VIMTA LABS LTD (VIMTALABS) Q4 FY23 Earnings Concall Transcript

VIMTA LABS LTD (NSE:VIMTALABS) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Vishal Manchanda — Vice President, Institutional Research

Narahari Naidu — Chief Financial Officer

Harita Vasireddi — Managing Director

Analysts:

Sunil Kothari — Unique PMS — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Jigar Shroff — Financial Research Technologies — Analyst

Aman Vij — Astute Investment Management — Analyst

Dixit Joshi — Whitestone Financial Advisors — Analyst

Pratik Kothari — Unique Asset Management — Analyst

Rohit Balakrishnan — ithoughtpms — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Vimta Labs Limited Q4 FY23 Earnings Conference Call hosted by Systematix Institutional Equities. 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]

I now hand the conference over to Mr. Vishal Manchanda from Systematix Institutional Equities. Thank you and over to you.

Vishal Manchanda — Vice President, Institutional Research

Thanks. Good morning everyone. We welcome you to the Q4 FY23 Earnings Call of Vimta Lab hosted by Systematix Institutional Equities. On the call today we have with us senior management team of Vimta Labs led by Ms. Harita Vasireddi, Managing Director, Mr. Satya Srinivas Neeukonda, Executive Director; Mr. Narahai Naidu, Chief Financial Officer and Ms. Sujani Vasireddi, company’s secretary.

I’ll now hand over the call to the company management following which we will open the call for Q&A session. Over to you.

Narahari Naidu — Chief Financial Officer

Thank you Vishal and Systematix team for hosting our earnings conference call. Good morning everyone. I’m pleased to welcome you all to Vimta Labs Earnings Call to discuss Q4 and FY 23 results. Please note, a copy of all our disclosures are available on the Investors section of our website as well as on the stock exchanges. Anything said on this call which reflects our outlook for the future or which could be constituted as a forward-looking statement must be reviewed in conjunction with the risks that the company faces.

Please note that this conference call is being recorded and the audio and transcript of the same will be made available on the website of Vimta Labs and exchanges. Please also note that the audio of the conference call is the copyright material of Vimta Labs and cannot be copied, rebroadcast or attributed in press or media without specific and written consent of the company.

Now, I hand over the call to our Managing Director, Ms. Harita Vasireddi for her opening remarks.

Over to you ma’am.

Harita Vasireddi — Managing Director

Thanks Narahari. Good morning everyone. We thank you all for joining us in this Q4 FY 2023 earnings call. We are pleased to share with you the updates for the quarter and for the financial year ended 2023. Before I discuss the performance of the company, as we begin the new financial year I would like to spend a couple of minutes on the global economic overview and how the TIC/CRO industry is shaping up. The global economy continues to be in turmoil as the inflation remains elevated across the globe along with no respite from the war in Ukraine, at least not in the near-future.

This coupled with the US banking crisis continues to spring surprises and has added to the uncertainties in the economy. With these headwinds, what has stepped our hopes buoyant is the Indian economy, which seems to be in control and certainly in a better position to withstand the impact from these macro headwinds compared to most other developing nations. On the industry front, the TIC and CRO industries and the TIC stands for, testing, inspection and certification, we operate in both these spaces, we continue to face the tailwinds with widespread use of testing practices across industries, such as automotive, energy and with the oil and gas, pharmaceuticals, technology and manufacturing.

So this is a good sign for us. With large investments by international, manufacturing, electronics and automotive companies in developing nations like India, the demand and range of opportunities for TIC services and CRO services will proliferate. The Indian government’s Make in India, among other policies to promote domestic manufacturing is further encouraging companies like us to move their testing activities or manufacturing activities here, thereby complying with the Indian TIC and the CRO requirements our global CRO requirements.

This is aiding in increasing operational expenditure on — and driving the market growth. On that note, I’m pleased to share with you all that Vimta has crossed yet again an important milestone of INR300 crores during the financial year 2023. During the year, the company continued its strong growth momentum in food, pharma and electronics and electrical services with other segments remaining stable, which led to operating revenue growth of 19.6% year-on year. This amounts to INR3,162 million. Please note the revenue from operations excludes revenue from service concessionaire arrangement. In line with our communication, the EBITDA margins during the year, continued its upward momentum to grow by 98 bps during the year to 29.8%. I will let our CFO, discuss these and more financials in his detailed commentary.

Moving on to business performance and operational update allow me to throw light on each business division briefly, the business segments that we are seeing as having great potential or potential unfolding in the coming years are electronics and electrical testing, food testing and the preclinical and clinical research. The electronics and electrical market is witnessing strong traction driven by Internet-of-Things which necessitates in increased adoption in wireless technology, booming EV market where more-and-more companies are shifting production to India and most importantly increasing focus on the — governments on EMC testing.

While this is a relatively new segment for us during the year — traction with the division growing strongly and we expect this momentum to continue in the coming years as well. The food testing market growth is catalyzed by increased safety and awareness, especially in the recent years, primarily with the penetration of social media and need for increased hygiene and food-safety post pandemic. The Indian government is also focusing its attention on markets surveys for food-safety and quality. For Vimta its food business has been growing steadily with the industry for many years now, and in FY23, this was one of the most important segments that was driving the growth of our business.

