Hester Biosciences Limited (HESTERBIO) Q4 FY23 Earnings Concall Transcript

Hester Biosciences Limited (NSE:HESTERBIO) Q4 FY23 Earnings Concall dated May. 17, 2023.

Corporate Participants:

Unidentified Speaker —

Analysts:

Nirav Seksaria — Living Root Capital — Analyst

Keshav Garg — Counter Cyclical PMS — Analyst

Shekhar Mundra — Vivo commercial Limited — Analyst

Yogesh Tiwari — Arihant Capital Markets — Analyst

Presentation:

Unidentified Speaker —

Hester as 50% equity through that also we are pushing our local sales in Tanzania, to answer your question in quantifiable manner. Sales in Tanzania, will start first enough in around six to eight, nine months, the sales will start to other countries, the scope and the potential is tremendous. It’s just a matter of time the registration process etc to, for us to overcome that.

Unidentified Speaker —

So at, in our current capacity in Tanzania, how much sales can we generate at optimum capacity utilization.

Unidentified Speaker —

Around $25 million.

Unidentified Speaker —

Okay. Okay.

Unidentified Speaker —

That’s actually pretty high given our current sales. If you are able to achieve that will be commendable.

Unidentified Speaker —

Yes, but any vaccine plant anywhere in the world, you cannot construct smaller capacity plans and then grow modularly as and when you get business that the capacity is derived from the freeze drying capacity that you have the incubation capacity that you have etc. So, whether in India, in Nepal, in Tanzania, our capacities have been big right from the beginning and it is normal issue, it is not one off kind of situation in biological.

Unidentified Speaker —

Okay. And then when you expect to reach $25 kind of revenue that we can generate from our existing capacity in Tanzania and how many years we can ramp up.

Unidentified Speaker —

I think it should take approximately four years to five years for us to reach that turnover.

Unidentified Speaker —

Okay, okay. And the margin we’ve seen also be in-line with our Indian operations.

Unidentified Speaker —

Yes, in fact, they’ll be better over there, in terms the realization prices are more in Africa, but let’s go at the worst case scenario in line with the Indian profitability.

Unidentified Speaker —

Sure. And sir, if we go through your balance sheet revival CWIP of around INR45 crores. One will be the COVID vaccine facility which will be there COVID vaccine facility. Apart from that, anything else which is there now to CWIP.

Unidentified Speaker —

One is, yes, one is the BSL-3 laboratory for manufacturing the bulk antigen for COVID, but now with COVID going, we are trying to repurpose that facility and look.

Unidentified Speaker —

[Technical Issues].

Unidentified Speaker —

Okay, just a minute. Sorry, our CFO will answer this, because I just misunderstood probably.

Unidentified Speaker —

When the CWIP, apart from the COVID facility we have for the full finish facility, which is under construction, which we have given in the press release that is complicated in the quarter, coming quarter.

Unidentified Speaker —

So that is expected to double our vaccines capacity in India.

Unidentified Speaker —

Yes, in this quarter once that goes on stream when it is commissioned. Yes, and we end it should happen in less than around 60 days time.

Unidentified Speaker —

Sure. Sure. And sir, for last year also, how do you see growth in our poultry and animal welfare division from domestic market.

Unidentified Speaker —

I think one should keep in mind that we are in the agriculture sector animal husbandry comes in agriculture sector. The opportunity in India to grow in the agriculture sector is high and within the agriculture sector, the easiest way double the income of farmers, especially those who have small chicken or cows in their home, to improve the productivity of those production animals that way their income will go up much more faster than while improving the production capacity of their agriculture land. So the scope is tremendous in terms of our health products, biologicals and it is something, which is going to grow in leaps and bounds. Also, the Government of India has put a very big focus on animal husbandry. They are getting into immunization, eradication programs for animal diseases. As you are aware, Government of India, not only India, the world has taken up medication of PPR in sheep and goat. So the and awareness campaigns are going up, so potential as per as seems to be very big.

Unidentified Speaker —

Thank you sir and wish you all the best.

Unidentified Speaker —

Thank you.

