Hikal Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Hikal Limited (HIKAL) Q3 FY22 Earnings Concall

Management Update:

• HIKAL stated that the company expects some short term impact on the operations of Crop Protection business due to the recent receipt of a MPCB notice.

Q&A Highlights:

• Rahul Jain from Credence Wealth asked about the pharma business that there was slow uptake by several customers while also mentioned good inquiries. Manoj Mehrotra, President said that HIKAL does not expect the slowdown to continue beyond two quarters, and expects a bounce back from 1Q23. More enquiries is seen in the CDMO business.

• Rahul Jain of Credence Wealth also asked about the reason for growth in crop protection business. Vimal Kulshrestha President replied that the growth is mainly on account of better product mix. On a nine-month basis, the volume growth is 10%. So NIM growth is coming based on the product mix.

• Rahul Jain from Credence Wealth asked about new product introductions and the size of those. Vimal Kulshrestha President said that the company has 3, 4 new CDMO enquiries and is also going to have two new fungicide. On the size of the products, initially this would be around INR100 crores and full potential of these products would be close to INR400-500 crores.

• Shravan Vohra of Premier Capital asked if there is any change in interaction for future contracts with customers in regards to the Taloja plant legal notice. Anish Swadi replied that the company hasn’t seen anything. HIKAL has informed all its customers transparently and they have been extremely supportive. And no customers have retracted or cancelled any orders as of now.

• Sameer Dosani from Carnelian Capital asked if HIKAL’s plants are zero liquid discharge and if not what’s required. Vimal Kulshrestha President said that the Taloja plant is not zero liquid discharge. HIKAL is allowed to a discharge and the company is well within that. The company is complying as per the condition. The closure is due to the Surat incident.

• Siddhant Maheshwari of Multi-Act asked that assuming the company will be able to shift production from Taloja to a different lead, will there be any decline in sales. Vimal Kulshrestha President said there could be some short-term impact because of this closer notice. The revenue from Taloja Unit is INR260 crores on an annualized basis. And based on that, that impact will come.

• Siddhant Maheshwari of Multi-Act also asked about the current capacity utilization in different units. Anish Swadi replied that across the company, the current capacity utilization is anywhere between 80% to 85%; it’s almost full, which is why HIKAL is also going into capex.

• Rahul of Raj Finance asked that is there a way that HIKAL can process the waste in its facility. Vimal Kulshrestha President said that it is either inside process or given to the outside processor. It depends from product to product and the kind of waste that is produced. However, HIKAL is doing lot of improvement internally to improve on efficiencies of the product and reducing waste.

• Rohit Nagraj from Emkay Global enquired about the Pinnacle initiative and what’s the level of margins expected over the next 3 to 5 years. Anish Swadi said that the main reasons for undertaking Pinnacle was to get operational efficiency. So several benefits are expected to arise not only from operations, but also from supply chain and business development. All combined, HIKAL expect at least 50 to 75 basis point increase on an annual basis on EBITDA margin.

• Rohit Nagraj from Emkay Global asked how much percentage of revenue is coming from long-term contracts on an annual basis from both pharma and crop protection. Anish Swadi answered that for pharma it is close to 50% on long-term contracts with global customers. For crop protection it is around 65% to 70%.

• Anubhav Sahu with MC Research asked about the company’s backup plan for fulfilling pending orders from Taloja. Vimal Kulshrestha President said that HIKAL will be utilizing this time to take maintenance of the plant, which is normally taken in the month of April. After that, the company will be able to continuously service the customer and do the business.