IPCA Laboratories Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from IPCA Laboratories Ltd (IPCALAB) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:11:51] Kunal Dhamesha of Macquarie asked if IPCALAB is done with the MR addition and if the incremental cost is already baked into 3Q number. Ajit Kumar Jain JMD clarified that that number is done and about 1,500 people were added.

• [00:12:34] Kunal Dhamesha of Macquarie also asked if RM addition is done why there is no increase in employee expenses. Ajit Kumar Jain JMD said that last financial year, business growth was significantly higher, and incentive payments were higher than normal. This year, the overall growth numbers are lower, so incentive payments are also lower.

• [00:13:36]  Kunal Dhamesha of Macquarie queried what are the major drivers of a 650 bp compression in margins over 9 months, and which of them would be reversing over the next year. Ajit Kumar Jain JMD answered that material costs have gone up by 0.89%, personnel costs by 0.72%, manufacturing expenses by 4%, and analytical costs significantly. These costs are expected to come down in the future due to higher productivity additions and material cost softening. This should improve margins overall.

• [00:18:28] Kunal Dhamesha of Macquarie asked about a broad range of EBITDA margin outlook for next year. Ajit Kumar Jain JMD replied that it could remain in the range of around 21%.

• [00:22:10] Cyndrella Carvalho at JM Financials asked about the India domestic business, if there’s any other franchise impacting overall growth other than Zerodol. Ajit Kumar Jain JMD replied that the Cardiovascular business is growing at around 4%, while the Antibacterial segment has declined by INR10 crore. The CNS and Cough & Cold businesses have grown by 18% and 10%, respectively, while the Derma, Neuro, and Ophthalmology portfolios are growing by 18%, 13%, and 17%, respectively. Neuro therapies are also doing very well.

• [00:24:09] Cyndrella Carvalho at JM Financials asked about the strategy to gain higher share and faster growth in the Cardio, Diabetes segment. Ajit Kumar Jain JMD said the company has had good success in the past few years with its CTD range and have added two new divisions to Cardiovasculars. Due to the addition of people, there was a lower 4% growth but with the addition of these two marketing divisions and products, the company is expecting higher growth in the future.

• [00:25:02] Dheeresh Pathak of White Oak Capital enquired about the FY22 sales of Cardio, Diabetes and Antimalarial in the domestic business. Harish Kamath replied that Antimalarial comprised 5% of the domestic business last year and Cardiovascular and Anti-diabetes was 17%, for a total of 22%. The Cardiovascular and Anti-diabetic portfolio is growing at 4%, but the Antimalarial portfolio is de-growing at 35%.

• [00:30:19] Amit Kadam from Canara Robeco enquired that ex-API, if GMs have done better sequentially. Ajit Kumar Jain JMD clarified that excluding API business, IPCALAB’s GM has grown.

• [00:30:45]  Amit Kadam from Canara Robeco asked what the prices are for the overall API basket and export outlook. Ajit Kumar Jain JMD said that in RoW markets, for the first nine months, the branded promotional market grew 11%, and in 3Q it delivered a 17% growth. The fourth quarter is expected to bring even more significant growth and for the whole of the year the growth is expected to be around 15-16%. For the Institutional Generic business, the revenue is expected to remain between INR325 crore to INR350 crore.

• [00:38:40] Surya Patra at Phillip Capital India asked about the promotional spend during the first 9 month period. Ajit Kumar Jain JMD replied that it’s almost around 40-45% that has moved up compared to last year. And these numbers would remain at same level in next year.

• [00:39:31] Surya Patra at Phillip Capital queried about any update on the new process about the sartans after impurities issues. Ajit Kumar Jain JMD said IPCALAB are back on normal business, both Valsartan as well as Losartan. There are no pending issues.

• [00:40:04] Surya Patra of Phillip Capital asked about any update on the Dewas, Nagpur site. Ajit Kumar Jain JMD said that two months back, IPCALAB got the final clearance from the govt. on the environment side.

• [00:49:23] Nikhil from SIMPL asked if IPCALAB can maintain its 24-25% EBITDA margin in the long run, despite the cost pressures experienced earlier. Ajit Kumar Jain JMD replied that Margins were good for the past two years, but have been negatively impacted this year by increasing people and energy costs, as well as increased material costs. Going forward, margins should improve with increasing productivity and more cost-effective materials.

• [00:52:09] Nikhil from SIMPL asked about capex guidance for next year. Ajit Kumar Jain JMD replied that INR200 crore is the depreciation and maybe INR400-500 crore level will be the total capex annually, including routine maintenance capex.