Operator

Thank you. [Operator Instructions ] The next question is from the line of Neerav six area from living route Capital, please go ahead.

Nirav Seksaria — Living Root Capital — Analyst

Hello, am I audible.

Unidentified Speaker —

Yes, yes you are.

Nirav Seksaria — Living Root Capital — Analyst

Hi, sir. Sir, I just wanted to know in the opening remarks you mentioned that poultry healthcare dependency has reduced. So what focus could be to meet some goals normally going forward.

Unidentified Speaker —

Your voice is coming in waves, but as I understand, you are looking at the content your question is, what would be the ultimate contribution for the poultry healthcare division. Is that right.

Nirav Seksaria — Living Root Capital — Analyst

Yes, going forward, what percent could be [indecipherable]. See from 100% we had gone down to 75%, 70% and today it is 60%. And we would want to grow both the poultry as well as the animal health on a one-to-one basis or maybe plus-minus 5% or 10%,60%,40%,40%,60%, this is what our desire is, but also to mention that the Animal Health Care division. Today in India has a much bigger scope because immunization programs are coming up and the number of vaccines required by the Government of India are increasing as well as I was just answering the question of the earlier person that the agriculture sector for it to grow in leaps and bounds. The income of backyard farmer has to grow in order to get a good percentage of the growth in that industry. So I think overall, all put together, I would not be able to give an exact figure on ratio type, but we will try to run both the horses and continue to run both the horses, notwithstanding the third horse, which we have is the PetCare business, which is also a sunrise industry in India at this point of time. My answer, have been very subjective, but I’m not able to give precise figures. That’s Okay sir., Also [Indecipherable] you also talk about the potential of pet care business in India.

Unidentified Speaker —

The pet business of all companies in animal health is the biggest division rather than poultry and large animals. So this is all that I can say. With increasing the incomes of households in the country with the definition of family, changing the pet and having pets it goes up, that is what history shows looking into the western countries etc, and this trend is also coming up in India at the moment the number of pets related to the population are definitely less, but this is going up in a very, at a galloping rate. I think it is growing at around 20% on a year-on-year basis higher than the poultry or the animal healthcare.

Nirav Seksaria — Living Root Capital — Analyst

Okay. Thank you so much sir. I have no further questions.

Unidentified Speaker —

Thank you.

Operator

Thank you. The next question is from the line of Keshav Garg from Counter cyclical PMS. Please go ahead.

Keshav Garg — Counter Cyclical PMS — Analyst

Last quarter, you indicated that INR43 crore revenue that we did then add unhealthy sustainable, but in this quarter it has halved to INR21 crores levels with this half on a quarter-on-quarter basis. So is this a one-off our answer going forward sir on a quarterly basis, so what kind of number should we expect INR21 crore or nearer to INR43 crores per quarter.

Unidentified Speaker —

Just a minute. You are talking about quarter-to-quarter or you are you are talking about Q3, Q4, or are you talking about corresponding Q4, Q4.

Keshav Garg — Counter Cyclical PMS — Analyst

Sir, Quarter-on-quarter Q4 versus Q3.

Unidentified Speaker —

Q4 versus Q3. Okay, so in, see what happens in immunization programs sometimes it all depends upon when the orders are placed by the government. Okay, now if the order comes, and if that has to be given at a particular time, then that quarter sales goes up then the next quarter is a bit low. So we have to make sure that over a period of time. We have to balance out this business and then we have to take it further, because just a minute, let me look at some figures if I have in my hands. Yes, you see even if you look at our press note, there is an unexecuted order of PPR vaccine, which is about to come. The PPR immunization program got a little bit delayed because the government was focusing on the lumpy skin disease. Now these situations come up suddenly in between it definitely impacts us as a seller of these vaccines, but I mean, but that’s the way it is.

Keshav Garg — Counter Cyclical PMS — Analyst

Thank you sir. Keshav, basically… Sir 214 large event us again regaining the mid 30s operating margin that we were doing earlier. And what has happened for that to happen.

