Solara Active Pharma Sciences Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Solara Active Pharma Sciences Limited (SOLARA) Q3 FY22 Earnings Concall

Q&A Highlights:

• Kunal Randeria from Edelweiss asked about the strategic change that the company had done that has led to a decline. Bharath Sesha MD CEO stated that it was more related to the stocks that it has than business with its channel partners. Since the demand was less, channel partners also [stocked] the inventory which led to a consequent pricing issue. So SOLARA took back the sales from the channel partners. SOLARA added that this is not affecting the regulated markets or the regulated customers.

• Mitesh Shah from ICICI Securities asked about the revenue expectation in 4Q22 and FY23. Raj MD said that had the one-timer not been there, the company would have been around INR400 crores plus. The visibility of order book is at much higher level what it used to have in last 2-3 quarters. SOLARA is now seeing things on the Ibu front getting revived and getting back to normal level of Ibu sales. CRAMS business is also doing well.

• Mitesh Shah from ICICI Securities also asked about margins in 4Q22 and pricing in Ibuprofen.  Raj MD said it’s ibuprofen margins that have come down due to demand stress and stocks in the market. Secondly slight rise in two critical KSMs. SOLARA has to see the price stabilization in the Ibu raw materials and hope to see some amount of consistency coming in 4Q22. In terms of demand stabilization, the company expects some stabilization happening in 4Q.

• Nitin Agarwal from DAM Capital asked about business in terms of topline perspective next year. Subhash Anand CFO replied that the company is already at INR400-450 crore as a normalized revenue for FY22. The new products are coming and adding to the next year base which are in ramp up phase and that’s going give a ramp up to the company. Aurore merger will also add to the ram up of growth.

• Nitin Agarwal from DAM Capital also asked about the gross margin range for SOLARA. Subhash Anand CFO replied that the company will continue to have a gross margin range of around 50-54% range. And the company is confident that once the raw material volatility settles, which is expected to happen soon, SOLARA will be back in the normal range of GM.

• Nitin Agarwal from DAM Capital asked about the backward integration of Ibu coming through and the status of that. Raj MD answered that the company is doing some trial batches in 4Q22 with the new facility, but expect to commercialize in 1Q23.

• Aejas Lakhani from Unifi Capital asked about the quantum of inventory that was called back in the quarter. Subhash Anand CFO replied that the company had an expected sales return of around INR120-130 crore.

• Bhaskar Bukrediwala from Arthya Investments asked that in Ibu even if demand had to revive, what’s the thought on supply and the impact on utilization. Raj MD replied that the company’s backward integration strategy with IBB and IBAP will help to sustain the competition and will also expand the derivative sales.

• Manish Gupta from Solidarity Advisors asked that on the Aurore merger what’s the quantum of cost synergies that the company has seen. Raj MD replied that at least on a yearly perspective basis INR50 crores.