Hester Biosciences Ltd (HESTERBIO) Q4 FY21 Earnings Concall Transcript

Hester Biosciences Ltd (NSE:HESTERBIO) Q4 FY21 earnings concall dated Jun. 08, 2021.

Corporate Participants:

Rajiv Gandhi — Chief Executive Officer and Managing Director

Nikhil Jhawar — Chief Financial Officer

Analysts:

Chetan Gandhi — Gandhi Securities — Analyst

Rahul Jeewani — IIFL Capital Limited — Analyst

Ravi Naredi — Naredi Investment — Analyst

Kuntal Shah — Oaklane Capital — Analyst

Vibha Batra — FairConnect — Analyst

Manoj Dua — Geometric Securities — Analyst

Mitesh Shah — ICICI Securities — Analyst

Manish Jain — Gormal One — Analyst

Anirudh Shetty — Solidarity Investment Managers — Analyst

Charulata Gaidhani — Dalal & Broacha — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Hester Biosciences Limited Q4 FY ’21 Earnings Conference Call hosted by IIFL Capital Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Capital Limited. Thank you and over to you, sir.

Rahul Jeewani — IIFL Capital Limited — Analyst

Thanks, Ayesha. Good afternoon everyone. This is Rahul Jeewani from IIFL Securities. I thank the Hester management team for giving us the opportunity to host this call today. From Hester, we have with us Mr. Rajiv Gandhi, CEO and Managing Director and Mr. Chetas Patel, Chief Financial Officer. I will hand over the call to the management for their opening comments, post which we will open the floor for Q&A. Over to you, sir.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Good afternoon everybody. As usual, it’s a pleasure to interact with all of you on this quarterly call of here the results of Hester Biosciences. Before I begin, I would just like to make a note is that while Chetas, who was a CFO, continues to work with Hester as a General Manager, Finance. We have a new CFO whose name is Mr. Nikhil Jhawar [Phonetic]. He is with me today on the call and so is Chetas. So this is just to mention about the two of them.

Nikhil Jhawar — Chief Financial Officer

Good afternoon everyone.

Rajiv Gandhi — Chief Executive Officer and Managing Director

So now with that opening note, I would like to get on to the business review of the financial year 2021. The press note has — we always try to make the press note as detailed as possible so that a lot of information reaches to all of you before we all get on to the call. So just as a recap of the information that you probably already have in your hands, on a quarter-to-quarter basis, Q4 we grew at 52% on the top line and in terms of the 12 month period overall, we grew at 23%. The year gone by with COVID the quarter one was low and then slowly the business built up and more or less we recovered by the time the Q4 ended and we were also to post a reasonable good growth of 23% which was as per the forecast.

So that makes us happy that even in those COVID times, we were able to achieve the turnover as what we had forecasted, but there has been a little of — you can say a deviation from the projections that we had earlier made in terms of domestic sales versus the international business because the year gone by not that we did not, but we could not actually export material because there were — on most of the part of the year and even right now, there have been too many restrictions in terms of shipping the material from India to whichever country.

Most of our vaccines or rather all of our vaccines go by air shipment and air shipment was very restrictive in the whole last year. Incidentally, the domestic sales covered up — rather a little more than covered up for the loss in the export business and we did reasonably well wherein our domestic sales grew by approximately 29% on a year-on-year basis and if you look at just on a quarter-to-quarter, it was a 55% growth.

Yes, exports as mentioned grew only by 3% while in actually — it grew by 3% in the quarter, but overall there was a drop of 4% on the whole financial year if you take it. Considering that we are already towards the end of Q1 and a reasonable amount of inputs are already with us on how the year is going to be going further from here, our exports will definitely recover and we hope that our exports will grow by 100% in this financial year because more than — it would be partly covering up and we are confident that all across the globe, once things open up, things would grow more aggressively and it would more or less make up for everything that we have lost in this year.

In terms of domestic growth, the earlier growth was around 20%, 22% which we grew 29%. We are very confident that we should be able to grow at least this percentage, if not more and I think overall without any problems, we should be growing at at least 25% to 30% in this financial year as against the last financial year as far as the top line is concerned.

We also have other reasons to believe that the sales on the animal vaccines division would also take a reasonable jump. Three of our products which are currently under registration that is classical swine fever, lumpy skin disease, and sheep pox, all these three vaccines should be registered.

The Government of India is looking at immunizing programs against all these three diseases and out of the three, we are the only company manufacturing two of these vaccines, that is the lumpy skin disease and the sheep pox vaccine. So we should be more or less having rather confirmed 100% of the market share whatever, however small it starts and it goes on further. So these are a few things.

We have also focused a lot on health products. In this quarter, we have launched a range of herbal products, which we believe, which will give us good results in this financial year. Herbal products have gotten reasonably high in the trend as far as animal health is concerned and we have already launched a few products. Some of them are also in the pipeline to be launched. Another range which we are looking at adding on, we already have a few disinfectants. We are looking into launching a few more disinfectants.

So overall, if you really go to see, while vaccines we would have three to four new vaccines this year, all on the animal side, on the health products, we would have poultry as well as animal health products both range and we are very confident that the health products business would grow at a extremely fast rate at a geometric progression and that would lead the growth at Hester Biosciences. As I have always mentioned in the past and I repeat again, all animal health companies have a bigger portion of their sales with their health products rather than the vaccines. We have 70% sales of vaccines and 30% of health products. So in a way that talks about the opportunity that we have to grow the business in a geometric progression.

That more or less covers whatever I would have had to say for the financial year. Rationalizing the product mix has been an endeavor which we have been doing continuously I would not say even a year-on-year basis, on a quarter-to-quarter basis. In fact, at times now talking about the bottom line, at times, the bottom line — the gross margins do vary, and this is mainly because of the changed product mix that we might enter into in a particular quarter, but if you look at it at an average of a year’s time, we are more or less able to achieve the percentages — definitely the EBITDA and even the bottom line, we are more or less there and it is our endeavor to still improve the bottom line by a few points. So with this at least I have covered all the issues as far as our animal health business is concerned.