We have also completed our first year of operations at the National Food Laboratory at Navi Mumbai. This is setup and operational in a PPP model partnership with FSSAI. While the volume was lower in its base [Phonetic] due to various reasons we have stated earlier, the numbers have progressed steadily. A proud moment for Vimta was recognition by Bangladesh Food Safety Authority for helping them in their goal to achieve harmonization of their regulations, test methods with CODEX. This is a unique cross-border partnership, and the demonstration of our business philosophy regarding sharing knowledge with stakeholders for development of the industry and the ecosystem.

Moving on. Clinical research is already a huge industry in India due to its low-cost operations and I believe all the players have enough space to grow in this market. I am a little excited about this space as we are giving it more focus especially in the areas of patient trials. On the Life Sciences segment of the business along with analytical testing and preclinical research where we are already leaders in India, clinical studies on patients have become the right step for us in widening our services to our customers.

We are seeing nice opportunities with our customers in this space and I believe the addition of these services will boost growth for this division in the years to come. On the clinical diagnostics front, the industry also has huge potential, but the space is quite cramped with cutthroat competition. While we were of the opinion to expand our clinical diagnostic services in the B2C space, we soon realized that this is a tough market which requires tremendous management bandwidth to scale this business.

Therefore, at this point of time, we have strategically decided to pursue only B2B business in the diagnostics space. Lastly, the environment testing market, it’s relatively smaller unit for us but growing well with renewed focus by the country on ESG initiatives. We rolled out green audit services for various industries during the year and the initial traction is quite positive from the customers. I believe this division will continue growing steadily in the coming years. In order to sustain our growth momentum we will require more capacities and therefore we have embarked on doubling capacities in our daily facility in our Genome Valley facility in Hyderabad. These new capacities should help us achieve desirable growth over the next 5 years. The work for this has already started and we expect the project to completion by end-of-the year as planned.

Before I conclude I would like to especially thank our team at Vimta for their relentless efforts on various fronts which has helped us grow strength to strength in the last couple of years. I would also like to congratulate the team for their strong performance in the audit by USFDA and other regulatory audits and customers’ audits. To conclude we remain focused on delivering quality and we’ll continue to do so in the coming years. We are seeing traction across the markets, which makes us confident of achieving our mid term revenue target of INR500 crores.

With that, I now hand over the call to our CFO, Mr. Narahari, to discuss the financial performance.

Narahari Naidu — Chief Financial Officer

Thank you Ms. Harita. I would like to walk you through the consolidated financial performance of Vimta Labs, for the quarter and year ended, March 31, 2023 after which we can open the floor for Q&A. I’ll start with the consolidated financial highlights for the quarter. Revenue from operations for Q4 FY 23 stood at INR818 million as compared to INR721 million in Q4 FY22 up 13.4% on a YoY basis. The revenue from operations excludes revenue from service concessionaire arrangements when we talk about growth of 13.4%.

EBITDA stood at INR242 million in Q4 FY23 as compared to INR230 million in Q4 FY22 which started the growth of 5% on a Y-o-Y basis. EBITDA margin for the quarter improved sequentially by 182 bps to 29.5% and on YoY margins were down by 150 bps [Phonetic]. Profit after tax in Q4 FY23 stood at INR127 million in as compared to INR118 in Q4 of FY22 a growth of 7.2% on a YoY basis. PAT margin for the quarter improved sequentially by 233 basis-points to 15.4% and on a YoY basis, PAT margins remained stable.

Moving on to full-year performance. Revenue from operations for FY23 stood at INR162 million as compared to INR2644 [Phonetic] million in FY22 up 19.6% YoY basis. Again, here the revenue from operations excludes revenue from service concessionaire arrangements. EBITDA stood at INR949 million in FY23, as compared to INR803 million in FY22, a growth of 18.2% YoY translating into improvement in EBITDA margins of 29.8%, this is probably a growth of 98 basis-points compared to the previous financial year.

The growth in EBITDA margins during the year was driven by better product mix. Profit-after-tax in FY23 stood at INR482 million as compared to INR413 million in FY22 a growth of 16.6% on a YoY basis translating into steady PAT margin of close to 15%. PAT margins for the year remained stable due to better EBITDA margins which is offset by higher depreciation during the year. On the balance sheet side, we continue to have net debt free balance sheet with cash-and-cash equivalents, including other bank deposits of be INR398 million.

Coming to the working capital movements. If you see the trend of over last couple of years, you will see a clear downward trend. Our working capital days were around 120 days in FY21 which was brought down to 102 days in FY22, which further came down to 99 days in FY23. This was driven by improvement in inventory days as well as debtor days. We are continuing to focus improving our working capital management, which also has been generating stronger cash flows from operations. In summary, robust growth, improving margins and working capital management has led to strong cash-flow generations of close to paid INR879 million during the current financial year. I believe we will continue to generate strong cash flows in coming years as well which will be, I believe we will continue to generate strong cash flows in coming years as well which will take care of regular cash requirements, as well as to certain extent of capex requirements. Capex for the year stood at INR498 million this is — which I’m talking about leading to a net free-cash flow generation of INR381 million during the financial year. Coming to capex for the coming year Ms. Harita mentioned in her remarks that we’ll be doubling our capacities and the capex for the same has already begun.

