Supriya Lifescience Limited (SUPRIYA) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Supriya Lifescience Limited Q1 FY '27 Earnings Call. [Operator Instructions] I now hand over the conference over to Ms. Sneha Salian from EY Investor Relations. Thank you, and over to you, ma'am.

Thank you, Harsh. A warm welcome to all the participants to the Supriya Lifescience Limited Q1 FY '27 Earnings Conference Call. The investor presentation and the financial results are available on the company's website and on the stock exchanges. Please note anything said on this call, which reflects our outlook for the future or which can be construed as a forward-looking statement, must be viewed in conjunction with the risks that the company faces. This conference call is being recorded, and the transcript, along with the audio of the same, will be made available on the website of the company as well as on the exchanges. Please also note that the audio of the conference call is the copyright material of Supriya Lifescience Limited, and it cannot be copied, rebroadcasted or attributed in the press or media without specific and written consent of the company. To give you a brief business update and to take you through the results from the management team, we have Dr. Saloni Wagh, Managing Director; Ms. Shivani Wagh, Joint Managing Director; and Mr. Krishna Raghunathan, Chief Financial Officer. I would now request Ms. Shivani Wagh to provide you with a brief update on the quarter. Over to you, ma'am.

Good morning, everyone. I am Shivani, Joint Managing Director of Supriya Lifescience Limited. It is a pleasure to welcome you all to our quarter 1 FY '27 earnings call. I hope you've had the opportunity to review our results and investor presentation. With that, let me take you through our quarterly performance. Revenue for the quarter stood at INR 190 crores, reflecting a 31% year-on-year growth. Demand remained strong during the quarter, but water shortages led to a deferment of sales of around INR 35 crores. I will touch upon this in more detail later. EBITDA stood at INR 47 crores, a decline of 8.1% year-on-year, with EBITDA margins at 25%. Before we move forward, let me explain the reasons for the decline in margins during the quarter. It was a combination of factors that coincided during the period and are mostly temporary in nature. Firstly, the delayed onset of the monsoon led to water scarcity in the region surrounding our plant. Our facility located in the Lote MIDC area depends on water supplied from the Koyna River. Due to lower than normal water levels, the entire Lote MIDC industrial belt faced a significant water shortage. This led to delay in sales as highlighted earlier. Second, Maharashtra government changed the solar power policy, which led to increased fuel and power costs during the quarter. This alone had an impact of INR 8 crores at EBITDA level. These challenges were largely external and transient in nature. Excluding these one-off impacts, margins would have remained within our guided range. We believe these are temporary disruptions, and with operations stabilizing, we expect performance to improve in the coming quarters while remaining firmly on track to achieve our FY '27 growth and margin objectives. Moving to our geographical performance. Exports continued to be key growth driver, contributing 81% of revenue in Q1 FY '27. Within exports, Asia contributed 39%, followed by Europe at 35% and LatAm at 20%. Our core strategy of backward integration continued to progress, and currently, we have 72% of total revenues fully integrated. Now, coming to our new product launches. We launched 2 new anesthetic liquid inhalation products in Q2 FY '27 from our Ambernath facility, and we expect them to scale up over the coming quarters. In addition, we have 2 ADHD product launches in the pipeline, which will further strengthen our portfolio and support future growth. On the contrast media opportunity, we remain on track with development and continue to progress as planned. We expect the product to be launched in H2 FY '27. As for the products launched in FY '26, we continue to see encouraging traction. Our cardiovascular product launched in Q3 FY '26 has ramped up well. The ADHD product continues to scale up, supported by healthy demand from LatAm and Europe, and we expect the momentum to continue. Our liquid anesthetic product remains on track with steady monthly supplies. In summary, we would like to reiterate that our trajectory towards the INR 1,000 crores revenue milestone by FY '27 remains firmly on track, supported by a robust product pipeline and a sustained demand across key therapeutic segments, including anesthetics, antidiabetics, anti-anxiety, vitamins and ADHD. We remain confident of our guidance of EBITDA margins in the range of 33% to 35%. However, as highlighted in our earlier call, growth is expected to be nonlinear across quarters. Furthermore, we would like to highlight that we have revisited our earlier plan to undertake the annual maintenance shutdown of Blocks A to D in August, and we believe that we can undertake the maintenance in the phased manner instead of a complete shutdown. Hence, it will not impact our Q2 FY '27 production in any major way. With that, I now invite our CFO, Mr. Krishna Raghunathan, to take you through the detailed financial performance for Q1 FY '27. Thank you.