Before I give the line on to Nikhil for his comments on the financials with whatever he might want to say, as you all are aware, Hester has embarked on the COVID-19 vaccine initiative. There have been two initiatives that we have embarked on. One is with IIT Guwahati and the second one is with Bharat Biotech. The one with IIT Guwahati for technical reasons, we have not been — rather our collaborator IIT Guwahati has not been able to develop the master seed.

Their role was to develop the master seed rather is to develop the master seed, give us the master seed, we would start the animal trials and then take it on to human trials and then take the vaccine further. Unfortunately, the seed has not yet been developed. The project is not shelved. We have hopes to continue this project and we are hoping that sooner than later IIT Guwahati would be able to develop the master seed and give it to us. It is a recombinant vaccine.

Talking about our recent news on the MOU signed with Bharat Biotech. The MOU signed by us with Bharat Biotech is towards manufacturing the drug substance. It would be an agreement for manufacturing an intermediate, that is just the drug substance, give it to them with which they would formulate and sell their final vaccine Covaxin. We have no role to play in manufacturing the final vaccine Covaxin. It is the intermediate that we would be able to — we hope to manufacture.

Things are going on as per the timeline at this point of time. There are quite a few things that need to be done at our end, need to be got from Bharat Biotech, more things to be done at our end rather and it is going at a pace which has been planned and hopefully in the next, you know between two to three months — around three months time, we should have some output from this project, which we have envisaged to take on our hands.

This project is mainly with an objective rather than looking into profits, not that we will not be making profits, not that it was going to be a loss-making thing, nothing of that sort, be rest assured on that neither making of any of these products would eat away into our current production facility because we are creating rather renovating a part of a premises at our end that would be able to make these products. So there would be no drop in our normal production of animal vaccines and this would go on the way it is supposed to be going on.

So that covers everything. While I’m on the — still speaking to all of you, I would like to talk a little bit briefly on the subsidiaries that we have namely, first one, Hester Nepal, it has not been a good year for us because it’s an export-oriented unit and flights were completely shut in and out of Nepal neither were there tenders for FAO. There had been very minuscule tenders which we did execute also. So, therefore, that has led to a sharp drop in terms of the top line as well as in terms of the bottom line, but I think one good year and we should recover from all these things and come back to normalcy considering that like in India, the gross margins are good. We just need one good year to come out of any problems that we could be or that we would be. This is not only for this time for any point of time.

Talking about Texas Lifesciences, it is a company which manufactures and supplies the health products. The growth of Hester’s health product business and Texas Lifesciences business is directly proportional and so therefore we have reasons to believe that with Hester growing, Texas Lifesciences is bound to grow and this business would become bigger than what it is. Talking about the bottom line as far as Texas is concerned, it’s not much of a relevant issue, 90% of the goods are sold in to Hester, somewhere or the other between Hester or Texas, the bottom line is anyway taken care of, so I really don’t think it’s a matter of concern or even a matter for discussion.

Talking about Hester Tanzania, we have started putting in more efforts in Tanzania. In fact, we are looking at tying up, collaborating in terms of equity maybe or looking into other partnerships, which we have always been looking as I have mentioned to all of you all this time. Hopefully, we should be — I think in the next few weeks or something, we would definitely be able to present probably a leap jump that we hope and intend to take in Hester Tanzania and try to grow the business at a very fast pace. There are very aggressive and strong talks that are at this point of time going on with many companies within Tanzania itself.

On Hester Africa, the export-oriented unit, which is going to be manufacturing African specific animal disease vaccines, things are a little — they slowed down a little bit, but now the momentum has again picked up. Everything was to end in May, but unfortunately the lockdown, they had their internal problems, the political problem, the disease problem, Air Tanzania flights — the direct flights, those were shut. There wasn’t any way to reach Dar es Salaam directly. So things which could have happened in those months in May and by end of April and May in terms of validation, commencing each and every equipment etc, we could not do those things, but now things are again easing out from the middle of this month.

Again the flights and everything are going to be resumed with Dar es Salaam and we hope that on a war footing we should be able to complete everything within a month’s time to make sure that we have our inauguration in the month of August, if not earlier. So with this, it completes my presentation and talk on the performance of the Hester and its subsidiaries. I think I would like to now open the question and answer session and any finance related questions, they would be answered by Nikhil. Over to all of you.

Questions and Answers:

 

Operator

[Operator Instructions] The first question is from the line of Chetan Gandhi from Gandhi Securities. Please go ahead.

Chetan Gandhi — Gandhi Securities — Analyst

Sir, the registration for CSF, LSD, and sheep pox vaccine are for which country, sir.

Rajiv Gandhi — Chief Executive Officer and Managing Director

At the moment, first, any product that we would want to launch, they should be first registered in India and then only we can do the registration in other countries. So we are at the moment under registration in India.

Chetan Gandhi — Gandhi Securities — Analyst

Okay, so no plan has been finalized for the other countries?

Rajiv Gandhi — Chief Executive Officer and Managing Director

No, but the moment we get it registered, we should be able to start because all the three diseases are prevalent in the African continent. So we should be able to immediately move mainly towards the African continent. And to tell you, lumpy skin disease, the disease is currently prevalent, we are selling — we already have a vaccine by the name of Goat Pox, which has the strain and that strain is also working towards immunizing cattle against lumpy skin diseases. So in a way, we are already selling the lumpy skin disease, but it is in the name of Goat Pox vaccine.