Total estimated capex for this project is around the INR60 crore [Phonetic] and around 20% of this has already been earmarked in the current year’s capex. We expect the remaining capex to be completed in FY24. Before I conclude, I would like to highlight that we have paid back INR44 million of debt during the year and the outstanding borrowings stands at INR150 million resulting in a debt to equity ratio close to 0.05.

With that, we can now open the floor for Q&A. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Sunil M. Kothari from Unique PMS. Please go ahead.

Sunil Kothari — Unique PMS — Analyst

Thanks for opportunity and really good performance in this challenging environment. Very good cash-flow management and profitability. My question is basically during last two, three years we invested almost one INR25, INR30 crores from 2021 to now, this 2022, 2023, INR49 crores previous year INR45 crore, out of that what I understood is INR12 crore is for new — this doubling new capacity at Genome Valley, so remaining capex was for what? If you can little bit explain in detail and how those capacities are utilized so outcome is already achieved or you feel this during current year and next year those capex will contribute to the revenue?

Harita Vasireddi — Managing Director

Well, that’s a good question. Typically, our capex spend every year is to the amount of the [Indecipherable]. That is used for either buying new technologies or replacing existing one or expanding the capacities, so that goes on year-after year, we have an additional investment for building expansion which started last year for us and that will continue into new financial year FY24.

Sunil Kothari — Unique PMS — Analyst

Okay, so that includes this INR60 crore, total capex of doubling capacity or building is different?

Harita Vasireddi — Managing Director

Building alone we have a budget of INR60 crores, so out of that we consume 20%, in FY 23, the remainder will get consumed in the new financial year.

Sunil Kothari — Unique PMS — Analyst

Okay, and this total INR60 crore project includes everything, equipment, buildings and all the required machines or maybe whatever laboratory equipments?

Harita Vasireddi — Managing Director

No, no, this is only for the infrastructure, the equipment we will buy on a need basis as and when we need to add more capacity we will buy them.

Sunil Kothari — Unique PMS — Analyst

Right. And my last question ma’am is during last two, three years the challenge we faced was COVID and then slowdown of some business segment a little longer time taken by electronics and electrical segment, this diagnostic dividend challenge, that’s why I understood that you are a little bit delayed your objective of reaching INR500 crore, INR600 crore revenue to 2025, 2026 and now we are specifying that it will be a INR500 crore revenue by 2026, so would you like to comment what has gone or changed and how you see — how confident you are for achieving those objectives of this INR500 crore.

Harita Vasireddi — Managing Director

So, some things have gone well for us, and some things haven’t. So, the things that have gone well for us are the good growth or potentially that we could capitalize on will be pharma services — the electrical division, electronics testing division, we could have started a year-earlier but for the COVID situation so that has led to a loss of one year but number-wise that didn’t impact hugely because the first two years numbers will not be that high anyways.

The Diagnostics we were anticipating would help us significantly in reaching our INR500 crore but we are now seeing that, that is not a huge possibility as compared to other business units.

Sunil Kothari — Unique PMS — Analyst

So, how confident you are to achieve this now revised target by 2026?

Harita Vasireddi — Managing Director

We have good confidence. I think the growth that we have been seeing further boosts our confidence and we are targeting for better growth in the coming years.

Sunil Kothari — Unique PMS — Analyst

Thank you. Wish you good luck.

Harita Vasireddi — Managing Director

Thank you.

Operator

Thank you. Our next question comes from the line of Dhwanil Desai from Turtle Capital. Please go-ahead.

Dhwanil Desai — Turtle Capital — Analyst

Good afternoon ma’am so my first question is you mentioned in the previous answer that diagnostic was a very significant part of overall scheme of INR500 crore medium term target and that somehow we are kind of putting a break on P2 P5 [Phonetic]. So does it mean that we are seeing much better traction on the pharma side and that is going to make up for the — whatever numbers that we had assumed on the diagnostic side?

Harita Vasireddi — Managing Director

Yes, your statement is true. I think food and pharma segment will compensate well for the diagnostic business that we don’t think we can grow at the anticipated rate, at least the plans we have for diagnostics we cannot fully push them number-wise effort wise, there is still no lags on our side, efforts continue, but the results we were anticipating to be better. Now that is definitely offset by good growth in the other two segments, food and pharma.

Dhwanil Desai — Turtle Capital — Analyst

So slightly delving more on that, so what is kind of working out better than expectation on the pharma side? Is it that the preclinical side that we were kind of it trying to ramp-up that is doing more better or any color on that?

Harita Vasireddi — Managing Director

Yes, like I mentioned in my commentary, the food side, even government is pushing for lot of testing in the market. So when a regulator starts doing that then the industry also sorts of puts more effort in its product quality, safety testing. So there is a good push happening from the government. And coming to the preclinical the China situation has helped us — many companies that have strong relationships with China are now looking towards other countries and India is a major destination as an option for them.

Dhwanil Desai — Turtle Capital — Analyst

Okay, one another question was on the NFL side. So, can you give more color on the ramp up, if it is ramping-up. But I think we were kind of anticipating higher ramp up and I think we also got the Phase-II condition also, so I mean, how do you see this ramping-up in FY24?

Harita Vasireddi — Managing Director

I cannot comment much on how the volumes will ramp-up in the future because that is an information that’s even shared with us by FSSAI. So currently the volumes are significantly better than what they were maybe five, six months ago.

