Akums Drugs & Pharmaceuticals Limited (NSE: AKUMS) Q2 2025 Earnings Call dated Nov. 11, 2024
Corporate Participants:
Sahil Maheshwari — General Manager, Strategy
Sandeep Jain — Managing Director
Sumeet Sood — Chief Financial Officer
Amrut Medhekar — Chief Executive Officer
Analysts:
Prashant Nair — Analyst
Abdulkader Puranwala — Analyst
Ashish Shreeram Thavkar — Analyst
Gautam Gosar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Q2 FY ’25 Earnings Conference call of Akums Drugs & Pharmaceuticals Limited, hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Prashant Nair from Ambit Capital. Thank you and over to you, sir.
Prashant Nair — Analyst
Thank you. Rutuja. Good afternoon, everyone. On behalf of Ambit Capital, I welcome to the Q2 FY ’25 earnings call of Akums Drugs and Pharmaceuticals. We have the following members of the management team on the phone with us today Mr. Sanjeev Jain, Managing Director; Mr. Sandeep Jain, Managing Director; Mr. Amrut Medhekar, Chief Executive Officer, CDMO; Mr. Sumeet Sood, Chief Financial Officer; and Mr. Sahil Maheshwari, General Manager, Strategy.
I would now like to hand over the call to management for opening remarks, post which we can move to Q&A. Thank you and over to you, sir.
Sahil Maheshwari — General Manager, Strategy
Thanks a lot Prashant for the introduction. Hello everyone and welcome to our Q2 earnings call. I’m Sahil. Let me draw your attention to the fact that on this call, our discussion might include certain forward-looking statements which are predictions or predictions of the future events. Our business faces several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied in such statements. Akums does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new confirmation, future events or otherwise. I hope everyone has gone through the investor presentations and the results which we shared on our websites.
I would now like to hand it over to Sandeep sir to take over, please. Thank you.
Sandeep Jain — Managing Director
Namaskar to everybody. Thank you, Sahil ji. Happy Diwali to everybody. We take pleasure in declaring the Q2 results of the company and thank all the stakeholders and shareholders of their continued support to the company. We are the largest India focused pharmaceutical CDMO with over 30% market share. Our company caters to over 1,500 clients both Indian and MNC pharma companies with whom we have long-standing relations. Today, 26 out of top 30 pharma companies in India are our partners. Our total consolidated revenue in Q2 was INR1,047 crores, which is 2% higher on Q-o-Q basis, however, 12% lower on Y-o-Y basis. This is due to a combination of three factors: muted demand resulting in lower volume growth; prices of several key APIs including Amoxicillin, Cephalosporins, Paracetamol, Telmisartan, etc, continues to fall.
As you are aware, our CDMO business is a cost plus model. So when inputs costs fall, we experience revenue deflation as well. Falling API prices have another secondary impact. It affects order frequency because customer wait for API prices to bottom out before building up inventory. The continued fall in API prices of Cephalosporin has also impacted our revenues and profitability of API business. Thirdly, we had some significantly higher revenues from an outsourced product development engaged in Q2 of the prior year. All this impacted our adjusted EBITDA margin, which is down to 12.9% versus 15.8% in the prior year.
Our adjusted PAT margin expanded to 6.4% versus 5.2% in the prior year. This ongoing volatility continues to see strong long-term demand for outsourced drug development and manufacturing. We will continue to invest in building world-class capabilities to help our clients launch new formulations and therapies and support them in their enhanced growth and transformation. We continue to make robust investment in R&D to drive new product development. Our R&D spend was INR64 crores for the half year reflecting a robust pipeline of new pharmaceutical, nutraceutical and cosmeceutical formulations that will drive our growth in the Future.
We received 10 DCGI and 86 FSSAI approvals in H1 of the current fiscal. We are happy to announce that during the quarter, we received a patent for our formulation room-stable Hydroxyurea oral suspension. This is a breakthrough formulation aimed at managing sickle cell disease, which has a high disease burden especially in geographies like India and Africa. Akums has been granted an exclusive right for further development, manufacture and market the products innovated by Triple Hair Inc. Canada for India market. Akums will undertake development, obtain regulatory approvals and commercialize this product in India.