Chetan Gandhi — Gandhi Securities — Analyst

Sure sir, thank you. Sir, can you say the technology transfer update on NovaFarm for Egypt and when is the first income likely to be earned from this tie-up.

Rajiv Gandhi — Chief Executive Officer and Managing Director

No, the income has already — I think we have already got in two or three — we have got already two — twice, there is a staggered payment schedule, which would go over two to three years and we have already — and their project has got a bit delayed because of this COVID and things being closed over there etc. So it is something that is already happening and it is happening in bits and pieces and it will continue happening in that manner.

Chetan Gandhi — Gandhi Securities — Analyst

Sure, sir, regarding the sales team in India, Nepal or Tanzania, are you planning to expand? And if yes, what are the share of percentage incremental?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Our sales team in India also we have taken it up on to increase our sales team as far as India is concerned and this year we want to increase our sales team by 40% to 50% within India. In terms of Africa in most of the countries we have firmed up a distributor and at the moment, considering this current situation COVID and all the situation, what we have decided that we will appoint a distributor, make that distributor exclusive for that country and then slowly embark on putting people over there to create the demand and while in Tanzania alone, we are in a process of hiring a few people and getting more aggressive in Tanzania at least. I would not be able to give you the exact number of people and all these things because in today’s — all these things are quite fluid on a country to country basis, but we are sure that our sale in Tanzania would go up three to four times in this financial year as compared to what it was last year.

Chetan Gandhi — Gandhi Securities — Analyst

Excellent sir. Sir, can you share your equity raising plan which we have taken the enabling resolution and status of the project for which you want to raise the equity?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yes, we have the project in hand, that is the COVID vaccine project and we are even looking at one or two other projects. So we are putting in the whole structure together and then we would soon come up with a plan and then we would go on it rather than me talk about it while things internally are still being firmed up.

Chetan Gandhi — Gandhi Securities — Analyst

Sure. I have a question for the finance team, sir. In consolidated result this quarter we have made a EBIT loss of around INR1.2 crore in animal healthcare while the full year despite the sales gone down from INR63 crore to INR58 crore, EBIT has gone up from INR12.6 crore to INR18 crore. I mean, why is this and this is going to be the new normal or it is one-time, exceptional.

Nikhil Jhawar — Chief Financial Officer

These are actually one-time exceptional because of Nepal in-transit [Phonetic] is there because Nepal is primarily into the animal healthcare division. So that has resulted into this reduction because of the lockdown [Phonetic] into Nepal division.

Chetan Gandhi — Gandhi Securities — Analyst

Okay. Can you share the likely improvement in working capital for next 12 months?

Nikhil Jhawar — Chief Financial Officer

So we would be evaluating that based on the new projects coming in and the expansion plan which we are having. So maybe based on that we will be evaluating for further working capital requirements.

Chetan Gandhi — Gandhi Securities — Analyst

Sure and my last question is, sir, capex plan for India, Nepal, and Tanzania for FY ’22 and ’23.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, Rajiv here. The capex plan for ’20 [Phonetic] to ’23?

Chetan Gandhi — Gandhi Securities — Analyst

Yeah FY ’22 and FY ’23.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Ah, FY ’22 and FY ’23.

Chetan Gandhi — Gandhi Securities — Analyst

This year and next year, please.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, this year I think as far as the expansions are — all that are going to happen that will happen in India while we have already made the capex in Nepal and in Tanzania and we do not think that there would be any additional significant or some inconsequential capex that might happen, but which would not have any impact on the balance sheet. So in short, nothing in Nepal, nothing in Tanzania everything in India.

Chetan Gandhi — Gandhi Securities — Analyst

So, sir, can you quantify that, India?

Rajiv Gandhi — Chief Executive Officer and Managing Director

No, as I told you, we are working on it and we will come back to you.

Chetan Gandhi — Gandhi Securities — Analyst

Sure. Thank you, sir. That’s all from my side.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Operator

The next question is from the line of Ravi Naredi from Naredi Investment. Please go ahead.

Ravi Naredi — Naredi Investment — Analyst

Thank you Rajiv Gandhi ji, it is a fantastic result indeed. Sir, tell something more about MOU with Bharat Biotech sir. How much money we will invest and how the project will go?

Rajiv Gandhi — Chief Executive Officer and Managing Director

This project with Bharat Biotech as I mentioned in my, you know, while talking earlier before the question-answer, it is to produce the drug substance, not the final finished vaccine, produce the drug substance, supply it to Bharat Biotech, which in turn, they will use and manufacture the final vaccine. So that is what we hope to do and in this endeavor, we hope to invest approximately INR40 crore towards setting up this plant towards doing this and while these details are yet — I mean all this is just firming up and probably everything should firm up in the next few weeks. I would be more clear and I would be able to present more details and in any case as and when things are happening with Bharat Biotech, I have always been presenting and I have always been making the announcement, which also we would do as we progress.

Ravi Naredi — Naredi Investment — Analyst

Yes, sir. You are — by the way investor friendly and you give all information to us. That is a fine thing. Give some guidance for current year growth in top line and margin sir and capex plan, whole capex plan of the company?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, so let’s look at the animal health business. Let me not give any forecast for the COVID vaccine that we put — keeping that aside, whatever happens in that, it would only add to the top line and bottom line. As far as animal health and poultry health business is concerned, I am reasonably confident to grow the business more than what it has grown the last year in terms of percentage. Last year it grew at 23%. We are hoping that this year we will grow at approximately 25% to 30%. That’s something which we are reasonably confident. As far as the bottom line is concerned, it has always been our endeavor to try to improve the bottom line and the least that we you can expect is that our bottom line would be maintained at least at this if not anything better. Be rest assured on that.

Ravi Naredi — Naredi Investment — Analyst

Okay and capex plan sir for whole year.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Capex plan, we are all working on it. We are even looking at some additional expansion plans etc. So everything we will put into together and make one common thing and then I would like to address the issue rather than address it in bits and pieces at this point of time.

