Hikal Limited (HIKAL) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q2 and H1 FY27 Earnings Conference Call of Heichel Ltd. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. Should you need assistance during this conference, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Samir Hiramath, Chairman and Managing Director from Haikal Limited. Thank you, and over to you, sir.

Thank you. Ladies and gentlemen, a very good evening and a warm welcome to all of you. We extend our gratitude to all of you for your participation in our Q2 F527 results conference call. We are delighted to provide you with an update on the progress made by our company. We trust that we have had the opportunity to review our comprehensive earnings release, investor presentation, and the financial statements for the quarter ended 30th September 2026. These documents can be accessed on both HICL's website and the Stock Exchange's website. I am Samir Hiremat, Chairman and Managing Director, HICL Limited, and I will be leading the discussion and presenting the financial results. On this call with me, I have Anish Swadi, CEO of Animal Health and Specialty Ingredients, Kuldeep Jain, our Chief Financial Officer, Manoj Bhairotra, Head of our Pharma Business, Ravi Khadburi, Head of our Crop Protection Business, and Strategic Growth Advisors, our Investor Relations Advisors. I am pleased to report our performance for Q2 and H1-FI27, with the Q2 revenue standing at 434 crores with an EBITDA of 525 crores and a margin of 10.3%. For H1-FI27, revenue stood at 837 crores. With an EBITDA of 82 crores and a margin of 9.8%. Our revenues, volume, and EBITDA have grown compared to last year. However, profitability was impacted to some extent due to higher raw material prices, especially in our crop protection business. Our pharmaceutical business continued to progress, supported by the recovery in our established API portfolio and sustained execution by increasing volumes in our CDMO business. In our own product portfolio, the legacy portfolio improved both sequentially and year-on-year. New products continue to advance with higher sales expected in H2 as production ramps up. Customer traction also strengthened across Latin America, Japan, and Korea. In addition, regulatory approvals were secured in China and Brazil for two products, widening market access and supporting future demand. In the CDMO business, growth continues through contributions from our new product development pipeline for APIs and intermediates, supported by strong customer relationships. I am pleased to share that our quality remediation program in our pharma business is well on track, and we have received a certificate of GMP compliance from the Swiss Medic Agency for our Bangalore facility recently. This certification reinforces the strength of the quality systems and the remediation programs at a binary facility. It is an important step in expanding the global reach of our pharma business and creating opportunities with customers in Europe and other regulated markets. Compliance, quality, and manufacturing excellence remain central to our longer-term customer partnerships. For the crop protection business, it continued to navigate the challenging operating environment impacted by elevated raw material and energy prices, as well as pricing pressure from Chinese competition. Our own product portfolio delivered a year-on-year growth supported by some of our legacy molecules. The CDMO business continued to focus on strengthening customer relationships and pursuing longer-term programs beginning right from process development to commercial-scale manufacturing. in custom synthesis and commercial manufacturing. For that, I am pleased to share that we have signed a multi-year contract with a European-based global agrochemical company to supply a specialized product to markets worldwide. Commercial launch is expected towards the end of this financial year, with volumes anticipated to grow progressively as regulatory approvals are secured across global markets. This CDMO contract reflects her ability to combine technical expertise, process development, and manufacturing capabilities to address complex customer product requirements and support the transition from lab to commercial scale. Our animal health business delivered year-on-year growth with contribution margins improved quarter-on-quarter. Our business, our current products were supported by higher volumes, while the new products under the CDMO pipeline progressed from lab to validation and some into the lab as well. In the specialty ingredients portfolio, we achieved an important milestone in the recently commencement of the commercial production of our new multi-purpose facility at Panoli. Our priorities are to progress customer validation approvals, which are well underway, and convert the ongoing engagements into commercial sales across three markets. With demand progressively shifting towards next generation UV filters and other complex skincare products, we believe this can become a meaningful growth contributor over the medium term. We continue to work towards the targeted U.S. FDA re-inspection of our Bangalore facility and are hopeful it happens towards the end of this current financial year. Successful completion of the regulatory process is expected to support recovery in our pharma business with the regulated markets and accelerate the current new CDMO pipeline. Looking ahead, we remain confident in our growth outlook in H2 versus last year. We reiterate our full year guidance given in the last quarter for a mid-teens growth in revenue and a substantial improvement in profitability. Now I'd like to invite Kuldeep Jain, CFO, to discuss the financial performance.

