Hikal Limited Q4 FY22 Earnings Conference Call Insights

Key highlights from Hikal Limited (HIKAL) Q4 FY22 Earnings Concall

Management Update:

• HIKAL said its new product launches in anti-diabetic have been witnessing increased traction from customers. The company has 10 plus products in development pipeline and are planning to launch 4-5 products in FY23.

• HIKAL is planning to complete the plant commissioning of its new fungicide by end of 3Q23, and start revenue generation by end of FY23. HIKAL is also planning to launch one more fungicide with the combined potential of INR400-500 crore.

Q&A Highlights:

• Rahul Jain of Credence Wealth asked that on the growth, demand and the sales revenue path, what has changed in the last 2-3 months, where the commentary has changed from being buoyant to a cautious outlook. Vimal Kulshrestha President said the demand is strong. The challenge has been of supply chain in 4Q22. HIKAL is expecting a lag in passing the cost impact, but is confident of passing on this impact from 2Q23.

• Rahul Jain of Credence Wealth also asked that on the pharma and agro side margins were below avg. for last three quarters and if it’s expected to be same going forward. Anish Swadi BD said it’s difficult for HIKAL to give guidance in terms of margin right now as things are uncertain and fluid. HIKAL said 1Q23 will certainly be more subdued than 4Q22. But 2Q23 onwards, there will be an improvement going forward.

• Rahul Jain of Credence Wealth asked that on the growth path if the company is more confident on the topline vs. the margin. Anish Swadi BD said it’s difficult for HIKAL to give revenue and margin guidance. The company is hopeful that end of 2Q22 onwards HIKAL will see a resurrection in terms of the business.

• Rahul Jain of Credence Wealth enquired that what amount of capex capitalization does HIKAL expect in FY23. Kuldeep Jain CFO replied that the company is expecting INR250-275 crore cash flow in FY22 and the capitalization will be close to INR400 crore.

• Rahul Jain of Credence Wealth also asked about the capex schedule in terms of the commercials being started in FY23. Kuldeep Jain CFO replied that for crop capex, HIKAL expects to commission in 3Q23 and revenue addition from 4Q23.

• Ankit Gupta from Bamboo Capital asked if HIKAL’s 1-1.5% margin improvement on a base of 19-20% guidance can be seen from FY24 every year. Kuldeep Jain CFO said that the company should be able to see that improvement and HIKAL is working towards that.

• Ankit Gupta from Bamboo Capital also enquired that on the capex side, given the headwinds faced currently, what’s the capex plan for FY23 and FY24. Anish Swadi BD answered that currently for FY24, HIKAL doesn’t have any capex as it all depends on where the company is today. So the capex commitment that’s good to have is at this point in time deferring probably till 2H23.

• Ankit Gupta from Bamboo Capital enquired about the capex committmet for FY23 from customers.  Anish Swadi BD replied that it will be in the range of INR250-270 crores.

• Ankit Gupta from Bamboo Capital asked about the reason of slow growth in Pharma side and how much growth is expected in the segment during FY24 and FY25. Manoj Mehrotra President said HIKAL is expecting to launch more new products on the API side and building new relationships on the CDMO side. HIKAL expects the growth to be in the range of close to 12-15% going forward.

• Dhwanil Desai from Turtle Capital asked about the animal health contract, capex incurred and revenue potential over next three years. Anish Swadi BD said since it’s a confidential contract, HIKAL is not disclosing the amount of investment. However, HIKAL’s customer is contributing to 50% of capex. The revenue is going to be more or less in line of what the company is doing today, which is 1.5 times the asset HIKAL is putting in.