Ravi Naredi — Naredi Investment — Analyst

Okay, so we are mainly in animal drugs and we are going for Bharat Biotech, this vaccine sustains — so how these changes you will manage in future?

Rajiv Gandhi — Chief Executive Officer and Managing Director

A good question. Point number one, nothing that we are producing right now will be impacted or will be reduced to accommodate any activity that we are doing — what we are doing, we are embarking on with Bharat Biotech and to answer you, you might find my answer a bit evasive. This definitely makes all of us, our eyes and years open to look at newer, bigger diversification plans if at all they would come into the future. So I think when we are more or less ready with things, we will come back to you on this.

Ravi Naredi — Naredi Investment — Analyst

Okay. All the best, sir.

Rajiv Gandhi — Chief Executive Officer and Managing Director

And you see, please keep in mind that 70% of our revenues are in vaccine. Our ability to produce vaccines is reasonably high.

Ravi Naredi — Naredi Investment — Analyst

Okay, thank you very much.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.

Kuntal Shah — Oaklane Capital — Analyst

Hi, good afternoon Rajiv, thanks for taking my question. When I just see the financials, we have invested INR40 crores in capex in 2021, INR73 crores in 2020 and we are planning to invest another INR40 crores in Bharat Biotech venture. So roughly around INR150 crore of capex in last 2.5 years of which the sales has not yet been [Phonetic]. Typically our average asset turnover ratio has moved up from 0.5% to 0.7%. With a change in product mix, do you expect the same asset turnover. You’ve been qualifying on the margin front that you are reshuffling your portfolio to get better margins, but what about the asset turnover?

Rajiv Gandhi — Chief Executive Officer and Managing Director

One minute, I just want to interrupt. You mentioned that in the year FY ’20, we invested INR84 crores, right?

Kuntal Shah — Oaklane Capital — Analyst

INR73 crores.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Sorry.

Kuntal Shah — Oaklane Capital — Analyst

INR73 crores in 2020, INR40.7 crores in 2021, and in 2022, you have earmarked INR40 crore for Bharat Biotech outlay, right?

Rajiv Gandhi — Chief Executive Officer and Managing Director

No, no INR40 crore Bharat Biotech and that is fine. See [Speech Overlap]. Hello, that is in the consolidated you are looking at, right?

Kuntal Shah — Oaklane Capital — Analyst

I’m looking at consolidated numbers.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Okay because I was wondering that there is nothing in Hester that we have put so much money. So, yeah. So now, sorry, my whole focus got on to those figures and I was not able to understand. So now having the figures in front of me, can you repeat the question.

Kuntal Shah — Oaklane Capital — Analyst

Yeah, so given this kind of capital outlay given in past that our asset turnover has improved from 0.5% to 0.71%. Does this changing product mix impact the asset turns. What kind of asset turns we can —

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, so, I’ll tell you one thing, I think what your question is a very valid point. Asset to sales turnover, it is one of our objectives to continuously improve that ratio asset to sales and systematically we will push it to a much higher level than what it is at this time. Product mix is also that we are now trying to see whether it is vaccines, whether it is health products, be rest assured, there would not be a single project which would again dampen this ratio. Now by the time the building up of business happens again in Nepal or in Africa, so do not take that as a very short-term way of looking at it. In the long run, our asset ratio would definitely improve substantially and it is our commitment to do that.

Kuntal Shah — Oaklane Capital — Analyst

So how much of that is contingent on tender business and how much of that is contingent on the —

Rajiv Gandhi — Chief Executive Officer and Managing Director

Where, where? In Nepal, it is contingent on you can say 70% — 65% to 70% on Nepal. In India, our tender business maybe hardly — I mean it doesn’t even qualify in double digits as far as tender is concerned. In Africa also, we are looking more at the private market because the rates are very good in the private market and we have yet to look into — there are so many countries who have already told us that if you come out with a vaccine, we would want to buy, we would want to buy whether they tender it, whether the private companies start selling it over there. This is the first time things are going to be happening in Africa. So to give you a forecast on all this would be difficult but tender business would not be a thing on which we would be dependent on for sure. We will create our marketing and distribution network to sell.

Kuntal Shah — Oaklane Capital — Analyst

Sir, are you trying to tell us that in Africa, capacity utilization ramp-up will be far faster given there is a latent demand?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Definitely, it will be far faster. Yes, you have understood it right.

Kuntal Shah — Oaklane Capital — Analyst

And sir in Hester Nepal, since the timing of our investment with our partners out there, the asset turn ratio has been pretty subdued for one reason or other and as you said it’s dependent on the tender market. So can you guide us on what is the issues involved in FAO tenders and where we can see some because is there a funding issue or is there a mobilization issue or what are the impediments in the FAO business out there?

Rajiv Gandhi — Chief Executive Officer and Managing Director

I think the issue is at a macro level, United Nations Food and Agriculture Organization. So besides what we get sketchy information, I would not be able to get more details on the whole financing pattern of United Nations and on FAO, but what we have been continuously told by FAO in regular meetings, please be ready for more supplies, please be ready for more supplies. So this is what they have been continuously telling us and we believe them, if not now, at some point of time in the very near future, this thing has to happen. The world — I mean, the United Nations each country, they have all passed resolutions to eradicate PPR disease in sheep and good. Now it has to happen. That is all that I can say at this point of time. I mean there are documents which prove that it is going to happen. [Foreign Speech]. I mean it will happen.

Kuntal Shah — Oaklane Capital — Analyst

Okay and sir, any plan for a larger ticket M&A in near future, couple of years or something?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Sorry, sorry.

Kuntal Shah — Oaklane Capital — Analyst

Any plans for larger ticket mergers or acquisitions inorganic growth, any plans because you have indicated a fairly large equity raise also, that’s why.