Thanks, Samir, and good evening, everybody. For Q2 FY2027, our revenue reported at 434 crore, EBITDA at Rs. 25 crore, with a margin of 10.3%, and PAD at Rs. negative 6 crore. For H1 2027, our revenue stood at 837 crore, EBITDA at Rs. 82 crore. With a margin of 9.8% and Pat at Rs-14 crore. Depreciation charge remained same broadly during the last year. Capital expenditure stood at Rs-81 crore incurred towards debottlenacking, inventory, regulatory upgrades and selective capacity creation. Our capital allocation remains targeted with priority given to high returns projects aligned with our long-term growth objectives. Eliminated raw material prices have impacted as Samir has mentioned. Our margins this year with key solvents and certain commodity prices increasing sharply by over 100%. Some of the raw material costs have increased by over 100%. Majority of these increases in our CDMA business which will be passed on to the customer over the next few quarters. Our growth relationship continues to be financed through a combination of internal requests and external debts. As of 30th September, 2026, our debt-to-equal ratio stood at 0.52. Now, I would like to hand over this call to Mr. Manoj Manhotra, who is our President Pharmaceutical, who will provide an overview on the pharmaceutical division performance. Over to you, Manoj.

Thank you, Kuldeep, and good evening, ladies and gentlemen. For quarter 2 FY27, the pharma business reported revenue of Rs. 278 crores. EBIT of Rs. 13 crores and an EBIT margin of 4.6%. For H1 FY27, the pharmaceutical business reported revenue of Rs. 511 crores, EBIT of 20 crores, and an EBIT margin of 4%. The improvement over Q1 was led primarily by the established API portfolio, with the legacy portfolio recovering sequentially. New products continue to progress, and we expect higher sales in H2. Customer traction strengthened across Latin America, Japan, and Korea. During the quarter, we also secured regulatory approvals in China and Brazil for two established products, expanding market access and supporting future demand. Capacity utilization during the quarter ranged from 60 to 70 percent at the pharma manufacturing facilities, as we consciously slowed down production to comply with stringent quality standards. This was a strong quarter in compliance. The Swiss magic certification was received. We have completed 28 customer audits successfully. Our remediation program with the USFDA is on track, and we expect the reinspection by end of the current financial year. Our CDMO business continues to grow, supported by contributions from new products and intermediates and through deeper engagement with customers. Retentions remain strong across key accounts. The customer base includes a balanced mix of innovative companies and emerging biopharma customers across the U.S., Europe, and Japan, supporting both pipeline diversification and future growth. Opportunities span process development, intermediate, custom synthesis, FTE models, and high-potency chemistry, with several programs as proposal or RFP studies. To conclude, we are confident that our H2 performance will be significantly better than H1. Now, I would like to invite Mr. Ravi Kharbari to provide an overview of Crop Protection Division's performance.

Thank you, Manoj.

Good evening, ladies and gentlemen. For Q2 FY27, the crop protection business reported revenue of 156 crores, EBIT of negative rupees 2 crores, and an EBIT margin of negative 1.5%. In July 527, the crop protection business reported revenue of Rs 326 crores, an EBIT of Rs-8 crores, and an EBIT margin of –2.5%. Q2 was a challenging quarter. Elevated RM prices impacted our margins. Chinese competition kept global prices under severe pressure. The customers buying only for immediate requirements. Our legacy portfolio remained the main road driver with increasing volumes. Demand was deferred to H2, and margins stayed under pressure. We are passing on majority of the price increases to the customers. On a positive note, as Samir mentioned, we have signed a multi-year contract with a Europe-based global agrochemical company to supply a specialized product to markets worldwide. Commercial launch is expected. Towards the end of FY27, with volumes anticipated to grow progressively as regulatory approvals are secured across global markets. Customer engagement in Japan has increased, including alternate supplier opportunities for existing products. This is Mr. Anish Swaghi, CEO of Animal Health Speciality Ingredients, who will provide an overview of our emerging businesses. Thank you.