Unidentified Speaker —

Yes, a good question. We–our sales are striving towards that point number one, okay. How do we do it. We get now with animal health with the health products margins are relatively lower than the vaccines. So what we are trying to do is, at the end even if the gross margins are less. But at the EBITDA level, if we are able to increase with more cycles of the health products etc, because the time to turn around health product cycle is less than what it is for vaccines. So vaccines are more profitable at a gross level, while in terms of turnover, if we can do more cycles, it will improve EBITDA level, which will again improve the bottom line. So and even if you go to see quarter-to-quarter basis, Q2 it was INR9 crores and in this Q4 it is around INR10 crores. So yes, it’s just a margin 10.9%, so from 10% to 11%. So 10%, we are working on it and we are very conscious of this be rest assured we will restore our margins in probably not in an extreme short-time in a few quarters but overall your time also we will get back to those margins. It is a mandate, it is sacrosanct for us to ensure that our margins are again restored to that level and the tough part is that the earlier margins were based only on vaccines sales and now we are going to strive for these margins with vaccines as well as health products. But nonetheless having tasted blood, you know I mean, that’s the same thing. Having tasted good margins, we are not going to leave it at that.

Keshav Garg — Counter Cyclical PMS — Analyst

Sure sir, and sir also lastly in our segment revenue in the consolidated figures there is one other segment, which is INR8.8 crore revenue and INR3.4 crore PDP. Sir what exactly is this.

Unidentified Speaker —

Yes, so the other income is some pharmaceutical products, which we have exported to Africa. So that did not qualify to come in these two divisions therefore, we showed it separately.

Keshav Garg — Counter Cyclical PMS — Analyst

Sue sir. As you said in your admin think that our numbers have bottomed out and build fourth quarter and going forward, how soon will pick-up or more pain is left.

Unidentified Speaker —

I would say that I mean optimistically looking, we are seeing that things will go up because there are these immunization programs etc, all these things, but I don’t think so there is anything like bottoming out or anything of that even in this quarter we have shown improvements over the previous quarters etc, so I think we are–we hope to grow at a higher rate in this year than what we grew last year for sure, as well as improving the bottom line.

Keshav Garg — Counter Cyclical PMS — Analyst

Okay sir, thank you very much and best of luck.

Unidentified Speaker —

Thank you.

Operator

Thank you.[ Operator Instructions ] The next question comes from the line of Shekhar Mundra from Vivo commercial Limited. Please go ahead.

Shekhar Mundra — Vivo commercial Limited — Analyst

For the capex coming in or what is the capacity in terms of one billion doses of vaccine.

Unidentified Speaker —

From 4.8 we will go into multiply by two approximately 9 billion doses.

Shekhar Mundra — Vivo commercial Limited — Analyst

Okay, so the revenue potential is roughly like around INR250crores is that right.

Unidentified Speaker —

You can say that at the same time, we must consider, you know in any biological plant to estimate the exact production capacity is not possible if we produce more vaccines of the large animal where the self products in 100 dose size as against in poultry we have 2000 dose size products. So the same freeze dryer, the same number of vial, one vial will contain contain 100 doses of a typical goat pox vaccine or a PPR vaccine. But if we are freeze drying a poultry vaccine, it will have 2000 doses. So this is an approximate figure it could swing 20% plus or minus.

Shekhar Mundra — Vivo commercial Limited — Analyst

All right.

Unidentified Speaker —

It could even go beyond it, it could even go above.

Shekhar Mundra — Vivo commercial Limited — Analyst

Got it, got it. And will the focus will be more towards the animal side or it will be a mix between animal and poultry.

Unidentified Speaker —

Say, the focus is going to be on all three. Animal care, poultry healthcare and pet care. I would want to make it clear there is no dilution of energies or focus amongst any of the divisions. It is just that if there are market forces, like what are there today in the poultry industry if that pulls us down, we can make it up with the animal health care or pet care or if anything with the animal, we can make it up with poultry, the focus continues. We had till now been known as a poultry vaccine company and we are very proud even about that fact. So the focus on poultry does not even diminished by 0.1%.

Shekhar Mundra — Vivo commercial Limited — Analyst

Okay, all right, got it. And with respect to Nepal, like what is the revenue potential for the Nepal subsidiary.