The product is a topical solution targeting alopecia hair loss. We are also actively investing in API R&D to develop robust global pipeline of API with cost efficient processes. We have over 80 scientists in API R&D and have invested INR7 crores in H1 ’25. In API R&D, INR30 crores has been invested till date. Similarly, we continue to invest in building production capabilities to support our future growth. In H1, we spent around INR150 crores in capex. In Q2, we started commercial production at our new injectable facility in Haridwar. The facility has operational ampoule and SVP FFS lines and we plan to start vial and lyophilized vials in Q3. Further, in Q4, LVP FFS will also be operational.
Akums was one of the early entrant in CDMO injectables market in India and the new facility will further boost our ability to tap growth in injectable market of the India. We have completed the land acquisition for Jammu plants and civil works is expected to begin shortly. Commercial production from these facilities will begin ’26, ’27. Our focus on export markets continues. Let me share some of the development on that front as well. Till date, we have filed two dozier in Europe to leverage our European GMP plants. We are building a pipeline with products which have high unmet needs and with limited competition targeting European markets. Akums has entered into MoU with Ministry of Health, Government of Zambia to set up a joint venture to manufacture pharmaceutical in Zambia.
The pharma market in Zambia is worth over INR2,500 crores with more than half being managed through government purchases only. Akum and Zambian Government will jointly invest in setting up manufacturing facility in Zambia to cater to local Zambian pharmaceutical needs. We are also focusing actively on formulation export, one of our key future growth driver In future. We have fairly diverse formulation across multiple regions and therapeutic categories. We today export to over 60 plus countries including Southeast Asia, South Asia, Eastern and Western Africa, CIS and have recently started in Middle Eastern market as well. Our export portfolio ranges from oral solid to style formulation across acute and chronic therapies with total dozier filed at 367.
In our API business also, we are taking progressive steps in increasing export to drive better product realization in H1 ’25. Around 9% of our API sales was from exports only primarily to Asian countries. We also plan to file CEPs in European markets soon. We expect to file at least two CEP in H2 and also undergo European EDQM order this fiscal. Looking ahead, we expect demand trends in the second half to be largely similar to the first half. There could be some upside potential if we see some improvement in API prices and uptick in industry volumes, but that remains to be seen.
With that, let me hand over to Mr. Sumeet Sood, our CFO for the financials.
Sumeet Sood — Chief Financial Officer
Sandeep ji, thank you very much. I’ll come to the financials and if you as Sandeep ji mentioned that the performance for the second half and the first half looked similar. I think the quarterly results also if you look at the quarterly results, they also look similar. If you look at the total consolidated income, we were at INR1,047 crores. This was 2% higher than the last quarter, but it was 12% over the year-on-year basis. Our consolidated EBITDA was INR135 crores. This is 3% higher than Q1, but 28% lower year-on-year basis. Sandeep ji did mention one large product development income which came in, which was for the last year and not this period. So that’s one reason. And if we exclude the income, we would have seen probably a 15% EBITDA growth year-on-year basis.
Consolidated EBITDA margin was at 12.9% in Q2 similar to Q1, which was 12.7%. However, the Q2 last year saw almost 15.8% EBITDA margins. Gross margins on consolidated basis in Q2 were at 42.3% similar to Q1, but higher than Q2 last year, which was 40.6%. The consolidated PAT saw an improvement to INR67 crores from INR57 crores in Q1. If we were to break the segment wise revenue, the CDMO remained our driving force. It does add to almost 79% of the revenue share in Q2 followed by branded and generic, which does 16% and API business adding to 5% of the revenue.
Our CDMO business margins are at 15.4%. The branded and the generic EBITDA margins are similar at 10.3% in both the quarters Q1 and Q2, which is higher from the Q2 last year which were around 4.5%. I think the continued profitability is on efforts to reshape our formulation portfolio and in favor of the branded products which are driving high profitability. The API revenue showed a marginal improvement of INR4 crores and for six months increased by INR36 crores. The continued softening of API prices had an impact on the margins of API business wherein the margins for the quarter were negative INR14 crores and negative INR26 crores for six months.