Thank you, Ravi. This is continuing to grow in revenue this quarter. Our existing product portfolios will increase in volumes, and our new CDMO projects are progressing well. Currently, we have three new KSM's under validation for an innovator customer, and we are hopeful to commercialize this in the near future and the upcoming quarters. The business remains an important growth platform, and we continue to work towards our overall ambition of growing the business to about 400 crores by FY30. We currently have six products under development under the CDMO pipeline, and over the next 12 months, we do expect to commercialize several of these. Regulatory progress is on track, and a new filing completed during the quarter. We have nine process patents that have been filed from R&D over the last 12 months. Our long-term contracts with global innovators continues to be an anchor for this business. Under our specialty ingredients business, we have moved from plan to production this year, with the commercial manufacturing commencing at our multipurpose Panoli facility. We are now focused on stabilizing the production, progressing customer validations and approvals, converting engagements into commercial sales across key markets. This opportunity is supported by market trends, including the rising demand for functional specialty ingredients and the transition towards next-generation UV filters, which is part of our portfolio. With this, I'd like to open up the floor to Q&A.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to please use handsets when asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles.

Our first question comes from the line of Aman Vora with Premier Capital.

Please go ahead.

Yeah. Hi. Thanks for the opportunity. First of all, congratulations, Sameer, on taking up the role of Chairman and Managing Director. I would start with the performance in 2Q. So, if I look at – first, I'll start with the pharma business. If I look at the pharma business, we've reported roughly 278 crores of revenue. Y-O-Y comparison might not make sense given the base, but if I compare it versus the second quarter financial year 25 where we had reported 294 crores of revenue, we are broadly similar in terms of revenue where we were in 2QF 25, but our margins that we've reported are at 4.6% versus 13.7% in that quarter. So could you explain this 900 basis points of difference that we have on similar revenue? And even sequentially, if I see the margin improvement looks very tepid, it's just operating leverage that has caught up versus 1Q. So could you just help me understand the margin for the quarter?

Well, I don't have the Q2 F525 numbers in front of me, so I can compare it to last year. But I think broadly, if I had to say, contribution margin also has dropped in Q2 F527 because of some impact of raw material prices and product mix. That's number one. And number two, our fixed cost has increased compared to F525 because of the US FDA remediation expenses, which was not there in F525. These are the two main reasons. While the revenues are more or less the same compared to FI 25, the margins have dropped. And this, that's the reason, yeah.

Yeah. No, so could you quantify the fixed cost? Because 12 crores of EBIT versus 40 crores, that is a difference of about 30 crores, 28 crores.

I don't have that for working compared to 25, I'm sorry, in front of me. I haven't done it, I don't have that. We can discuss it offline. I'm happy that we can get in touch with our SGA investor advisory phone and we can share this with you, no problem.

Okay. So, let me frame it this way. A normalized margin, EBIT margin of the farmer business should be in double digit. Is that understanding correct? Like, should we be more than 10%?

I think so.

Yeah, so we've reported four and a half this quarter. So if you could help me understand, like, where are we headed going into the second half, given the fact that the margins remain much below our historical level. So I understand the guidance of EBITDA growth being 25% that you had shared last year. But if I just put in that numbers also, we had done better in the second half last year also. So could you just explain this bridge? How do we get better sequentially?

Well, second half is going to be significantly better compared to first half, and that's the way high-kill business has been. Even prior to FY25, we look at a historical, because of the nature of our business. And this obviously, this year, first half is lower compared to FY25, because of the slowdown in production, as you're aware of. H2, we expect to make a recovery compared to H1, and there's going to be a significant improvement in the pharma business compared to H1 in terms of... And based on the contributions as well, if you look at the contribution also, we expect the EBITDA to also go up substantially in H2 compared to H1. See, there are two costs that are going to remain, which are elevated this year, and I think it will remain till end of this year, which is the other. The USFDA remediation cost, which is adding on to our fixed cost, which was not there a year and a half ago. That will eventually go away. That is, as I mentioned in the last call, it's adding almost 20 crores to our fixed expenses every year, from an operating experience perspective. And it's also adding some capex. But let's look at the PNL is adding about 20 crores. If you take that out of the thing, then our EBITDA margins will be at the end of this year. We'll, if you remove this 20 crore impact, our EBITDA margin for this year, We'll be over, we'll be closer to 70-18%, if you remove this 20 clause.