Rajiv Gandhi — Chief Executive Officer and Managing Director

See, I will tell you a greenfield project is always something which I personally am more convinced about rather than an acquisition, but having said that, in Africa, we could acquire or collaborate with distribution companies, not with any production companies. So what we would acquire or what we could work with are companies that are into marketing and distribution. So even if there is an acquisition cost, it is not like acquiring assets etc.

Kuntal Shah — Oaklane Capital — Analyst

Okay, sir. All the best. Thank you.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Vibha Batra from FairConnect. Please go ahead.

Vibha Batra — FairConnect — Analyst

Yeah, thank you for taking my questions. My question is again on, you have a large capital work-in-progress and not understanding [Phonetic] back on on consolidated balance sheet. So if you can give a broad timeline on when will either this whole capacity will come into production and also how would that impact the interest and depreciation for next year, that is one question.

And second is that you gave this thing on outlook on top line and also on bottom line will be maintained. I just want to understand more if your top line is going to increase by 25% to 30%, are you expecting your margins to decline and also there was an exceptional item this year. Are you talking about bottom line adjusted for that.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, yes, ma’am. I’ll answer your second question first and then we will go on to the first one. As you increase the business and that too on animal health product side rather than the vaccine side, it is our endeavor not to reduce the gross margins and look at products which do not make us reduce, but if you want to get into extremely higher turnovers etc while there could be a marginal drop on the gross margin, but the bottom margins will still improve because ultimately the whole distribution, the infrastructure that is used is all going to be common whether it is a vaccine or a health product. So I mean we have all the justifications to ensure that the bottom line is not impacted at any point of time.

Vibha Batra — FairConnect — Analyst

Okay but in absolute value, if your top line is increasing by 25% to 30% shouldn’t bottom line also increase. I mean you [Speech Overlap].

Rajiv Gandhi — Chief Executive Officer and Managing Director

Ma’am, you see at some point of time you come — at some time you look at absolute figures, some time we look at percentages. So it all depends on —

Vibha Batra — FairConnect — Analyst

No, I am talking on absolute.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, so I mean, this is all subjective. I mean at some point of time either could be good or either could be bad then.

Vibha Batra — FairConnect — Analyst

Okay, so I haven’t really understood. You’re saying in percentage terms, it will be maintained.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yes, I am saying ma’am in percentage terms we will maintain it and we will take it further for sure. What is your expectation ma’am or what is your question, I have not actually — what is it that — is there an apprehension or is there that — I mean, can you explain?

Vibha Batra — FairConnect — Analyst

Yeah, so there is no apprehension, just want to understand if the top line is going to increase by 25% to 30%, in your opex, there will be some variable expenses and some fixed expenses. Obviously, when you are increasing your top line, one can expect that your variable expenses as a percentage you know, would either increase or decrease in the proportion that your raw material costs are changing, broadly speaking and inflation related adjustments, but as far as fixed expenses are concerned, they would not change — they would not increase hopefully by 25% to 30% barring the CWIP when it comes into production, obviously your interest and depreciation will go up. So, I want to understand at the operating margin level if you are — and also our interest and depreciation so that I can make a sense on how your PAT in absolute value go up [Speech Overlap].

Rajiv Gandhi — Chief Executive Officer and Managing Director

I’ll tell you, ma’am, I’ll tell you, the issue is that when — see this whole thing is fixed costs, yes, but they don’t remain fixed continuously. If we hire more people, that is going to be in the fixed cost. Variable cost is the raw material cost etc. There is bound to be an increase in the fixed cost while at the same time, there will be an increase in the variable costs, the increase in the variable costs will be higher than the increase in the fixed cost. So all — now it depends upon the margin of the product and sometimes we might even go aggressively on one product where we might want to sell on less margin. So all this is — there would be a movement plus minus somewhere or the other, but be rest assured that it is our determined effort to keep the percentages the same or go better.

Vibha Batra — FairConnect — Analyst

Okay, EBITDA margin specific, will it be maintained at Q4 levels 32.62% on standalone or it is FY ’21 that one should be looking at 34.53%.

Nikhil Jhawar — Chief Financial Officer

Yeah ma’am, so what will happen is maybe from — see this is primarily coming out from the Africa, which will start from September onwards and as we —

Vibha Batra — FairConnect — Analyst

No, I’m talking about standalone EBITDA margins. They have — sorry, please go ahead.

Nikhil Jhawar — Chief Financial Officer

Standalone also, see there are different margin levels or EBITDA levels as regards to poultry and as regards to the animal healthcare. So, [Speech Overlap] increase and all, the margins overall at the — it will get in line with those margins in the poultry or the healthcare segment. So overall you need to look at it from that perspective along with an overall increase in the absolute term happening but yes in case okay animal healthcare gets increased, it may have a lower one.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Ma’am I’m able to answer your question in one sentence. Take FY ’21 as the base line.

Vibha Batra — FairConnect — Analyst

Okay, okay, fair enough.

Rajiv Gandhi — Chief Executive Officer and Managing Director

For your EBITDA — does that answer everything to you, ma’am.

Vibha Batra — FairConnect — Analyst

Yeah, yeah and why did the margins decline in Q4. I mean, why was it lower because of the mix or there were some other?

Rajiv Gandhi — Chief Executive Officer and Managing Director

See this product mix is a constant thing that we are into. There could be some disease problem, there could be some other issue, there could be so many things which sometimes make us sell or sometimes make us not sell. Sometimes they make us — the market forces us to sell products which are of less margin and then to keep the goodwill, we try to sell more of that in order to make sure that the customer base continues and then we cover it up into the next quarter. So all this is a strategy and it happens on a quarter-to-quarter basis, but looking into the overall. I mean, there is always going to be a little bit of a plus minus and a variation ma’am. You could be rest assured that there will always be some variation.