The cash flows for the company, the net cash flows if we look at, there is a cash surplus of INR341 crores. The IPO proceeds have also come in. Large part of the IPO proceeds till November have been drawn down. Cash flow from operations for H1 September ’24 was INR71 crores positive and the free cash flow post investing activities was minus INR65 crores. The company’s long-term rating sort of improved. We got AA stable from ICRA on long-term basis and the short-term rating continues to be A1+.
I think that’s from our side. We are happy to take questions on the company and the performance. Thank you.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.
Abdulkader Puranwala
Hi, sir. Thank you for the opportunity. Sir, could you please quantify on the one-off income what you had in the last year same quarter and was it a part of the CDMO revenue, sir?
Sumeet Sood
Yeah. So last half yearly we had a one-off income of INR82 crores which was of the CDMO business, right? So there was a product we had to develop for a particular customer which we did. Now if you look at the six month number, Abdul, so you’ll see our EBITDA is INR265 crores, while it was INR295 crores for six months last year, right? So while that was a huge income which came in which was not here in this particular period, but we’ve sort of still maintained the company’s EBITDA pretty well.
Abdulkader Puranwala
Understood. And sir, could you share some highlights on sir mentioning about the export orders both for formulations and API? I mean, how do we see the traction getting built up in this particular space?
Sahil Maheshwari
Sure. So on the export side, Abdul, on the export side, as we said, we continue to gain traction. So we are expanding our portfolio as we mentioned right From OSD to injectables. We have also filed couple of doses in Europe. We have multiple others in pipeline. We have few of our plants as well which will soon be triggering the European approvals. So the idea is to go stronger and deeper in markets we currently are, which is Southeast Asia, Africa and South Asia and build a robust pipeline and presence in Middle Eastern markets as well as the European markets. So that’s there. As we said, we are expanding not just through distributors. We are also recruiting people so that we build a brand recall in these markets of prominence. So that is there.
Abdulkader Puranwala
Okay. Okay. And for the formulations, would it be fair to assume that PIA would serve kind of backward integrated operations entirely?
Sahil Maheshwari
Abdul, can you please repeat your question?
Abdulkader Puranwala
Yes, sure. Sir, for the European formulation business, would that be a backward integrated project that is your current API site should be utilized for the APIs for these formulation products?
Sahil Maheshwari
No, Abdul. So API as we said largely FIFA and the Lazu has limited general APIs of now. So this is forward integrated in a way you can say the European operations is largely be supplied formulations from a CDMO business. So that is forward integrated. I would not really call it as a backward with an API.
Abdulkader Puranwala
Okay. Okay. Next on the new injectable site at Haridwar. So I understand you would be commissioning that in phases till the end of this fiscal, but any color you’d like to provide as to what are the products you get manufacturing here and now in terms of your existing site, what is the overlap with your previous manufacturing units as well?
Sandeep Jain
[Foreign Speech] one is ampoule and one is FFS ampoule or Lyophilization and vial [Foreign Speech].
Abdulkader Puranwala
Okay. Thank you. And a final question on the sickle cell product. So congratulations on this patent. But when do we see the commercial revenues building up from this product? And this would be your own product or this is the contract manufacturing opportunity? Thank you.
Sahil Maheshwari
[Foreign Speech]. We have already approved all of these things as per regulatory system, but government [Foreign Speech].
Abdulkader Puranwala
Okay, sir. Got it. Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ashish Shreeram Thavkar from JM Financial. Please go ahead.
Ashish Shreeram Thavkar
Yeah, thanks for the opportunity. Sir, I had this question on our exports business like you spoke about Zambia, the European dossiers that you guys have filing. When do you see the real commercial benefits flowing in from whatever investments we are making into export markets?
Sahil Maheshwari
Right. So hi, Ashish. So European business we likely see within couple of fiscals. So we have already filed as you would acknowledge that these take approximately two years to finally get the approval and these are prescription oriented products. So these will slowly and steadily build volumes in the European market, Zambia as well. So we have recently entered into the MoU. Once finalized, we will start setting up the facility, which will take anywhere between 18 to 24 months. This will have a quick ramp up compared to the European because this is essentially a government procurement which will enable us to supply the essential medicines in Zambia. So that is there. Apart from this, while these two are the focus ones, the other ones are of continued focus as well. So we continue to file dossiers in the Southeast Asian and the African markets, the Middle Eastern markets as well, so the current business which is largely propelled by these geographies, right? So we still have almost 350 dossiers in pipeline. We gained approvals, significant approvals in the first half as well, almost 80 plus approvals. So that is, Ashish, the focus area.