Unidentified Speaker —

At full capacity, we can do approximately INR50 crores.

Shekhar Mundra — Vivo commercial Limited — Analyst

All right, all right. So and what’s the outlook. Like how far do you think we can ramp-up over there and.

Unidentified Speaker —

No, we are at 20, first let us reach 40 and then we will ramp it up, it will require six months with marginal investment to double.

Shekhar Mundra — Vivo commercial Limited — Analyst

No. I meant with respect to the sales, because right now we are doing INR12 cores sales from Nepal.

Unidentified Speaker —

Okay for sales we are lot dependent on the PPR tenders of [indecipherable] has committed, they are going to increase it, because the world has taken up to eradicate PPR. We are waiting for tenders to come up. In fact, we already have orders in hand of around INR15 crores etc, in Nepal already of various tenders. So it’s everything is in process, but yes we are dependent on tender business. At the same time, we have started looking at the domestic market and we have already got a small share in the domestic market and we will make sure that we also now generate revenues from the domestic market.

Shekhar Mundra — Vivo commercial Limited — Analyst

And how big do you think is the domestic market of Nepal.

Unidentified Speaker —

For poultry vaccines, it could be around INR20 crores, INR30 crores for other as species I do not have the data with me.

Shekhar Mundra — Vivo commercial Limited — Analyst

All right, all right, sir. As one more thing regarding the animal health care segment in India. How big is the segment.

Unidentified Speaker —

I think it is some INR5,000 crores to INR8,000 crores or something. I don’t even– I don’t have the figures right now.

Shekhar Mundra — Vivo commercial Limited — Analyst

Okay Sir. All right. Just wanted to get an idea.

Unidentified Speaker —

No, no it’s very big. We are just like a small drop in the ocean. At this point of time, the potential is very high.

Shekhar Mundra — Vivo commercial Limited — Analyst

All right, all right. Got it, got it. Thank you.

Unidentified Speaker —

Thank you.

Unidentified Speaker —

Thank you. [Operator Instructions ] The next question is from the line of Keshav Garg, Counter Cyclical PMS. Please go ahead.

Keshav Garg — Counter Cyclical PMS — Analyst

Trying to understand that sir, has the offer dead peaked out or it will, peak from the [Technical issue].

Unidentified Speaker —

Has any doubt or will we borrow more. I think that is question.

Keshav Garg — Counter Cyclical PMS — Analyst

Okay, so right now I think we are at the highest cap, means highest borrowings, which we have taken, but which will be going down only, we don’t have any plans for taking any additional loans.

Unidentified Speaker —

Or data at this point of time.

Keshav Garg — Counter Cyclical PMS — Analyst

Sure sir, and sir also what grant of INR24 crore last year, INR6 crore year before. Going forward also some more grants are [Technical issues].

Unidentified Speaker —

We wish grant keep on coming every year on the lighter side, but these grants are related to specific project. We had COVID project and we were working on some other projects internationally. And so it’s something which will be project related assignment related. So we will take it forward at in that manner.

Keshav Garg — Counter Cyclical PMS — Analyst

Sir, also what is the average cost of [Technical Issues].

Unidentified Speaker —

Sorry average cost of debt.

Keshav Garg — Counter Cyclical PMS — Analyst

Sir, what is the interest rate, we are paying.

Unidentified Speaker —

Interest, say interest, average all borrowings together somewhere works out to be around 8%.

Keshav Garg — Counter Cyclical PMS — Analyst

Okay, sir. [Technical Issues].

Unidentified Speaker —

How much? Your voice was not clear.

Keshav Garg — Counter Cyclical PMS — Analyst

Existing projects.

Unidentified Speaker —

Can you repeat your question.

Keshav Garg — Counter Cyclical PMS — Analyst

Sir, what I’m trying to understand is that how much further capex is required for all our on going [Technical Issues].

Unidentified Speaker —

Currently there are no additional capex is required for the ongoing projects. There are some INR12 crore, INR10 crore to INR12 crore rupees is able for the capital creditors for the existing retention money.

