores that roughly comes to INR 28 billion. So whatever that extra sales, which we will be generating, it will be coming basically from which geography? Who will be the major contributor, whether we are going to see a traction in the export part of the business in the U.S. or in India or in the rest of the world and growth?

I think U.S. will there a couple of U.S. borders we had. And we're not going to do split push. I think for Brazil and Canada, we have because we have a stock identified. But other numbers that are [indiscernible] yes, I think the growth areas will come from these 2 countries, Brazil, Canada and U.S.

Our next question comes from the line of Abhigyan Srivastav with Marcellus Investment Managers.

I have a few questions. Sir, firstly, this current quarter, do we have any contribution from Revlimid?

So current quarter, it is very, very small. It is negligible to see.

Okay. Got it. And sir, our tax rate has been a bit volatile for this quarter and the previous quarter as well. Do we have a particular tax guidance for FY '27 and going forward?

See, the tax rate is the combination of [indiscernible] the control level, it's a combination of the global tax country-by-country contribution. In India, at least I can say that we have since we have moved to the [indiscernible]. The tax rate would be around [indiscernible] And obviously, there are some disallowances of evolution happen. So roughly, in India will be around 27%. And globally, it all depends on which geographies contributing. This quarter, Brazil has a larger contribution where the tax rate and then the quarterly tax rate is quite high this quarter. So very difficult, we have very clear guidance around that because it is a combination of multiple factors. But yes, this quarter is [indiscernible].

Okay, I see. And sir, 2 questions around our recent launches, which are upcoming. So for [indiscernible] we have likely a calendar '27 launch with the launch settlement with the innovator. So are we on track for this launch?

We cannot confirm the date, but yet the launch is on track. I believe we will talk about it close the launch date. But yes, the plant is on an upgrade right now and between the upgrade to be completed by the end of the year, and we believe that we're able to launch it at the time last year is set. So because the company [indiscernible], we're on track. [indiscernible]

Yes. Just one more question. Regarding Ola tariff, could you please share what the current litigation status is with the innovator? And do we have any sort of like an outer time line by which you believe that an outcome might be decided? .

I think [indiscernible]. I think the trial is set, I think I don't know over the date. I think sometime in the next few months, I know the exact data. Topline not able to remember what day it is. We have [indiscernible]-- and there's the issue of exclusivity is there because [indiscernible] more than the 30 months. So we're hoping we have CapEx cost. We have some arguments that has not been determined yet. I think the other 2 important factors. The determination of the [indiscernible] trial. So I think both the trial data, not on to remember so I don't want [indiscernible] in the next few months, but can't say the date and then the termination of the exposure is not been determined yet. So I think these are 2 open factors. So open to questions on this one.

[Operator Instructions] Our next question comes from the line of Tanya Chaudhary with Investec.

Sir, given that you have some experience in South Africa now after the acquisition, what are your plans to improve growth and profitability in South Africa?

I think overall, I think we see a lot of synergies between NATCO and Adcock. I think the first synergy is obviously the pipeline for NATCO [indiscernible] with our Indian partners because we did a lot of -- we do a lot of alliances with other new companies or other markets. So we have pretty strong relationships with other Indian owned companies. So we're bringing back to the table as well. So we're using those relationships to improve the pipeline of Adcock. I think there are 2 major synergies actually [indiscernible] and second is the pipeline. We are able to source that one. The benefit of our shareholder, you'll see whatever we getting right now in Adcock is based on the business -- base business as they have. The value of NATCO and Adcock's pipeline all will come in the next 2 to 3 years or later. But we are playing for longer, as you know. So -- but also Adcock has a lot of [indiscernible] strengthen our business. As it may be this quarter, for example, our 35%, 40% of our earnings are coming from Adcock. So we are able to sort of build that strong base business, bring less volatility in our earnings, which has always been the case of NATCO. So I think we're trying to strengthen that.

Also in Brazil or -- also in Brazil, given that you're witnessing strong growth -- are there any key launches which are driving such growth? And are there any meaningful launches planned going forward?

I think I can often says good numbers. And we also have another meaningful launches in [indiscernible], subject to some patent litigation. [indiscernible] because of competitive reasons. But overall, NATCO is doing extremely well. So we adjusted very good growth in Brazil as well. So it's a fairly diversified model. And now I think India was growing very well. So a lot of the revenue pickup again now is over [indiscernible] and comfortable with. And the objective is that we do another acquisition would be. And if we able to do that, we're able to build a diverse pipeline of geographies and revenue of avenues so that we have more similar numbers in that year.

Got it. And lastly, -- and sir, lastly, if you could guide for how much we have done from semaglutide in the first quarter?

I think the brand is doing -- I mean I know what we're doing as the market is starts not. I think the way you always said in [indiscernible] -- so I think our brand per month is doing around 2 things roughly, but we had a lot of what we called is the other side of the business, which I don't think we get repeated. So I think -- our sales people say that I think right now, this where it is, but over a period of time, this brand to do very well. But right now, the market is fairly [indiscernible] good in terms of competition, very intense. So I think we are just setting on them. We'll see in [indiscernible] come in the next few months, and I think in a number [indiscernible].

Is it profitable, sir?

As of now, it doesn't lose money, but it doesn't make much on yet.

Our next question comes from the line of Arjan, an Individual Investor.

Yes. So I think we are in interesting times with respect to South Africa. On 12th of August, India and South Africa have signed the terms of reference for preferential trade agreement, right? So I want to understand how this is going to impact our business? And I also see some -- one of the Indian company has already got approval for semaglutide launch in South Africa. So when are we going to get approval? And how big the market would be?

We are in the trade deal. I'm not well informed at this time, so I don't want to answer that question. I don't know -- regarding semaglutide [indiscernible]. This is what I understand. In terms of our approval, I think a little bit, but we're trying to see what are the ways we can in the launch of semaglutide. We are also looking at other packages well. But at this time, our losses a little away. But yes, I think we're looking at other possible [indiscernible] we're working on it. The size of semaglutide in South Africa, it's interesting opportunity, but numbers, I don't know.

Okay. Sir, 1 more question, sir. This is with respect to our corp -- NATCO crop health science business. I understand already, we have like approved the demerger and other things. So when can we expect the actual demerger to take place from an investor point of view, sir? .