Dhwanil Desai — Turtle Capital — Analyst

So this entire thing that we’ve talked about that — already-existing ecosystem and the samples we’re doing there and it takes time to kind of — food samples coming to NFL. Do you see any improvement qualitatively as more samples coming in to NFL rather than going to the existing ecosystem?

Harita Vasireddi — Managing Director

Sorry that, your voice was very hazy, I could not get your question.

Dhwanil Desai — Turtle Capital — Analyst

I sad that, we were saying that there is an existing ecosystem around NFL lab and the samples were currently going there and only a part of anticipated volume was coming. So are we seeing any change in that, in terms of now more volumes coming to NFL than going to the existing guys serving that segment?

Harita Vasireddi — Managing Director

I cannot comment on what are the number of samples that are going outside NFL, but I can only comment on the fact that the volumes have increased for us, definitely better than the first-six months of operation.

Dhwanil Desai — Turtle Capital — Analyst

Okay, and last question from my side. I think in your opening remarks, you sounded quite optimistic on the electronic and electrical side, and if I assume, that we put in INR30 crore of capex and assuming one-time effect on INR30 crore can be achieved by then, so are we thinking that we would be able to fully utilize our capacity in couple of years? Is that part of your business plan?

Harita Vasireddi — Managing Director

Yes, now the capacity is up 2 times whereas EMI/EMC’s chamber capacity and then instrument capacity we might need to add a chamber in a year or so as we see the utilization coming to 100%.

Dhwanil Desai — Turtle Capital — Analyst

Okay. So that means that, that amount could be INR30 crore, INR40 crores in couple of years, is that a right way to look at?

Harita Vasireddi — Managing Director

There will be an investment on the timber so that investment might come up in a year or two depending on how fast we are able to fill-up the capacities.

Dhwanil Desai — Turtle Capital — Analyst

Got it, thanks ma’am. All the best.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Ankit Gupta from Bamboo Capital, please go ahead.

Ankit Gupta — Bamboo Capital — Analyst

Yeah, thanks for the opportunity. Just wanted to check with you ma’am the new capacity at our existing unit will come, let’s say by end of this year, so will our target of INR500 crores or the aspiration that we have of keeping INR500 crore will that be back-ended post coming of the new capacity or do you think next year also we have good levers for growth and we can grow at a decent rate of pace?

Harita Vasireddi — Managing Director

Definitely, the capacity expansion that we are getting into by end-of-the year will enable our travel towards the INR500 crore. Right now, the capacities are quite strained, especially in some business units, and there we are doing our best to continuously stretch, it’s a difficult task, but we have been managing to do it.

Ankit Gupta — Bamboo Capital — Analyst

Sure. So, how do you see growth panning out for us in FY 24, will it be a low like high-single-digit kind or low-teens kind of growth or you’re confident that despite some capacity constraints we’ll see healthy growth during FY24 as well?

Harita Vasireddi — Managing Director

FY24, we are pushing for better growth, we want to improve the growth rate that we had over the last year and I would say very early to comment on the subsequent year. Let’s wait, go through a couple of more quarters, we’ll understand more and answer that question better.

Ankit Gupta — Bamboo Capital — Analyst

Sure, and on the food side, ex-NFL you do seem to be pretty confident that there has been a lot of push from government side, and in our earlier calls, we had indicated that our margins on the food side were relatively lower than the company average. So, how are the margins shaping up on the food side, if you can comment on that?

Harita Vasireddi — Managing Director

Food is a volume business, the more volumes we are able to bring on, the margins will I think get better.

Ankit Gupta — Bamboo Capital — Analyst

Sure. So have we seen improvement in margins in both segments in FY23 also?

Harita Vasireddi — Managing Director

Yes.

Ankit Gupta — Bamboo Capital — Analyst

Okay and the kind of visibility you have, or the kind of traction you see, we’ll continue to improve on margins as we scale-up the volumes?

Harita Vasireddi — Managing Director

There would be an improvement. I won’t be able to exactly predict what is the percentage improvement, but we anticipate that now with the new numbers that we are targeting this year, the margins should also get better.

Ankit Gupta — Bamboo Capital — Analyst

Sure. And ma’am on the pharma side, we have been talking quite a bit on the Biologic segment, it has been a new segment and we are pretty confident on that. If you can talk about how is the pipeline shaping up on the biologics side of our pharma business?

Harita Vasireddi — Managing Director

Many companies in India and mostly Indian companies that we are working with right now with respect to large molecules. They have — we have exciting pipelines for their large molecules so that is quite promising for us. We have recently procured the technologies required for wider large molecules services so they are currently under installation once these get installed in this quarter, we will be pushing them — we will be pushing those services in a more aggressive and focused manner in the coming quarters.

Ankit Gupta — Bamboo Capital — Analyst

Sure, so and lastly on the diagnostics side, so can we assume that B2B segment growth will remain, let’s say 5% 10% on diagnostics side or given B2B has some potential to push for higher-growth numbers?

Harita Vasireddi — Managing Director

I will not be able to comment on the exact percentages of growth, but what we have realized is that we are better-off sticking to our strength, which is the B2B market. So we will continue to pursue that.