Thank you, Shivani. Good morning, everyone. Let me take you all through the operational highlights of the quarter. Following which, we'll open the floor for questions and answers. For Q1 FY '27, the company reported revenue from operations of INR 190 crores as against INR 145 crores Q1 FY '26, a growth of 31% year-on-year. EBITDA for the quarter stood at INR 47 crores as against INR 52 crores in Q1 FY '26, a degrowth of 8.1% year-on-year, and EBITDA margin stood at 25% for Q1 FY '27. As mentioned by our Joint Managing Director, margins during the quarter were impacted by temporary cost headwinds, primarily higher solvent and power costs. These factors resulted in an additional operating cost of approximately INR 10.5 crores. Excluding this impact, EBITDA margins would have remained within our guided range. Importantly, these are largely transient in nature, and we remain confident of delivering our FY '27 growth and margin guidance. PAT stood at INR 24 crores as against INR 35 crores in Q1 FY '26; PAT margin stood at 12.7% for Q1 FY '27. Our CapEx for Q1 FY '27 stood at INR 16.58 crores, driven by standalone maintenance CapEx, smaller projects, formulation plant requirements, and Isambe project. On the Patalganga land, as our Joint MD has updated, we have received all necessary clearances and will be developing the facility in phases. The project will include 2 API but advanced intermediate blocks and 2 formulation blocks. The total CapEx earmarked for this facility is around INR 200 crores for Phase 1. On borrowings, we would like to report that for the full year, we have not utilized any working capital limits, except for letter of credits and bank guarantees. With that, we can open the floor for questions and answers. Thank you.

[Operator Instructions] Our first question is from the line of Adityapal from MSA Capital Partners.

Last part of my questions have already been answered. Just one question on the Patalganga. So just wanted to understand your viewpoint on why there is a delay in the breaking of land and starting the construction at Patalganga because at this point of time, we only have Lote Parshuram, which is also the kind of CapEx that we're doing with Block A, which [ Block F ] is blocked in Ambernath will also get completed by, say, FY '29, '30. And greenfield, particularly in pharma takes at least 3 to 4 years to come up. So just wanted to understand how you're thinking about this?

See, Aditya, we have started already building the boundary walls. In fact, that is something which has already started. So technically, we have broken the ground. I think we need to -- if at all the understanding there. So we have started the work already in Isambe, and the process of constructing the wall is in full swing.

So when -- so the Phase 1, are we expecting a particular time line that the completion of the construction should happen by, say, a particular set time line? The API blocks, formulation block, and the warehouses, which is INR 200 crores of investment in Phase 1?

See, we would be looking at API block to start with. That would be the first thing which we will be building along with the utility blocks. I think these would be the ones which would be coming up for INR 200 crores. I don't think formulation can start immediately. See, we would, around, say, right from the acquisition, around 2.5 years, we should have a 40% completion as per MIDC. I think we will take care of all those legal requirements also while doing our construction. That process also needs to be taken care of, which we will take care of.

And also to add to Krishna's point, the first focus in Patalganga would be at the API level because we are already now closer to exhausting the capacity at Lote. Of course, we will be taking up minor refurbishments at Lote, which will further enhance the capacity. But for the next couple of launches, which are the larger molecules, we would be looking at Patalganga as a scale-up phase. So the first focus would be on API. Ambernath is not yet in full swing. So for the finished formulations, CMO, CDMO, we anyways have a facility available where the scale-up will happen in the next 2 to 3 years. So the finished formulations would be considered in a phase-wise manner in Phase 2 at Patalganga.