Vibha Batra — FairConnect — Analyst

Okay, sure, sure. And any sense on interest and depreciation at consolidated level for FY ’22?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Interest and depreciation. I’ll just tell our seats [Phonetic].

Nikhil Jhawar — Chief Financial Officer

Sorry, ma’am. Can you please repeat this question?

Vibha Batra — FairConnect — Analyst

What would be at consol level — at consolidated level, what would be your likely interest assuming the current interest rates and the borrowings that you’ve projected and depreciation [Indecipherable] taking P&L because some of your CWIP when it comes into operation, you won’t be capitalizing interest. So what would be your interest and depreciation on P&L.

Nikhil Jhawar — Chief Financial Officer

So what will happen is primarily it will come from the — I mean Tanzania capex comes in and then this will get increased, otherwise it will remain constant with the current year. We have a lot of current maturity of the term loans which have been there, which are getting repaid. So from that perspective, it will reduce, but then we have our plans of getting new loans and all which may increase it out in the subsequent period, but that’s something which will come up as the plan increases or how we make the funds raised at the QIP or the borrowings. Based on that, we will evaluate.

Vibha Batra — FairConnect — Analyst

And when will Tanzania plans come into operation? From second half?

Nikhil Jhawar — Chief Financial Officer

September.

Vibha Batra — FairConnect — Analyst

Okay and broadly, what is the CWIP there or the gross block that will come into production?

Nikhil Jhawar — Chief Financial Officer

The INR108 crores is the CWIP as on date.

Vibha Batra — FairConnect — Analyst

That’s entirely for Tanzania?

Nikhil Jhawar — Chief Financial Officer

Yeah primarily, it is all Tanzania.

Vibha Batra — FairConnect — Analyst

Okay that’s very helpful. Thank you so much and all the best.

Nikhil Jhawar — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from line of Manoj Dua from Geometric Securities. Please go ahead.

Manoj Dua — Geometric Securities — Analyst

Congratulations Rajiv for the good set of numbers.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Manoj Dua — Geometric Securities — Analyst

I have two questions. I’m putting them together. What’s the status of the Brucella tender, which you are expecting, and if it has been there, any sale has been recognized from this tender in Q4?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, okay. So just ask me one question after the other so I answer them because then sometimes I might forget the first question and okay so Brucella, the tender was done and our bid was the second lowest. We decided not to compete for the lowest bid in this year. We will bid again next year. On the flip side, 50% of that Brucella vaccine, which has already been manufactured in anticipation, we have got international orders at much higher prices. So we are already taken care as far as any financial impact for Brucella is concerned.

Manoj Dua — Geometric Securities — Analyst

Okay, thank you. My second question is regarding about Nepal and Tanzania plan. If any opportunity of human vaccines come in these plans, are our plants technically for whatever like part manufacturing or complete, can we — see this opportunity if it comes, can we take it or give some color about it.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Your question is, I mean these thoughts have always been in our mind. Vaccine production whether it is human or veterinary, the processes are the same because the virus bacteria, their growth everything is more or less the same. Of course, in human vaccine, one needs to have much more stringent infrastructure to handle those viruses because the people who themselves are handling should not be susceptible to that virus or bacteria. By making some changes, we could qualify to get into human vaccines in Nepal.

Manoj Dua — Geometric Securities — Analyst

And Tanzania because Africa is in need of lot of human vaccines.

Rajiv Gandhi — Chief Executive Officer and Managing Director

We can I mean, both our plants would qualify, in fact even the plant over here even if we are willing to give up some — our veterinary licenses, we could try to do a switch over and then take things. Yes, it would be a long time but to answer your question in one word, yes.

Manoj Dua — Geometric Securities — Analyst

Okay. That’s from the technical side. Do you see any possibility having that any color you are getting from — you said that for exports, there is a possibility from this area also [Speech Overlap] human vaccines, human vaccines.

Rajiv Gandhi — Chief Executive Officer and Managing Director

So you are talking for human vaccines.

Manoj Dua — Geometric Securities — Analyst

Yes, yes.

Rajiv Gandhi — Chief Executive Officer and Managing Director

See, like for example, we started talks with Bharat Biotech. Sputnik has spoken to so many other companies and even Bharat Biotech has tied up with Indian Immunologicals which is a veterinary company to be producing these things. So these opportunities are more seeming to come now than they had ever come before and that is all that I would want to make a statement not anything more than that at this point of time.

Manoj Dua — Geometric Securities — Analyst

Thank you and best of luck. That’s it.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Hello.

Operator

Yes, sir shall I move to the next question?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Sorry, your voice. Yes, please, please.

Operator

The next question is from the line of Mitesh Shah from ICICI Securities. Please go ahead.

Mitesh Shah — ICICI Securities — Analyst

Thanks a lot for taking my question. And congratulations for the good set of numbers. Sir, my question is regarding the Bharat Biotech. Basically, this INR40 crore you are investing — the clients or the Bharat Biotech are contributing something on that.

Rajiv Gandhi — Chief Executive Officer and Managing Director

No.

Mitesh Shah — ICICI Securities — Analyst

Okay. And they have given any minimum assurance of taking the order?

Rajiv Gandhi — Chief Executive Officer and Managing Director

100%. There is no minimum. What will I do if they don’t take, it is 100%. It is doing a toll manufacturing for them. So there is nothing like even 99%.

Mitesh Shah — ICICI Securities — Analyst

And post the COVID like COVID is assuming the finite opportunity for most of the companies. So after the COVID, how would we think about utilizing that plant? You can use for the animal vaccines or we are continuously using for the human vaccines?