Ankit Gupta — Bamboo Capital — Analyst

Sure, and on the NFL you commented that in the last six months, our volume has increased significantly compared to the initial six months. So, let’s say, in terms of percentage we were at x times in the initial six months. So in the last few months, how have we scaled-up? Like, let’s have we grown by 1.5 times, 2 times so if you can just give an indication on that front.

Harita Vasireddi — Managing Director

I think it could be around — it will be around one point 1.3x to 1.5x push. Again seasonality impact will be there because these are food commodities.

Operator

Ladies and gentlemen the participant’s lines been dropped or has left the queue. Our next question comes from the line of Jigar Shroff from Financial Research Technologies. Please go-ahead.

Jigar Shroff — Financial Research Technologies — Analyst

Thank you for taking my question ma’am and congratulations on very good results. I just wanted to reiterate — I mean, you said that, what is the capex for doubling the capacity in Genome Valley is it INR60 crores total?

Harita Vasireddi — Managing Director

Yes, INR60 crores six, zero.

Jigar Shroff — Financial Research Technologies — Analyst

And it will be completed by March 24, right?

Harita Vasireddi — Managing Director

Right.

Jigar Shroff — Financial Research Technologies — Analyst

Okay, secondly in this operational updates side, ma’am we’ve mentioned two new initiatives being rolled-out, rolled-out green audit services for various industries and also if you could talk a bit about the Bangladesh PPP that we have undertaken in terms of both the size of opportunity.

Harita Vasireddi — Managing Director

Yeah, so both these things are on the non-number side, we have been invited by the Bangladesh Food Safety Authority to contribute to their efforts in harmonizing their food-safety standards to CODEX standards, CODEX is an international standard so there were several technical groups that performed and we were invited to be a part of the technical group for methods harmonization. So we got special recognition and special thank you from the Bangladesh Food Safety Authority for our contribution, because I think we stood apart, we shined in what we did amongst the other technical group.

So I was rather proud of it, because we not only work with our governments, but we are happy to work with other governments especially with neighboring countries where this kind of harmonization will improve the trade within the region. So, we feel satisfied when our work helped the region and not just the country. Coming to the other one about green audits, I mentioned this again only because it’s an initiative new service that we have we started in our environmental services. There is a lot of push in the corporate world towards ESG compliances, so there is a lot of interest that is coming up from such companies and we are recognized as one of the quality service providers.They have — in fact many have reached out to us to start these services and we have begun it for them.

Jigar Shroff — Financial Research Technologies — Analyst

So any indication, what could be the size of this opportunity ma’am,the green audit?

Harita Vasireddi — Managing Director

Opportunity wise, it’s very routine, just qualitatively it’s a very good work that Vimta had started doing and contributing in terms of environmental sustainability.

Jigar Shroff — Financial Research Technologies — Analyst

Okay. So both these initiatives — you don’t see, I mean contributing Bangladesh I mean no plans to expand our geographical spread on — nothing on that sort right?

Harita Vasireddi — Managing Director

As of now nothing, but we never know what opens up what — our brand is growing, our brand is becoming strong.

Jigar Shroff — Financial Research Technologies — Analyst

Okay. And in the Indian market I mean, how is the competitive intensity ma’am?

Harita Vasireddi — Managing Director

In the food business you mean?

Jigar Shroff — Financial Research Technologies — Analyst

Overall, in all the services that we are rendering.

Harita Vasireddi — Managing Director

Competition is very-high in all the segments. There is no industry where there is no competition at least where we are providing our services. It’s quite intense. I would say a lot more in clinical diagnostics compared to the others, but it’s there everywhere.

Jigar Shroff — Financial Research Technologies — Analyst

Who would be our main competitors ma’am?

Harita Vasireddi — Managing Director

Now, we compete with several companies, for each of our that segments. On the food side and pharma side we compete with the multinationals who are playing in India and food side, of course, we also compete with the local, domestic laboratories, electronics and electrical we again compete with multinationals, who have setup their testing facilities in India. Coming to environment there again are hundreds that provide these services. But we have a very strong brand there.

The other one is diagnostic and I am sure, you know who are the big players. We compete mostly with the local players, and in our geographic regions where we are strong we also compete with the national players.

Jigar Shroff — Financial Research Technologies — Analyst

And just to reiterate ma’am, the midterm revenue target which you mentioned around INR500 crores the margins would be better than the existing 30%, right?

Harita Vasireddi — Managing Director

Sorry, better than?

Jigar Shroff — Financial Research Technologies — Analyst

The existing 30% EBITDA margins.

Harita Vasireddi — Managing Director

We hope that they would be better.

Jigar Shroff — Financial Research Technologies — Analyst

Okay, thank you so much and best of luck.

Harita Vasireddi — Managing Director

Thank you.

Operator

Thank you. Our next question comes from the line of Aman Vij from Astute Investment Management. Please go-ahead.

Aman Vij — Astute Investment Management — Analyst

Yeah. Good morning, ma’am my first set of questions is on electronic and electrical side. So if you can talk about what is our team size and the number of customers as of today, and we I think last quarter you mentioned you started the second shift, so what is it like, are we fully through the second shift or is there any plan of third shift as well?

Harita Vasireddi — Managing Director

The team has been strengthened in the last couple of months. I think there are about a dozen-plus people now and we continue to operate once you spend an extra half shift. So as of now, there is no need for a third shift.