Unidentified Speaker —

And if we embark on any additional capital, which is unlikely, then of course that’s a different situation, but we are covered fully for the current expansions.

Keshav Garg — Counter Cyclical PMS — Analyst

Sure sir. [Technical Issues]. Sir what kind of peak revenue will we be able to generate on an overall basis to consolidate all our [Technical Issues].

Operator

Sorry to interrupt, sir. But the line for you is very bad.

Unidentified Speaker —

Yes. I mean we are not able to hear anything properly.

Keshav Garg — Counter Cyclical PMS — Analyst

Sir, I am trying to understand. Once all our ongoing projects [Technical issues]Sir, I’ll come in the queue.

Unidentified Speaker —

Yes. I tell you, let me answer. What is the total revenue possible. So INR50 crores in Nepal, $25 million to $30 million in Africa, so that is how many rupees. INR200 crores over there and whether we can do an additional INR200crore more than what we are doing right now. INR600 cores.

Keshav Garg — Counter Cyclical PMS — Analyst

Sure sir. Thank you very much.

Unidentified Speaker —

And all the capital is already invested for this potential.

Keshav Garg — Counter Cyclical PMS — Analyst

And sir, how many euros [Technical Issues] INR600 crores revenue. We are trying our best to do it as early as possible. I think it should take approximately three years time for us to reach that. Okay Sir. Thank you very much.

Unidentified Speaker —

Thank you.

Operator

Thank you. The next question is from the line of Yogesh Tiwari from Arihant Capital Markets. Please go ahead.

Yogesh Tiwari — Arihant Capital Markets — Analyst

Thank you sir. Am I audible. Yes, you are very much. Yes, hi, sir, my first question is on poultry division [Foreign Speech] so in the poultry division in Q3 revenues was about INR32 crores has increased to about INR36 crores. So what you’re seeing in Q4 I mean, what is driving the recovery in poultry.

Unidentified Speaker —

No, it will be industry which is there and some disease incidences etc and probably now the poultry industry has reached such an abysmally low level that the only thing that can happen to it is improvement from here on. And another thing is that, earlier we were selling more of vaccines. Now we also focus on health products. So our range has also gone up with the same marketing team, we have more products to reach up to the end client the poultry farmers, the poultry Institute, the poultry egg, or the meat producer. So it’s a combination of all these things.

Yogesh Tiwari — Arihant Capital Markets — Analyst

And sir, out of this 8% decline what would be bifurcation between vaccines and healthcare in poultry out of this 8% decline.

Unidentified Speaker —

[Foreign Speech] 8% on these on a quarter-on-quarter basis, so I think the vaccine de-grew by 15%, and the health products increased by 60%.

Yogesh Tiwari — Arihant Capital Markets — Analyst

And sir finally [Technical Issues].

Unidentified Speaker —

Wait a minute, please keep in mind that the poultry base is high. We are the second largest in poultry in India, while health products we are at a very low level. So the multiplying factor in itself is very small. So that also do keep in mind.

Yogesh Tiwari — Arihant Capital Markets — Analyst

Sure, sir. And finally on poultry the division. Because of the challenges in the division. Are you seeing any consolidation happening wherein some players have exited the market or maybe the organized sector, is there any consolidation or any [indecipherable].

Unidentified Speaker —

No. I don’t see any structural change at this point of time, the number of integrators remain the same, the poultry producers remain the same. We do not see any structural change. In fact, structural changes are actually now to be seen in the cattle rearing industry for milk. Because there, there is some consolidation that is happening awareness that is happening scientific tools that are being used etc.

Yogesh Tiwari — Arihant Capital Markets — Analyst

Sure sir, Thank you very much.

Unidentified Speaker —

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you sir.

Unidentified Speaker —

Thank you all. Just as already well summarized by Priya and you would have read in the press note sales have been good profits have come down a little bit, but there is a lot of potential all across in Hester India, Hester Nepal and Hester Africa, notwithstanding the health product business, which is growing as well as the Pet business. Please continue to have your faith and confidence in us and trust me, we are here to make sure that we become one of the best animal companies in the world. Thank you.

Operator

[ Operator Closing Remarks].