Ashish Shreeram Thavkar
Yeah, good enough. Sir, so since you said the second half would be largely similar to first half, not expecting any positive surprises. But then with whatever initiatives you have and your current engagements with your clients, how do you see FY ’26 panning out? Because the way obviously investors are looking at this business is proxy to the IPM, right? And so if you could make any comments on how do you see FY ’26 panning out and can we return to the mid double-digit or mid-teens kind of EBITDA margins next fiscal?
Sahil Maheshwari
So Ashish, actually a couple of points which initially Sandeep sir also mentioned which looks a drag on the financials currently. One is as it is a cost plus model, the API prices have an impact. An update on to it is while we saw the API prices soften in Q3, most of the intermediates or the KSMs have started showing some solidification. So either in Q3 or Q4 I expect the API prices will at least average or normalize. So this will have an impact on — positive impact on our revenue cycle, right and the volume of the industry while the Q1 was strong on the volumes, as I said, the continued fall in the API prices and the stocking which happened in the Q1 that resulted in the H1 volumes being largely flattish, which is similar to the industry, right? So if the industry volumes and the new launches they pick up, I feel that FY ’26 should be moving on those lines essentially.
Ashish Shreeram Thavkar
By any chance, are you guys losing market share on the volume side?
Sahil Maheshwari
So Ashish, why we have not done an updated calculation on that front, but that is not the case. I think if you really compare to the industry, we are performing as the industry, right? So that should not be a case on the loss in the market share. Additionally, as I said, we have a couple of plants which recently got commissioned, the injectable facility as well as the Baddi facility and happy to announce also the Penem facility has successful client audits as well. So with these utilizations in the capacity, we should have an increased volume going forward in FY ’26.
Ashish Shreeram Thavkar
Okay. Sir, lastly, on this API, the EBITDA loss and sir, internally are we still on track of making this business EBITDA breakeven by quarter four of FY ’25 or you feel those timelines could get shifted ahead?
Sumeet Sood
So Ashish, this is Sumeet. So I think you know the API prices softening has not helped the cost, right? So to answer you very directly, I don’t think that in the Q4 that this will turn around or not be EBITDA positive. I think we’ll have to give it six months from here and we’ll revisit our business plan starting April. But in the short-term, next three to six months honestly speaking we don’t see that this is going to turn EBITDA positive.
Ashish Shreeram Thavkar
Okay. And just at least on whatever corrective body or the — because you were trying to set up your own SOP Parabolic drugs, right? So all those activities are over or they are still going on?
Sandeep Jain
[Foreign Speech]
Sahil Maheshwari
Sorry. [Foreign Speech]
Sandeep Jain
[Foreign Speech]
Ashish Shreeram Thavkar
[Foreign Speech]
Operator
Thank you. [Operator Instructions] The next question is from the line of Prashant Nair from Ambit Capital. Please go ahead.
Prashant Nair
Yeah, hi sir. Just first question is on the CDMO business. If I remember in the first quarter you had good volume growth, I think double-digit. Your prices dropped, volumes were growing. Can you share what the volume growth — would you have had volume growth in the second quarter if you adjust for the one time contract you had in the previous year or have volumes dropped even after adjusting for that?
Sahil Maheshwari
Prashant, yes. So we did not experience a volume growth. We had a volume decline of roughly 11% this quarter.
Prashant Nair
And this is on the full base or is after adjusting for the one time contract we just called out last year?
Sahil Maheshwari
Sure. So this is volume. So that was R&D. So that had no commercial supplies.
Prashant Nair
Okay. All right. Got it. Thank you. Sir, what is driving this drop in your view? Because while IPM growth has been sluggish, there should be some growth in volume. So is this timing or is there any other factor which you can call out which may have led to lower volume?