Aman Vij — Astute Investment Management — Analyst

And in terms of customers, in total income?

Harita Vasireddi — Managing Director

Customers, we have added good number of customers from Hyderabad.

Aman Vij — Astute Investment Management — Analyst

What is the total number of customers as of today in this division?

Harita Vasireddi — Managing Director

Sorry?

Aman Vij — Astute Investment Management — Analyst

What is the total number of customers as of today, in this division, electric, electronic and electrical?

Harita Vasireddi — Managing Director

I don’t have the count with me, but we have added a good number of customers during last year. Everybody that we have reached out too have responded well and as and when I think they had requirement of such services they have all reached out to us.

Aman Vij — Astute Investment Management — Analyst

And ma’am you have talked about scaling happening only after the third year, not in second year as well. Any reason because now we have — we would have given them and provided them services, so shouldn’t the scaling we expected in FY 24 itself?

Harita Vasireddi — Managing Director

Sorry, your voice was not clear. Please repeat.

Aman Vij — Astute Investment Management — Analyst

Yeah. I was saying, you had mentioned that it will take us two years to scale. One year has already passed and another one year maybe you’re talking about. I was asking because we have already done a lot of testing for our customers any reason you don’t see the scaling happening this year itself, in this division?

Harita Vasireddi — Managing Director

No, sorry. I was trying to understand your question from my colleagues. Your question is what is the scale in the first year and would be in the second year correct?

Aman Vij — Astute Investment Management — Analyst

Yes ma’am you had mentioned that we were late by one year, right. We were supposed to start in FY22, restart it in FY23 and then you had mentioned in the first, two years number won’t be high.

Harita Vasireddi — Managing Director

Yes. The numbers won’t be high in relation to the total revenues of the organization. So that’s what I meant, but this division has its own plan and we are sticking to the plan. The delay was on installation of equipment so that’s how we couldn’t start when we plan to start, but after we started the things are moving per the plan.

Aman Vij — Astute Investment Management — Analyst

Okay, but the question was, do you expect the full utilization this year or next year in this?

Harita Vasireddi — Managing Director

We think we might have to add a chamber, maybe by 2025 or 2026.

Aman Vij — Astute Investment Management — Analyst

Okay, and the INR30 crore cost split between the chamber cost and the equipment cost, roughly what was it?

Harita Vasireddi — Managing Director

See, that’s too nitty-gritty and we negotiate with these vendors, I don’t want to open up what our negotiation prices have been to the public.

Aman Vij — Astute Investment Management — Analyst

No issues ma’am. In terms of the JNPT, FSSAI scaling up so last quarter we had mentioned that there was a new CEO that had come, so if you can update us in terms of talks and so in terms of full utilization of this facility do you think this can happen in next two years or it will take longer time?

Harita Vasireddi — Managing Director

Like I said in my earlier responses, I’m unable to predict that because that is entirely in the hands of the government. So we have no visibility on that. This new CEO has come and then we interact, we request and then things are steadily progressing that all, I can’t comment on.

Aman Vij — Astute Investment Management — Analyst

Okay, if you can talk about what is the current utilization in this facility?

Harita Vasireddi — Managing Director

Utilization wise it’s good, we are running double shifts there, we can also add a third shift when sample volumes further grow.

Aman Vij — Astute Investment Management — Analyst

So utilization will be like 50% 60%, right minimum, as of today?

Harita Vasireddi — Managing Director

Utilization in terms of space, people and equipment, for us it’s three-dimensional. We can always add more people to add numbers to the three shifts if needed as and when. Equipment, right now I think they are well used. I don’t really have the utilization with us as of now so as and when we need more equipment we are in a position to deploy them in a very short period. Infrastructure wise, it is fully occupied, the space has been provided by the government so that is fully occupied by us. There is no further room for expansion.

Aman Vij — Astute Investment Management — Analyst

Okay and sorry, what is the total number of employees who are on this project, as of now?

Harita Vasireddi — Managing Director

They are around 60 people.

Aman Vij — Astute Investment Management — Analyst

60, and do you think we’ll ramp-up this year maybe?

Harita Vasireddi — Managing Director

As I said I don’t know, if needed, we will.

Aman Vij — Astute Investment Management — Analyst

Sure ma’am, my next question is on the Food division. So do you think we can cross that INR100 crore barrier in food this year or maybe in FY25, do you think that will happen?

Harita Vasireddi — Managing Director

It will happen soon, when it happens I will announce it. Normally we don’t give out segment-wise sales, it’s a internal target that we have taken in food that I wanted to share with you, I can just confirm to you that as on today, we are the number-one in the country.

Aman Vij — Astute Investment Management — Analyst

Yeah, that was very interesting to know. And the number two-player, ma’am will be like 20% lower or they are much, much lower compared to us in this industry?

Harita Vasireddi — Managing Director

I didn’t know. I honestly I don’t have that information with me right now.

Aman Vij — Astute Investment Management — Analyst

Sure, ma’am. On the pharma, analytical and preclinical side here also, it was very good to know that we are the number-one in India. At the same time, I believe there are two more players, maybe they are not very strong in this segment, Vida and one more, so is my understanding correct that here we are the dominant player in India and maybe they are more into the clinical side rather than pharma analytical and pre-clinical side?