Got it, got it. And just to understand this better, could you share a little bit more details on the CDMO contract that the agrochemical division has received?

Yeah, sure. That's been a very positive development. After several years, we've won a CDMO contract. Because I think the worst of this crop business is behind us. While margins are depressed due to current war situation and Middle East crisis, the signing of this contract is for a very niche, specialized, active ingredient. We've been working on it for almost three years now. We started off with process development, scale-up, registration, filings. And now the approvals are expected to come through and commercial production will be starting by end of next quarter. So it's not a very long gestation period because a lot of work has already happened in the last two, two and a half years. This is a multi-year, long-term contract. It is typically evergreen. These contracts go on for five, ten years and beyond. Once you get approvals, they don't change. So we expect this also to be the same. It's a very long-term contract. The launch will be next, will be end of this year, but the realistic volume will come next year. And we expect peak realization by calendar year 29, early 2030. So not too long, two, two and a half years, you can go to peak revenue from launch. It's a high margin business with a contribution margin, well in excess. of the contribution margin of the current crop division, and even higher than the contribution margin of the company, I would say. We bring a CDMO niche molecule, and the EBITDA will be very in excess of the EBITDA margins of the company. So it's a very revenue and margin It's a very negative CDMO business. It's a very positive thing.

Got it. Any understanding of the quantum of the molecule as it can be on peak utilization in calendar year 29?

So, you know, I think we should look at margins rather than this thing. I think it will be about 50 to 75 crores per year, but very high margin business.

Got it, got it. Yeah, just last one from me. So, just to understand where the business is headed. So, last year, second half, our EBITDA margin was about 18.5%. Safe to assume that second half, F27, we'll be at least be able to make that kind of EBITDA margin?

18.5%?

I'm talking second half.

Yeah. See, the issues of the war situation may be having some impact. If the war situation organizes, we should be able to achieve that. But otherwise, in that range, maybe 100 basis points here and there, not more than that.

Okay. Got it. Perfect. Thank you so much.

Thank you. Our next question comes from the line of Rohit Finna with Sunidi Securities. Please go ahead.

Yeah, thank you for taking my question, sir. So one question is on the remediation cost. I think I missed out. I just wanted to understand how much cost there was for the first half, and is the cost still recurring for the second half also?

The annual estimate which was given in the last quarterly call is about 20 crores. It may vary a little bit up and down, quarter to quarter, but annualized impact is about 20 crores. You can divide that by... Not exactly by four quarters, but a little bit up and down in that range, you know, every quarter.

Got it. Got it. And, sir, because of this U.S. FDA issue, we have been addicted to some of the pharma revenues. If you could help us understand if that would not have been happened, what sort of revenue size we would be doing on the quarterly basis as of now, Given some of the new customers who already are in talk with us for the business, and in another way, once we get this clearance, what sort of quarterly farmer revenue should be added back to our sites?

Yeah, see, once the clearance comes, immediately the sales will not start from day two, but it will start ramping up. On an annualized basis, we expect this impact to be positive by about 150 crores. Like to like, if you take the base level today, and if FDA comes back, or if you take 12 months hence from today, then we'll be about 150 crores positive on revenue. That's a top-line estimate, and our contribution will be about 45 to 46% contribution on that business.

Got it.

Got it.

And, sir, on the personal care segment, if you could help us understand how much development we have done as of now and what sort of revenue we could expect in the second half with, I guess, the margins would be better than what we are doing on the console basis as of now.