Understood. Just one last question before I come back in the queue. In terms of Ambernath, so now have you got any mails or messages from the EU team that when they can come and audit and then we can really start generating revenues from -- for the EU, the regulated markets. I know it's WHO-GMP already, but from the regulated markets, when would it be possible?

So we have already received the dates for audit from EU at Ambernath facility. The audit is scheduled in the second half of November.

Next from the line of Nikhil from SIMPL.

Yes. Just one bookkeeping question and one question on contrast media. See, you mentioned the 2 temporary issues. One, I understand water, which is not in your hand. But over a longer term, as we see these issues rising, what are we thinking to derisk ourselves? And secondly, on the power part, you mentioned on the solar subsidy. So is it like a one-time cost which had come in? Or that would -- or my idea was that this cost will sustain for a longer term. So if you can just help me understand why do you think the solar subsidy is a onetime thing?

See, there are 2 things on solar subsidy. I think the government is asking even to pay from July '25. So for all those things, they are collecting the back numbers today in the 4 months period between March to July, they had collected. So that is where -- that part is one thing. See, the other part, whatever it is, the increase in the prices or due to the -- what you call reduction in TOD [ charge ], that we will be passing it on to our customers. That is something which we are really going to do about it. So that will be the total answer for your solar subsidy.

So what is the suspected -- on this retrospective amount which we have paid, what would be the quantum?

See, this could be somewhere around INR 4.5 crores, INR 5 crores at this stage. So in fact, there is -- what you call the matter is also sub judice and there is a case, which is running on around in that [ query ]. All the solar power association members have what you call come around and they have filed the case against the MSEDCL.

Okay, fine. And on the water part?

On the water part, I mean, this is the first incident that we have faced on scarcity of water in that particular area because the area where the facility is located normally receives one of the highest rainfalls across the state of Maharashtra. So this is the first time we have faced this issue. We are working with a lot of consultants on how we can further take up recycling of water because we are into API manufacturing, we can't use recycled water in our end product, but at least for the utility part of it, the cooling towers and all how we are able to do that, that effort is ongoing. So a lot of work with consultants is now ongoing to further improve the water situation.

Okay. Second question on contrast media. See, what I understand is that here because there are only 4 or 5 formulators, they many a times have closed and don't share the specifications around the product. So how are we managing that challenge in terms of getting the specifications? And when we look at the commercial, would it be purely for the non-reg market?

So for us, it's a combination of API for the nonregulated market as well as at Ambernath facility, a lot of the people want to do a tie-up for the finished formulation of Iohexol -- I mean, for the contrast media product, which is the injection. So in that case, we have a good combination between the nonregulated or I would say, semi-regulated markets as well as regulated markets. Also, I think our biggest issue why the launch has been delayed by 2 quarters is because the R&D is still fine-tuning on the technology part of it because there has been multiple variations in the cost of the raw material. We are also looking at alternate process, alternate technology on how we can be cost competitive in the market because this is already a generic product, which has been in the market for a long time. So the value addition has to come from a better process with better focus on margin. So I think that's the reason why also it has been delayed for 2 quarters.

Okay. And last question, if I can squeeze in. See, on this customs issue, in our notes to account on Note 3, which we have mentioned. So we've said we've still booked the sales in this quarter. So is this issue resolved now from our end and future exports are not being impacted? Or what is the status here?

So currently, the matter is still sub judice. However, one thing I would like to inform everyone is that we have already received the new export authorization from Central Bureau of Narcotics for the same consignment, which in our opinion, should regularize this particular export. But because the matter is sub judice, we are still waiting for the results from the high court. So once we get that, I think this export would be regularized.

But we have booked it in our sales?

It's because the shipping bill for the said consignment is already filed. And because the particular shipping bill is still under investigation, we are not at the freedom of canceling that particular shipping bill. So that is one of the main reasons. And the said consignment itself is not a very high value. It is a very small minuscule value consignment. Also, one thing I would like to reiterate here is that for this particular product every consignment is accompanied by an export permit. So it is not that it impacts all the other consignments or the entire product itself. It is only limited to this particular consignment.