Harita Vasireddi — Managing Director

Yeah, Vida is very dominant on the clinical research side, not so much on the other service lines.

Aman Vij — Astute Investment Management — Analyst

And you had mentioned one more player who was quite big in India?

Harita Vasireddi — Managing Director

Sorry, repeat please?

Aman Vij — Astute Investment Management — Analyst

Ma’am, you had mentioned two players who are quite a bit apart from us. One was Vimta, one was Vida, there was one more player, you had mentioned right?

Harita Vasireddi — Managing Director

In clinical research the other strong player was Lambda.

Aman Vij — Astute Investment Management — Analyst

Yeah, so they are also not very strong in pharma, analytical and preclinical?

Harita Vasireddi — Managing Director

They are mostly serving captive business for their parent company Lambda.

Aman Vij — Astute Investment Management — Analyst

Okay, okay, makes sense. Ma’am on the clinical research side, we were trying to break-in and then this COVID thing happened. So any progress on that because that is a much bigger opportunity. If you can talk about what is happening?

Harita Vasireddi — Managing Director

This is regarding clinical research right?

Aman Vij — Astute Investment Management — Analyst

Yes.

Harita Vasireddi — Managing Director

Yes, clinical research as I mentioned in one of my previous calls we have started building capabilities for patient studies so that is a new service that we are going to flag off this year.

Aman Vij — Astute Investment Management — Analyst

Okay, so do you think some project fructify this year which have been pending for last two, three years?

Harita Vasireddi — Managing Director

I am not able to hear, can you repeat please.

Aman Vij — Astute Investment Management — Analyst

Yes. Ma’am I was saying, do you think some projects in clinical research will fructify this year, which had been pending for last two, three years?

Harita Vasireddi — Managing Director

Yes, we are very hopeful that something will fructify in Q1 or Q2.

Aman Vij — Astute Investment Management — Analyst

That is also very good to hear ma’am. Next question is on the people addition, so currently have 1,400 people. If you can talk about what will be the employee addition after this Genome facility comes in and what kind of employee strength do you think we’ll add in FY24 this year?

Harita Vasireddi — Managing Director

Manpower wise, it has been very, very challenging after COVID, luckily for us, we have been able to maintain the manpower cost. And we are going to put our best efforts to maintain manpower cost. The numbers might be here and there depending on how efficiently we are able to manage that goal of ours.

Operator

Thank you. Our next question comes from the line of Dixit Joshi from Whitestone Financial Advisors Private Limited. Please go-ahead.

Dixit Joshi — Whitestone Financial Advisors — Analyst

Yeah, thanks for the opportunity. Ma’am my, first question is recently the Eurofins has announced that INR1,000 crore capex in Genome Valley. So will that be on the similar lines of what we Vimta does and can that materially impact our growth plan?

Harita Vasireddi — Managing Director

Eurofins is not only a testing laboratory and a CRO like us, they are also CDMO contract development and manufacturing organization. So, their revenue models and ours are slightly different.

Dixit Joshi — Whitestone Financial Advisors — Analyst

Okay, so you don’t expect too much competition because of them coming?

Harita Vasireddi — Managing Director

We are already competing with them on the pharma and food testing services and contact fee for services so nothing new.

Dixit Joshi — Whitestone Financial Advisors — Analyst

Okay, in terms of electronic business so, as you also mentioned that government is focusing on manufacturing in India and lot of PLI benefits are given for electronic manufacturing, so I mean let’s say after two, three years or 5 years, can this business become say 20% 25% of our overall topline or do you feel that even after considering that, this business will be small part of our overall revenue?

Harita Vasireddi — Managing Director

Two to three years, we would be very happy to see it fall around 10%.

Dixit Joshi — Whitestone Financial Advisors — Analyst

Okay, and in terms of diagnostic you mentioned that now we will be focusing more on the B2B side. Are we looking to, let’s say, partner with any of the online service provider as their back-end?

Harita Vasireddi — Managing Director

No, actually the online service providers do not have a model of partnership with companies like ours. They go to the — it’s very transaction-based depending on the test, location, very dynamic. So there is no model for partnership as such, at least not something that we have come across.

Dixit Joshi — Whitestone Financial Advisors — Analyst

Okay, that’s it from my side. Thanks.

Operator

Thank you. Our next question comes from the line of Pratik Kothari from Unique Portfolio Managers. Please go-ahead.

Pratik Kothari — Unique Asset Management — Analyst

Good morning and thank you. Ma’am my first question is on the Genome Valley, so once it is set-up and we have ramped up to the maximum potential available say and I think you mentioned that it might take-up 5 years. But what can be the revenue potential then — I mean, just to understand what can this lab setup do for us, even 5 years down the line?

Harita Vasireddi — Managing Director

Many technologies are getting developed from the instrument manufacturers side also. They’re talking about green labs, they’re talking about revolution in labs so the technology are revolutionized in terms of their size, they space that they occupy, things like that and then the capacities that we are currently building now could actually be stretched but I don’t have a prediction as of now very specifically for when this new building will be fully utilized.

The one that we are sitting in right now was constructed in 2006. It has run for us, so many years and now we are full. Of course, we are growing faster now and the numbers are also bigger now, so I wouldn’t anticipate that it will take the same amount of time to fully utilize the new capacity. I’m hoping we’ll be able to use them off, much, much faster, but I don’t have any specific forecast on that.