Yeah, so just to talk to you about the personal care, the strategy behind personal care is twofold, very similar to our other businesses. What we've done is we've developed a small portfolio of products that we think is niche for the market, that we've seen a potential gap in the market. So we've developed that. Those products have been, are currently undergoing validation in the plant. So they should only be ready in the next couple of months. Post that, we're going to go out and test the market. We already have some indications, but we're going to commercially ramp up that portfolio. The second broader aspect of this business that we're focusing on is contract manufacturing, where we've actually started some time ago. We've aggressively gone after several of the anchor customers that we want to bring on board to offer services, and that's going to be very similar to the methodology that we use in crop protection and pharmaceuticals, more on the pharma lines because of the kind of products we're going after, where we're going to offer CDMO services like early stage development to commercial validation. And obviously, a lot of those products require global regulatory approvals. So that's going to be what the majority of the business is going to end up, I think, in the next four years. The target is that majority of the business is going to be CDMO rather than an own product portfolio. The own products are more to get a flavor of the market, to establish ourselves, to get our name out there, that this is what we do, this is what we can do in terms of chemistry and in terms of quality and compliance.

And one last question before I rejoin the queue. In this new contract, as you said that it should be a global contract, so that customer has business in India as well? I mean, our sales would be for India as well as export both, or it would be purely for the export market?

It's a very niche molecule. It's a specialized molecule. So, mostly it is in the export market because the prices are on the higher side. There will be some India shares, but the majority will be in the global markets, in the regulated global markets.

Got it. Got it. Thank you, and best of luck, and happy Diwali to all yourself. You too. Thank you.

Thank you. Our next question comes from the line of Henel Bagatia with Equicorp.

Please go ahead.

Thank you for the possibility, sir. I hope I am audible.

You are audible, sir. You may proceed.

So, actually, starting with the Acrochemical Division with respect to the new order that we've actually got, so if we give some more understanding, is it in line with the CRDM activity we actually planned because we actually had some plans to have actually a research platform and do something that people are actually doing in pharma to try to replicate that in the Acrochemical side. Is that the first step towards this particular initiative that we have? And secondly, yes, please go ahead. So, secondly, with respect to the molecule, as you said, it's specialized and got a specialized application too. So, with respect to the sourcing, do we, at peak sourcing, do we expect to be in the top two or the top three supplier list for that particular customer? And is it like a patented molecule or is it like an off-patent? Because from what I understand is, in CDMO, as long as the product is in patent, the players don't mind paying money. But once the product nears the patent expiry, I think the renegotiations happen and I think so the margins also take a tie for CCGMO players.

Okay, so I'll answer the two very good questions, and I'll go to the first one. This is part of our strategy to get involved with the customers early on in the development. So as I mentioned earlier on in this call, we got involved almost three years ago with this project, and the first part of the project was to develop the process and the chemistry, provide samples, then scale up the molecule and help them with registration material. So, our technical center in Pune, which was absolutely state-of-the-art, and some of the investors did visit in the last quarter, and I invite all the shareholders to come and visit it any time they'd like, has been a very instrumental part in acquiring this business and developing a very robust... Scalable cost-comparative business. This molecule is a niche molecule. By that, I mean it is something called proprietary off-patent. By proprietary off-patent, it means even though it goes off-patent, because of the niche formulation technology that is applied on the niche application, there is very limited competition in these products. These are niche molecules. So, even though it has gone off patent, the prices have already been, we are focused on pricing post patent expiry, because it has gone off patent a couple of years ago, and there is limited competition. So, we are using our technical competency in a former R&D center, and a very important part is also by backward integrating into the key starting material, which was being sourced by the competition out of Europe. We will be fully self-sufficient in the supply chain also. So, that will also help us keep cost of goods and our margins within control. So, margins are protected in this contract, and the customer has already given us a road back for pricing expectations going forward, and that has been baked into our projections, which I have just spoken about. The other part was, the second question, can you repeat that, please?

So, with respect to the capacity utilization, if we give some understanding how much of the capacity utilization will get increased because of this particular molecule, and actually the second part was with respect to the research platform, actually, we actually plan to have a research platform. I think so, you did allude, we have actually worked with a customer for about two, three years. So, this is a completely new customer, right? It's not a part of our existing customers that we serve in that particular division.

Thank you. And it is a niche customer which is very focused on this segment of the crop protection business. And there's a gap in the market which this customer is filling, and they're looking for high-quality players. And this is one of many projects that we expect to win from this customer before their preferred supplier and become their number one supplier in this product and other molecules as well. That is the aim to build a basket of products with this customer.

Okay. Sir, with respect to the other molecules that we would probably be doing with this customer and also a few other customers, how do you actually see the utilization of agrochemical division actually increasing over the next 18 to 24 months?