Rajiv Gandhi — Chief Executive Officer and Managing Director

We could used that capability having created a BSL Class 3 facility, it could be used to handle many other more viruses or bacteria. We would qualify to handle more exotic virus and diseases, bacteria etc. We will take as it comes. We believe that the opportunities will be very big for us in days to come. Let’s presume COVID is over in two years time. I think we should plan in that manner rather than think that COVID will go on forever.

Mitesh Shah — ICICI Securities — Analyst

And can you quantify that business. What would be the — means I believe that it’s an MOU signed and time will tell, but can you quantify that how many vaccines they can produce from your substance.

Rajiv Gandhi — Chief Executive Officer and Managing Director

You mean to say the number of doses?

Mitesh Shah — ICICI Securities — Analyst

Right.

Rajiv Gandhi — Chief Executive Officer and Managing Director

The drug substance we are planning to have anything between 50 lakhs to 1.5 crore doses a month.

Mitesh Shah — ICICI Securities — Analyst

Okay, got it. That will increase or it’s just —

Rajiv Gandhi — Chief Executive Officer and Managing Director

Sorry —

Mitesh Shah — ICICI Securities — Analyst

That will increase going forward?

Rajiv Gandhi — Chief Executive Officer and Managing Director

I don’t think we will increase the capacity beyond that at this point of time. We will see how the whole thing moves and then we will take a call.

Mitesh Shah — ICICI Securities — Analyst

Okay. Regarding the financials, can you guide something about your gross margins, how would we see the gross margin going forward because it’s continuously volatile and difficult to —

Rajiv Gandhi — Chief Executive Officer and Managing Director

No, no. I’ll tell you, it is not volatile. The word volatile, it gives the impression that as if it is like fluctuating between 0 to 100.

Mitesh Shah — ICICI Securities — Analyst

[Speech Overlap] It’s not a right word, I understand that.

Rajiv Gandhi — Chief Executive Officer and Managing Director

See, 5%, 10% here and there is always going to be there because what is happening is that the product mix poultry, healthcare might sell more, animal healthcare might sell more, vaccine might sell more, medicine might sell more. So all these little bit fluctuation here and there is bound to happen and we are not much concerned or worried about it and I’m more or less, we are sure that we should be able to be within a band as far as the gross profit margins are concerned for sure.

Mitesh Shah — ICICI Securities — Analyst

Thanks a lot, sir. That’s it from my end. All the best.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Manish Jain from Gormal One. Please go ahead.

Manish Jain — Gormal One — Analyst

Yeah, hi, Rajiv. Just wanted to understand that you have a set of opportunities is consistently rising for you all, for all the efforts that you have put in over the last 15, 20 years. So wanted to understand you have diagnostic capability as well for animals in a very big way. Do you ever plan to use it for human diagnostic capability? That’s first question. I have second one, but I will go one by one.

Rajiv Gandhi — Chief Executive Officer and Managing Director

So well to tell you that sometimes there are companies who on the veterinary side, they do buy antigens from us for their veterinary diagnostics, which they manufacture, point number one. Point number two, it has always been in the back of my mind to get into animal diagnostics. At this point of time, there are no very clear direction or thoughts on human diagnostics. What happens is diagnostics could always be an offshoot of the vaccine business because for vaccines you manufacture antigens. So you manufacture a lot many things which go as a raw material in the kit. So the kit becomes a byproduct of something that you are already producing. So this is what it is.

Manish Jain — Gormal One — Analyst

And my second question was that, are there opportunities in COVID vaccines for pets such as dogs, cats and things like that where — is there viable opportunity —

Rajiv Gandhi — Chief Executive Officer and Managing Director

There is an opportunity and I would want to talk on that at some later point of time when we are in a position to talk on that. You might have heard that a few lions got impacted with COVID in Hyderabad.

Manish Jain — Gormal One — Analyst

Exactly.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, so it is something which we are already internally looking at. Let’s see how things progress.

Manish Jain — Gormal One — Analyst

Perfect. I have few more questions, I’ll join back the queue.

Operator

Thank you. The next question is from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead.

Anirudh Shetty — Solidarity Investment Managers — Analyst

Hi, thanks for taking the question. I actually just wanted to understand a little bit more about the exceptional items that we saw in the current year. I believe it’s somewhere around INR5 crores. So just provide some color around that.

Rajiv Gandhi — Chief Executive Officer and Managing Director

The exceptional item you are talking about?

Anirudh Shetty — Solidarity Investment Managers — Analyst

That’s right.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, just a minute. I’ll give it to our CFO.

Nikhil Jhawar — Chief Financial Officer

Yeah, so in the exceptional items there are two portions, one is there is a loss on disposal of Patan farm. That is of INR3.3 crore. So that farm has been closed and those assets have been written-off. So that is an item which is a one-off and accordingly has been considered as an exceptional item. And second is we have evaluated about the impairment analysis for the Nepal loans and advances and considering the reduced turnover over there, we have evaluated and considered that as of now, there is a provision required for this interest and loans, which have been given over there. So to that extent, there is an impairment of INR1.9 crore has been considered. So this whole has been explained in the results notes also.

Anirudh Shetty — Solidarity Investment Managers — Analyst

So this loan to Nepal, is this being done on a like a conservative prudent basis and it’s nothing to do with your belief in the company and its long-term potential? Is that how we should look at it?

Rajiv Gandhi — Chief Executive Officer and Managing Director

This surely has no impact in the long-term rather would not have any impact even in the short run and it’s just that today everybody is impacted and I think life should change within a year’s time, be rest assured.

Anirudh Shetty — Solidarity Investment Managers — Analyst

And I just wanted to clarify this, you know you’ve given a sales of aspiration of 25%, 30% growth in 2022. So I mean this would be excluding the COVID related businesses?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yes, excluding COVID. There is no COVID business, there is no extraordinary business that has been included in it. This is all that what we have been doing and what we can do or what we had done in the past.