Pratik Kothari — Unique Asset Management — Analyst

Actually, I wasn’t asking on the timeline, I was just asking about the potential. So currently, I believe we operate about 400,000 square feet I mean, including all facilities that we have — on the pharma side?

Harita Vasireddi — Managing Director

Yes no pharma, full company.

Pratik Kothari — Unique Asset Management — Analyst

Full company. Okay, fair enough, great. Ma’am my second question was in Q3 call — in the December call we had mentioned that there was some spillover of revenue from Q3 to Q4 and ex of that also we were expecting some substantial jump-in revenues. I mean accounting for that, we don’t see as such, any comment anything that you would like to highlight?

Harita Vasireddi — Managing Director

Usually there is a set-off some things don’t happen and some unforeseen things happen. So in last quarter the set off, didn’t happen that’s the reason it was slight aberration, Q4 the normal trends continue, the spillover that we were anticipating on some, they continue to spillover, some have of course happened in the last quarter. I wouldn’t pay much attention to that.

Pratik Kothari — Unique Asset Management — Analyst

Fair enough. And my last question is on the margin. So in FY22, if we take-out the lab setup cost which was recorded in revenue and expense again the INR14 crores odd. If we look at margins, ex of that it was 30% odd and if we look at margin, now it’s again 30% and we have grown at 20% year-on year. So, our expectation was given the business that we have as we ramp-up and ramp-up quickly, we should see some operating leverage play-out, but the margins remained flat, last year versus this, I mean ex of your JNPT setup costs. Just your comments why didn’t that play-out?

Harita Vasireddi — Managing Director

The margins could have probably been slightly better, had we been able to translate our plants in diagnostics effectively, so that has countered it a little bit, going-forward I think the margins can definitely be expected to be better.

Pratik Kothari — Unique Asset Management — Analyst

But, how is this — what is this better driven by?

Harita Vasireddi — Managing Director

Sorry, can you repeat?

Pratik Kothari — Unique Asset Management — Analyst

I mean, you said going-forward the margins we expect it to be better. My question, is I mean, what is this driven by?

Harita Vasireddi — Managing Director

It will be driven by volume, last year also there is a good increase in volumes that was probably offset by some deals that did not grow as anticipated. Now, the betterment I’m seeing from the volumes only in all the business lines.

Operator

Thank you. Our next question comes from the line of Rohit from ithoughtpms. Please go-ahead.

Rohit Balakrishnan — ithoughtpms — Analyst

Yeah, hello, am I audible ma’am.

Harita Vasireddi — Managing Director

Very difficult to understand, the sound is there, but clarity is not there.

Rohit Balakrishnan — ithoughtpms — Analyst

Any better ma’am?

Harita Vasireddi — Managing Director

Yes better.

Rohit Balakrishnan — ithoughtpms — Analyst

Okay, thank you ma’am. Just a couple of questions ma’am. So one was on the — I missed your commentary on the large molecule side, can you just repeat that. You said that you have signed-up with a customer and you are also putting in some more equipment, so if you could just repeat that I was unable to properly hear.

Harita Vasireddi — Managing Director

Okay. I didn’t mention any sign off with customer, so I was just sharing that we have procured some new technologies to add higher level services for large molecules and the technologies are currently under installation and we will be able to commercialize those services from Q2 onwards.

Rohit Balakrishnan — ithoughtpms — Analyst

Understood, and the answer to an earlier participant’s question so how are you looking at FY24, given you mentioned that capacities are constrained. So this year I think you grew by around 15%, something similar, you think you can achieve despite capacity constraints or this year will be more like a consolidation year as new capacity comes online?

Harita Vasireddi — Managing Director

Capacities are severely constrained on the pharma side — the other business units, do not have that kind of constraints for pharma still we continue to — we are compressing ourselves more. So hopefully we will be able to manage until the new facilities opened up for occupation by Q4 of this year.

Rohit Balakrishnan — ithoughtpms — Analyst

Right. And on the NFL you mentioned that the volumes have grown in the last three months. Would you also know that — is there a seasonality in this, in a sense that the last quarter is always good or is there no seasonality and you’re adjusting for that and still the volumes are good. Any comments on that?

Harita Vasireddi — Managing Director

There are seasonalities in our various services, but they tend to not all come in the same quarter so more or less there is an evenness inherently built into the quarter.

Rohit Balakrishnan — ithoughtpms — Analyst

No, actually, what I was wanting to ask was that in the NFL, specifically you’ve seen a jump in your volumes in the last three months, you said the last three months, were better than the first six. So I was just wanting to ask, is there any seasonality there which is driving the volumes or your share is going up, irrespective of the seasonality is what my question was.

Harita Vasireddi — Managing Director

Q4 there will be a seasonality impact because last year’s Q4 also we saw that.

Rohit Balakrishnan — ithoughtpms — Analyst

Got it, fine. That’s all from my side ma’am. Thank you very much and all the best for the coming year.

Harita Vasireddi — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen due to paucity of time we have reached to the end of the question-and-answer session and I now hand the conference over to Vimta Labs’ management for closing remarks.

Vishal Manchanda — Vice President, Institutional Research

Thank you everyone.

Operator

[Operator Closing Remarks]