The strategy in agrochemical is twofold. One is to increase the capacity utilization, which has remained depressed and low because of market conditions over the last couple of years. And B, we are also replacing some of the low-value commodity products and with higher margin CDMO business. So our CDMO business as a percentage of our crop business is increasing year-on-year, and that's a far more lucrative business, which will be helping the margins of the crop business go well in excess of 17-18% going forward.

Okay. So with respect to the pharma division, I think we're expecting an FDA visit probably towards the end of the year. If you give some understanding how many DMS could be filed once the FDA completes the inspection or the DMS will be filed next year for the new products because of the restrictions that we have had. And I think in the last call, you did allure that we planned for about 6-7 DMS per annum. So how much from the filing to, I mean, to commercial revenues, what kind of lag do we actually see out there? Because it actually differs from product to product. The specialty product takes more time, the mid-specialty products take a little less time.

See, historically, we were doing about two products or three products from our Bangalore facility. Obviously, because of the FDA warning letter, current new approvals are not being given to us in Bangalore. So, we've changed our strategy last year. Just even before the FDA warning letter, we constructed a new pilot plant in our Panoli site a year ago, and DMF filings from this financial year have started in Panoli. So, we expect to file about four products from our Panoli site this year. If Bangalore does come back, we expect to climb this up to six to seven products. Currently, it's about four products. And we're hopeful for the MD to come back, and we're getting ready for a re-inspection, and we can't predict when they will come, but we're working towards getting ready for an inspection towards the end of this financial year.

Okay, so apart from the 150 crores bump in revenue that you said, the increase in revenues that will come once the warning letter is away, what kind of additional utilization revenues do you see with these new additional DMS? Because as I did say, the second part of my question was speciality for some speciality pharma ingredients, I think so, the DMS take a little time from DMS to the actual commercial revenues. For the mid-speciality range, it is a little less. So what kind of lag do we actually see for the revenues to flow in?

But DMF filings have been going on for the last several years. So typically it takes between three to five years from DMF filing to launch depending on the state of the product. Is it already expired? Is it near expiry? So on and all is very early on. So we take a horizon between three and five years is what we do from a DMF filing. Also very important to understand we have some Approvals pending with the FDA from our Bangor facility for CDMO business. Once the FDA comes and these material validation quantities have already been supplied to the customer, and the customer has already done this filing, but it is on hold with the FDA because they are waiting for us to clear the re-inspection. Once the re-inspection comes, those CDMO contracts will convert into commercial supply. Yeah, that will be on top of the 150 crore that we've spoken about.

Okay, so lastly before I get back into the queue, so the repurposed facility that we actually had for agrochemicals to pharma, so is it expected to be on stream pretty soon or it will take some more time to get on stream?

So, that's a very large facility, so we have repurposed, and that is where we've begun the personal care products commercialization with Anishya spoke about. That manufacturing has just commenced a couple of months ago. The second phase, which will be for our human health CDMO and pharma, animal health CDMO projects, which will be repurposed by end of next year. Based on the customer contracts. So that capex is being spent as we speak. The repurposing capex.

So the animal health side, if you could get some understanding, are we actually focusing on animal health side, the kind of margins actually should be a little better because in pharma, when a patent expires, there's 80% erosion on the price. Whereas in animal health, I think it's been about just 40-50% and for some, it's actually gone to 50%. And with a lot of companies actually focusing more on pet animals versus farm animals, I think so the margins are even better for a lot of contact manufacturers. So if you could give what is our sweet spot and are we focusing more on farm animals or more on pet animals and apart from the four top global organizations, are we even helping other organizations to, I mean, to work on the off-beaten molecules which they are increasing the supplies for.