Our next question is from the line of Mulesh from Shah & Savla.

Ma'am, in continuation of both these questions of previous participant, may I get some color on still the higher cost related to water and power for the quarter 2. And since we say that our annual guidance still remains, so the top line and margin of about 33% to 35% EBITDA as well as the PAT margin of 25% remains on line. So I would like to get some reconfirmation on both these guidance as well as Q2 cost estimates on account of water and power. That is my first question.

The water issue, like our Joint MD mentioned in her speech, the water issue is already resolved. Because of the late onset of monsoon, the water issue impacted us for only about 15, 20 days. But during that 15, 20 days, we have lost production of almost INR 30 crores, INR 35 crores equivalent product. But now the water issue is already resolved. We are getting ample water from the Koyna River. And MIDC is also getting the water. So I don't think this would be a recurrent issue in quarter 2. Like Krishna said, a large part of the power cost also was slightly retrospective. So that would not come back in quarter 2. And whatever operational price increases have happened along with a lot of other raw material solvent price increases also which have happened in quarter 1, all those would be taken into account, and they would be passed on to the customers. Because we work on purchase order basis, we have a liberty to pass on the price increases or the operational increases to our customers. So that we will be taking care. And I think that sort of one-off expense which has happened or the additional expenses that have happened in this quarter will not move to quarter 2. Now, as regards the guidance, we are still confident that we'll be able to make up for this loss INR 25 crores, INR 30 crores of sales in the coming few quarters. And we are still confident we'll be able to achieve our guidance of closer to INR 1,000 crores while maintaining the EBITDA margin levels between 32% to 35%.

Great, ma'am. That's really helpful and that gives us renowned confidence in the company. And on custom front, ma'am, as you said that because of whatever reason, we have booked the sale. So have we made any provision against that sales, or our view is that no provision is required? And once that is resolved, everything will be routine?

See, at this point of time, like my MD has already said, we had already got the re-export permit from Central Bureau of Narcotics already. So because of this reason, we haven't had any provision to be made on this front, and we believe that this should be resolved amicably.

And all other exports are normally happening. I mean there is no difficulty anywhere due to this expiry of license or whatever renewal was pending or whatever. And I'm just wondering how come the renewal of a particular very important license was missed by the our team.

No. Actually, let me clarify this. It is not a renewal of license. For the particular product in question, it's a psychotropic drug. For each and every consignment, there is a new import authorization, there is a new export authorization. This new export authorization is only limited to that consignment. It doesn't work across different customers, different countries or different products. It's just specifically for that particular consignment, that particular country, that particular customer. So it is not that the license had expired and it has a cascading effect on any other customer or any other shipment. It is only limited to that particular shipment.

So we were supposed to get the license for authorization for this export, and we did not get it.

No, we had the export authorization. We had all the documents in place as issued by the Central Bureau of Narcotics. There was only a technical lapse of 2 days where there was a human oversight by the logistics department and that the given export authorization had expired before the shipping bill was raised. It is not a question of not having the document. All the required documents were already in place. It was just a 2-day technical lapse that happened. And now with the new CBN export authorization that we have received, our opinion is that this should regularize that particular export.

Great. Great. Thank you, ma'am. In fact, this clarification was required a little earlier also. I would have thought that probably company will come up with some clarification so that the investors' minds are clarified and clear. So now it is good that you have cleared everything. Thank you so much, and I wish you all the very best.

Our next question is from the line of Aanchal Maheshwari from Naredi Investment.

I just had one question, ma'am. Now that we have our Ambernath facility also coming on board, how much is the depreciation that we expect for the full year basis?

Ambernath alone, I think, would contribute somewhere around INR 14 crores to INR 15 crores here on depreciation. So that you can add up to our regular, I think, should be somewhere around nearing to INR 35 crores to INR 40 crores should be the overall depreciation.

Our next question comes from the line of Abhishek from Padmaja Investments.

I have 3 questions. What is the status of the...