Sahil Maheshwari
So Prashant, if you really observe, Q1 saw limited volume growth, but we had it, right? So CDMOs are one or two months advance of the industry. So while Q2 saw positive volume growth, we had that in Q1, right? While we are still better off limited to the industry, so that is the cycle it’s there. So I don’t see it’s a challenge of us not being able to grab volumes. It is an industry cycle. I think based on what we see, as we said H2 will — H2 overall was positive — H1 was positive on the volume front. So when we say H2 will always will be similar to H1, we still see that overall volume will be up compared to H1. Just the Q2 — previous Q2 compared to previous Q2 we had a dip in volumes.
Prashant Nair
Okay. Understood. Secondly, on the API pricing issue which impacts your value sales in CDMO. When did this start? Did this start sometime towards the end of last financial year or is it kind of a first quarter onwards issue? I was just trying to figure out when the base will normalize.
Sandeep Jain
[Foreign Speech]
Prashant Nair
Okay, sir. And one last question from my side. So on the marketing side, so your formulations business trade generic, how much more adjustment is needed or how much more time would it take to normalize that business, get it to a stage where you want it to be?
Sahil Maheshwari
So Prashant, we have significantly — as we also discussed last time, we significantly scaled down this business because it was operating at a very low margin and hence to better utilize that cash, we invested into exports, for example, in filing of dossiers, right? So it is on track for now. I think H2, we should be able to bring it at a monthly positive level that H1 had limited loss. I think the bleed is largely because as we are scaling that down, we have to get rid of some of the prior inventory. So largely this is a story for this fiscal only.
Prashant Nair
Yeah, thanks. That’s it for me.
Operator
Thank you. [Operator Instructions] The next question is from the line of Gautam Gosar from Monarch AIF. Please go ahead.
Gautam Gosar
Hi, sir. Thank you for the opportunity. Sir, my first question is on the trade generics business since the last participant mentioned. Sir, if you could quantify how much was the trade generics revenue during the quarter and how much was the loss on that?
Sumeet Sood
So the way we have presented our financial, this is based on the segment reporting and the segments are put together. So we don’t disclose that separately. But as Sahil mentioned that there is a very, very nominal. So it will be on a monthly basis less than a INR1 crores on an EBITDA basis which these businesses would be doing so while we are constrained to give you numbers only based on the segments that we have. But to assure you what Sahil said that this is Sumeet this side that the numbers for the trade generic businesses are looking good now.
Gautam Gosar
Okay. Sir, secondly on the CDMO business, so since we’ve seen a volume decline of 11% and if you see the industry, the peers are showing a positive volume growth on your side as well as in the CDMO business. So sir, if you could quantify like what is the reason for the decline versus the peers and we are losing market share in this?
Amrut Medhekar
Yeah, good morning. This is Amrut Medhekar. See, as Sahil said earlier, we as CDMO operate at least two to three months ahead of the market. So typically the difference between the two quarters behavior comparing directly with IPM may not be prudent. It will be easier for us to look at what is happening now will possibly be seen or recorded in the IPM history in the coming times. Number two, there is also mix of products which we sell vis-a-vis other CDMOs. So to say that what is the product mix impact, we will have to analyze in terms of how other CDMOs are phased in terms of their basket vis-a-vis us.
Gautam Gosar
Okay. Okay. That’s it from my side.
Operator
Thank you. [Operator Instructions] Now the next question is from the line of Ashish Shreeram Thavkar from JM Financial Mutual Fund. Please go ahead.
Ashish Shreeram Thavkar
Yeah, thanks for the opportunity again. I just had one question on this government’s notification on MSMEs wherein they have to up their compliance levels, up their quality standards. Is there an opportunity there and by what timelines do you see some discussions can get into commercial discussions there?
Sandeep Jain
[Foreign Speech]
Ashish Shreeram Thavkar
Okay. [Foreign Speech]
Sandeep Jain
[Foreign Speech]
Ashish Shreeram Thavkar
Okay. Thank you, sir. All the best.
Sandeep Jain
Thank you.
Operator
Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management.
Sahil Maheshwari
[Foreign Speech] Thank you very much.
Sandeep Jain
Thank you very much. Namaskar to everybody. Thank you for joining.
Operator
[Operator Closing Remarks]