Yeah, so I'll just run you through what we're doing. So, look, I think we're, first of all, we're a little agnostic in terms of which category of species we're servicing. So, you know, we'll do small animals. We also do large animals and cattle. So that's number one. We're not focused on any particular segment. The second thing is, you're right in terms of the... Patent expiration and the price depreciation in animal health, and it also varies depending on the types of products that you have, but mostly, I think you're absolutely right on that aspect. See, our focus is twofold. It's primarily on the contract manufacturing, so we start pretty early on. So we're not really... Too affected by the price depreciation post-patent expiration, right? Because ours is not truly a generic portfolio, and we're not focusing on generics because that side of the market is quite, I would say, competitive, right? And it's got a significant number of players, both domestic and in China, right? So we're not really competing on that. For us, it's more on the higher value added items, you know, things that start off early in R&D, NCE, CDS. And we're working beyond the, you know, top five global customers. We have, you know, a target list of over, I would say, 40 to 45 customers that we have reached out or, you know, shown our capabilities to in some shape, way or form. So that's the story. That's really what we're doing.

Okay. So thanks a lot for the opportunity. I'll actually come back with you and have the value wishes to the entire team. Thank you.

Thank you. Our next question comes from the line of Harshal Parekh with BTH Capital. Please go ahead. Hi, sir.

Thanks for the opportunity. My question is specifically related to Pharma segment. So if I look at the long-term EBIT margin trajectory in Pharma, we used to make around 14-15% EBIT till FY22. And then our margins have been in mid-single digits. So just wanted to understand, is it driven by price erosion in gabapentene molecule, or there is something else?

Yeah, Mahalo, why don't you take that? Manoj, you want to answer that question, please?

First of all, the line for Manoj sir has disconnected, I am reconnecting with him, sir.

Okay. Could you just give him a minute? Sorry about that, he is just coming with us. Maybe we'd like to repeat the question once he comes back on.

Yeah, yeah.

Oh, excuse me, sir. We have Manoj, sir, who is speaking.

I got disconnected.

There's a question, Manoj. Can you please repeat it?

Yeah, yeah, I got the question. No, I heard the question. I heard the question. So, yeah, farmer margins were higher in 21-22 because of big operating leverage which we had at that point of time. The recent past and last one year, what we are seeing because of this U.S. FDA, we are utilizing just about 60 to 70 percent of our capacity because of various quality control measures what we have put in. And also in line with what we have committed to FDA, we have to take shutdowns for some of the plants to upgrade. But once we are completing all that, I think we should get back to a bit margins of 12 to 13 percent and a bit of, say, 18, 19 percent. It is basically a short-term, I'll say, setback in the last one year, but long-term, we'll get back to our historical margins.

Sir, just to follow up on that, have we seen severe price erosion in our GABA painting realizations?

What happens is raw material price increases, and then we are able to pass on very often our, I'll say, the cost also.

So, by and large, the contribution margin in government is

lower than other molecules, but the sheer volume makes up for it. So, we still get gross margin of close to 35 percent or so, against the overall for pharma gross margin of 45-46 percent. So, it remains a flagship molecule for us. It is lower than others, but it is still substantial.

And, sir, are we backward integrated for our painting?

Yeah, we buy the starting material from China, but otherwise we do four steps within Panoli and Bangalore facility. So we are sufficiently backward integrated and custom-operative as a result of that.

I just like to add, our share of GABA Pentee of our pharma business is dropping year on year. So the focus is to move by keeping the GABA Pentee base business constant on marginal growth. The focus is to add on new products, which will add to a large chunk of our portfolio, which is a higher margin business. So, within the own product, the shift is happening towards niche and higher margin new molecules which were developed over the last 3-4 years and are being launched as we speak. In the diabetes portfolio, in the gastro portfolio, in the CNS portfolio, in the cardio portfolio. We have a couple of molecules every year we're launching and commercializing. And oncology is a new area that we'll be launching very shortly as well.

Sir, Nafsar, can you give me a revenue contribution of GABA pentene versus non-GABA pentene for this quarter?

We don't share that breakdown, but it is coming down, that information is...

Fair enough, sir.

Thank you. Thank you. Our next question comes from the line of Raghuram Kuchi

with Best Pals Research and Advisory LLP.

Please go ahead.

Thanks for the opportunity. Am I audible?

You are audible, sir. You may proceed.

Yeah, okay. Sir, just wanted to get clarity regarding this USFDA issue. How confident are you of, like, when they come up for re-inspection, how confident are you of clearing the USFDA hurdle, sir?

Well, we've done everything possible to get ready. Why don't you take that call? You picked an answer, yeah.