Abhishek, your voice is a bit muffled.

I'm asking about the status of the...

Sir, your voice is not clearly audible, sir. If you could please use your handset, sir, in case you're using Bluetooth device. Please use the handset.

Yes. Okay. What is the status of the general manager as of now? Like is he still behind bars or did you get any bail?

No. Like I mentioned, the matter is still sub judice. So they are still in judicial custody.

Okay. And what is the closing inventory as of June 30 in our books?

Somewhere around INR 230 crores to INR 240 crores, yes. It is on the higher side. See, since in the last quarter, we had planned for taking the maintenance. So we have started building up the inventory. Now that we are revisiting that, so we have to now start slowly liquidating the inventory. With the plans originally in mind, we had jacked up all the inventories. But now that it is not going to happen like what my Joint MD has already suggested, so we will have to liquidate over the next 3 to 4 quarters.

Okay. And this is one small observation, like if you see even in the last quarter 4 or in quarter 1, just before the earnings, the stock price is reacting in correlation with the event, I think there is some information spillage that is happening, maybe try to do something. I don't know if it is possible or not also.

I don't think so, this is something which we cannot speculate or talk about anywhere in any form. Something, which is -- that is not in our control...

No, I'm not talking about speculation. I think earnings is somehow being leaked out. That's my observation.

Our next question comes from Nirmam Mehta from Unique PMS.

My first question, ma'am, is any updates on the CMO contracts that you are expecting?

We have made good progress, specifically on one of the large anesthetic CDMO contract that we are looking at. We are very close to signing of a term sheet. So hopefully, in the next quarter, we'll be able to announce something good. But at the back end, a lot of qualification work is now completed. Quality has been approved. So we are making good progress on the CMO, CDMO.

Okay, ma'am. Next, so this quarter, when I look at the therapy mix, vitamins have done really well. So does that mean that the DSM ramp-up is happening? And so we were also expecting -- so we also had received the pharma validation, I believe. So have we ramped up the supply still?

Yes, we have. So I think DSM has now reached a very stable state where we are very close to their peak volumes. Pharma validation is completed. Like I mentioned in the previous calls, we have set up now a dedicated facility for DSM. So that is now up and running. So things are moving very positively in the DSM project.

Okay. And lastly, on the launches that we did last year, the ramp-up is as per our expectation and -- so is the ramp-up as per our expectation? And I believe Ambernath would be the key trigger for those products, right?

So there are 2 parts to it. The product that we added last year, we also have an independent API exposure in a lot of countries, plus it will also be used for forward integration at Ambernath. So we are working on multiple projects across both Ambernath as well as Lote. We are seeing actually very good traction. Even the cardiovascular advanced intermediate that we launched, it has already commercialized and we are seeing good traction from domestic market and semi-regulated markets. Even for the anesthetic API that we have launched at the API level, we are seeing good traction coming in from, I would say, semi-regulated markets like Korea, Taiwan. We have also filed for the CEP, and we are expecting the CEP also to be received somewhere between October to November of this year, which will further boost the sales of those products in regulated markets like Europe. And like I mentioned before, Ambernath, once I think the EU audit happens in November, that will actually sort of open up the ramp-up of products there, but we have commercially launched 2 anesthetic products from Ambernath as well.

Okay. And lastly, on the Block F, so have we started work there? And by what time do we expect the block to be up and running?

We haven't started it yet. We will be starting it in the next couple of quarters.

Our next question comes from the line of Rachna Kukreja from SIMPL.

Just 3 questions. What drove the sequential improvement in North America market? And is this trend to continue, and which molecules are gaining stronger traction in those markets?

Yes. So like we have mentioned before, we have filed multiple DMFs in North American markets. Specifically, we have filed at least 4 to 5 U.S. DMFs. And a lot of the customers have now started picking up the volumes for their validation and everything. So I think that's the reason why we see a slight increase in North American markets. Like we have mentioned before also, I think once the newer products that we are launching scale up in North America, you will also see the sales going up and the exposure will also go up.