Anirudh Shetty — Solidarity Investment Managers — Analyst

Okay, okay, got it. Then that’s it from my side.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Additional and everything is to be added to this.

Anirudh Shetty — Solidarity Investment Managers — Analyst

Got it. Thank you so much.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Charulata Gaidhani from Dalal & Broacha. Please go ahead.

Charulata Gaidhani — Dalal & Broacha — Analyst

Yeah my question pertains to the new, the human health vaccine. What is the timeline for the drug substance that you are likely start produce?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Around three months time ma’am.

Charulata Gaidhani — Dalal & Broacha — Analyst

Okay and it is only drug substance, right, not the entire vaccine?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Sorry.

Charulata Gaidhani — Dalal & Broacha — Analyst

It is only the drug substance that you will —

Rajiv Gandhi — Chief Executive Officer and Managing Director

Only the drug substance. Iit has got nothing to do with the finished product.

Charulata Gaidhani — Dalal & Broacha — Analyst

Okay, but in terms of technicalities because it is a human health product and you have not been making vaccines for human health. So are there any additional challenges that you perceive?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yes, infrastructural challenges are the one that is taking more time for us to get into this. Therefore this delay and the slowed approach. It’s not our ability to produce or not to produce, it is the infrastructure, the more stringent infrastructure required.

Charulata Gaidhani — Dalal & Broacha — Analyst

Right, so you believe you will be able to start supplies in three months?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Ma’am, that is the endeavor at this point of time. It’s also a commitment that we have given, but these things are based on many other things that could happen, could not happen. So this is what it is at this point of time.

Charulata Gaidhani — Dalal & Broacha — Analyst

Okay, okay, right and how much growth do you perceive in poultry vaccine and animal health?

Rajiv Gandhi — Chief Executive Officer and Managing Director

For poultry, I think the growth should be approximately around 10% to 15% and in terms of animal health approximately 50%.

Charulata Gaidhani — Dalal & Broacha — Analyst

Okay and do you see an improvement in profitability?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Profitability, the worst case, we maintain the current profitability.

Charulata Gaidhani — Dalal & Broacha — Analyst

Okay. Yeah, that is helpful. Thank you.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Vibha Batra from FairConnect. Please go ahead.

Vibha Batra — FairConnect — Analyst

Just want to understand this Patan farm, how much was the total value of the farm that we sold?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Just a minute.

Nikhil Jhawar — Chief Financial Officer

The total value was INR3.3 crores that was the building over there which has been disposed off and so that’s the [Speech Overlap] net cost which has been written off.

Vibha Batra — FairConnect — Analyst

So the entire — so the entire building was written-off.

Nikhil Jhawar — Chief Financial Officer

It’s an immovable asset over there, which has to be scrapped and the vacant land has to be given back to the owners. So that’s how it has been.

Vibha Batra — FairConnect — Analyst

Okay and what was this farm used for, for R&D and all.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yes, for R&D ma’am.

Vibha Batra — FairConnect — Analyst

Okay, now you have — where will all that be done whatever was done there?

Rajiv Gandhi — Chief Executive Officer and Managing Director

We already have another location, ma’am, rather we have two other locations.

Vibha Batra — FairConnect — Analyst

Okay and if you can give me some sense on the return on capital employed between poultry and animal healthcare because your incremental investments are more actually in animal —

Rajiv Gandhi — Chief Executive Officer and Managing Director

Ma’am we can give a total overall, which is already there in the press note.

Vibha Batra — FairConnect — Analyst

Yeah it is there.

Rajiv Gandhi — Chief Executive Officer and Managing Director

Yeah, so that we don’t have the breakup and we don’t even look at it that way in breaking up of all these ROE, ROCE, ROI, that is all overall ma’am.

Vibha Batra — FairConnect — Analyst

Okay, but when you do incremental capex, do you have some benchmarks on minimum this is the threshold?

Rajiv Gandhi — Chief Executive Officer and Managing Director

Benchmark ma’am —

Nikhil Jhawar — Chief Financial Officer

See there are other factors which we need to look at as like, what are the growth which we will get in, what are the EBITDA margins coming in from there. So that is how we look at it, but return on equity frankly speaking, this comes more from the overall equity, which we are putting, so that’s how we look at it.

Vibha Batra — FairConnect — Analyst

Okay, thank you.

Nikhil Jhawar — Chief Financial Officer

Thank you.

Operator

Thank you. That was the last question. I would now like to hand the conference over to the management for closing comments.

Rajiv Gandhi — Chief Executive Officer and Managing Director

So thank you all for being patient listening to me and the conversation between all the others the questions etc. I’m sure I would have not been able to answer 100% up to your 100% expectation, but the endeavor is always there and all are always free to send emails to us and try to get some more clarification on any information that you would want from us. Do keep in mind that any information requested whatever is in the public domain without any hesitation, we would impart with that information and give it to you at any time.

To conclude, the animal health business will continue to grow. We are very bullish about it. We are confident of growing at a good percentage on a year-on-year basis, maintaining the growth on the top line, maintaining the bottom line, the least at what it has been approximately in the last one or two years I would not — I mean as I said, you know, there could be a little bit of a deviation here and there, but nothing really much for us to be concerned about.

In fact, if we get one or two good opportunities, it could even shoot up specifically if some vaccine business comes our way and that puts it up, but having said that, this is the bare minimum you could expect from us, continue to have the faith in the whole management of the company. That is on me and my team. We are — be rest assured that we are working hard towards making sure that the investments made are definitely giving you returns and making at least I mean that there is wealth creation, that’s something is foremost in my mind as well as in the mind of the top management, our leadership team. Of course, with high transparency, high moral values etc. So with that, I conclude, thank you and we shall meet again in the next quarter. Thank you.

Operator

[Operator Closing Remarks]