Supriya Lifescience Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Supriya Lifescience Ltd (SUPRIYA) Q3 FY23 Earnings Concall

Management Update:

• [00:04:00] SUPRIYA said its primary focus remains on expanding its regulatory market presence with new emerging markets, backward integration and manufacturing capacity optimization.

• [00:05:45] SUPRIYA had a challenging quarter due to the extended lockdowns and widespread use of masks and sanitizers in China leading to a decrease in demand for the antihistamine range of products.

• [00:08:29] SUPRIYA said it is extending its backward integration model to newer products. The company remains confident that its initiatives will help it recover its top line and improve margin profile in the coming quarters.

Q&A Highlights:

• [00:11:53] Aashish Upganlawar from InvesQ Investment enquired on the conflicting reports from the company and sustainability of margins. Saloni Wagh Director said SUPRIYA has faced logistics issues in China due to the lockdown, leading to a decrease in demand for its antihistamine range. Despite this, it remains committed to doubling its top line in 3 years and is strengthening its team, particularly in finance and R&D. The CEO stepped down for personal reasons but still remains part of the company.

• [00:17:27] Aashish Upganlawar from InvesQ Investment asked about the outlook for margins and what proportion of the top line and margin comes from China. Satish Wagh MD said SUPRIYA is not giving any sort of guidance for future, but believes that it will be in a steady state from now on.

• [00:19:51] Yogesh Tiwari from Arihant Capital asked if the company is seeing any pricing drop in CPM and the quantum of it. Saloni Wagh Director replied that specific numbers cannot be given but there is a price and demand pressure on CPM due to the continuing lockdown which has caused the demand to drop.

• [00:20:37] Yogesh Tiwari from Arihant Capital enquired about the seasonality for CPM. Saloni Wagh Director said that although 2Q was impacted by the lockdown in China, CPM sales in other Southeast Asian markets like Indonesia, Malaysia, and Vietnam saw a good volume pickup. Despite this, the hit to the P&L can still be seen due to the large contribution that the Chinese market typically makes to revenue and bottom-line.

• [00:21:38] Yogesh Tiwari from Arihant Capital asked what would be the target range for the company’s GM in 2026 if revenue is doubled. Krishna Raghunathan CFO replied that the company cannot talk about margins in FY26 at this point, but when SUPRIYA is ready to give guidance, it will be a very healthy margin.

• [00:22:55] Yogesh Tiwari from Arihant Capital enquired if the margins have bottomed out for 3Q23. Krishna Raghunathan CFO answered that it would be one of the lowest performance and it should not go below this is what the company believes.

• [00:24:12] Yogesh Tiwari from Arihant Capital asked about the reason for sharp spike in other expenses in 3Q23. Krishna Raghunathan CFO said the CPHA has started, leading to increased expenditures on marketing, power and fuel, and employee benefits. However, it is expected that repairs and maintenance costs will only be reduced slightly in the coming quarter.

• [00:30:29] Naresh Vaswani from Sameeksha enquired about the size of the two CMO projects that’s close to finalizing the terms. Saloni Wagh Director answered that size cannot be given but it’s looking to diversify the portfolio and make it more robust and de-risked. It will be more on advanced intermediate, but not API centric.

• [00:31:29] Avnish Khara from VT Capital asked if US will be a key focus market for SUPRIYA going forward and the focus markets for SUPRIYA. Saloni Wagh Director replied that SUPRIYA has seen an increase in the North American market due to good traction for existing products, and expect it to continue to contribute significantly to growth. Europe, North America, and Latin American markets will be the largest contributors in regulated markets space.

• [00:36:27] Shashank at Crescentia India asked if the company is sticking to the planned capex despite investor wellbeing erosion, or is there a change in the capex. Krishna Raghunathan CFO said SUPRIYA’s capex commitments remain unchanged and don’t expect any major issues going forward as SUPRIYA continues to expand its portfolio.

• [00:36:50] Shashank at Crescentia India also enquired where does the 50% of Q3 sales from Asia come from if China is not contributing significantly. Krishna Raghunathan CFO clarified that the company has seen its margins drop due to sales in other Asian territories, but it hasn’t seen much of a reduction on the top line.

• [00:41:08] Jagvir Singh from Shade Capital asked about the percentage of revenue derived from China in last 9 months. Krishna Raghunathan CFO answered that Chinese sales and the margins contribute to a large portion of SUPRIYA’s business and without China, profits have suffered. SUPRIYA hopes to regain these sales and margins for its business to grow.

• [00:45:30] Jagvir Singh from Shade Capital enquired if China market does not recover in 1H24, can SUPRIYA make the losses from other markets. Saloni Wagh Director said that it will take a few quarters to mitigate the risk posed by the current situation in China, and normalize margins and revenue.

• [00:50:39] Tushar Bohra from MK Ventures asked if the company expects some more products to get sold in the regulatory market in FY24. Saloni Wagh Director replied that from 2Q24, SUPRIYA can start seeing some good traction for these molecules. In terms of margin profile, they would be decent margin generating products, in the range of 22% all EBITDA.

• [00:55:08] Siddharth Purohit from InvesQ Investment enquired is there a new strategy for sustainable growth that is being implemented with the new molecules and geographies. Saloni Wagh Director replied that SUPRIYA works on short-term contracts in the API space due to the dynamic pricing situation, but also trying to introduce CMO opportunities with some multinational companies that could result in long-term contracts of up to 5-7 years.