Yes, so we have taken a lot of remediation measures. We also had a meeting, a face-to-face meeting with UFD on June this year. They are fully satisfied with the progress of what they have made. Also, you see that we have received several other regulatory approvals post-FDA, starting with NVISA of Brazil, followed by PMD of Japan. Recently, we have got Swiss medic approval also. And if you really see, all these are specialist medicare, more or less equivalent to USFD in the eyes of the customer. And we are quite confident that once they come back, we'll get it clear. And if you see, historical HICL has always had a good track record. So this 2025 inspection will be an aberration, and we will never get into this situation again.

And then once we clear this use of everything and everything is clear, like what could be a potential on the partner side of the business, like 5x30, can we, what revenue could be targeted by Gelsus once the updating is clear? What is the realistic?

I think We expect growth to return and margins to improve to pre-20, 24, 25 tech world levels, and we expect that as double-digit, mid-teen growth to continue year-on-year on a CAGR basis, that will itself grow the business very substantially in the next three to four years.

This mid-teens group, you are talking only with respect to the Padma business or not the only Padma?

Mid-teens, yeah, sorry.

There are projects in the pipeline which can deliver that growth, right? Yeah, because as I mentioned earlier, Paul, earlier, sorry, earlier section.

There are a couple of approvals that are pending from the U.S. FDA once the re-inspection happens. These are CDMO contracts. They will come into play and then those volumes will get ramped up. They are pretty niche API and advanced intermediaries for NCE products.

Our customer engagement continues. Okay, we have a warning letter at this point of time, but our customer engagement, getting new contract. And development and R&D, that continues, because we ourselves and our customers are confident that we'll come out of it pretty soon.

We had over 28 customer audits in the last quarter itself. All of them were successful. We also have a second FD-approved site in Panoly, which is not impacted. That is where we're getting market share of new molecules and new contracts that we're also onboarding.

In these projects which we are part of, can we assume that we will be the primary source or like we are the third or third or fourth of them, we are likely to, you know, going forward, we may become a primary source. Is that the right understanding or we are already the...

We were the main supplier because of the warning letter, we are not the main supplier now. They have a primary source in Europe, which they continue to buy from. But they wanted to move the business to us because we were far more competitive. So, once the FDA comes back, we will become the main source.

Thank you, sir. And regarding this animal business, just wanted to understand when you have given this target of like 400 cores by 530, is it from multiple customers or is it the main 10-year agreement which we had signed earlier? Like that single customer itself can generate the revenue if we have multiple customers there.

Yeah, so we're using a risk-based approach to drive this business. We're not depending on any single customer and or product. So it's going to be multiple customers, some of which we've secured, some of which we are yet to secure. But we have obviously a pipeline and a target that we've established in order for us to work towards. So that's where the number comes from.

And, sir, I'm not sure whether I heard it correctly earlier in the call. You mentioned that these are off, which are going to go off patent, or you're working on NCE in the animal center? I think I heard it wrong.

We're working on a diverse range of products, everything from early-stage development products, advanced intermediates, NCEs, and, of course, lifecycle extension as well.

Thank you, sir. Thank you. All the best. Thank you.

Thank you. Our next question comes from the line of Rohit Kumar, PDM Advisors. Please go ahead.

Thank you, sir, for the opportunity. Sir, my question is, based on our H1 performance, what is your expectation for H2? Are you confident of achieving your guidance which you shared in Q1?

Yeah, I mean, H2 will be significantly better than H1. The reason why I'm saying that... With confidence, because the pharma business, the production ramp-up is taking place in Q3 and Q4. Crop protection, a lot of the CDMO business was deferred to H2. These are secured contracts which we have, and production is well underway, and capacity is already in place. So based on these, not only will the top line grow significantly compared to H1, But also, the EBITDA margins will be significantly higher than H1, and for that, I expect, and the management is confident, that the guidance given in the last quarterly investor call will be met by the company.

Okay. Thank you, sir. That answered my question.

Thank you. Our next question comes from the line of Aman Moura with Premier Capital. Please go ahead.

Hi, thanks for the opportunity again. I just wanted one clarification, wherein, Samir, you made that comment that you believe that the worst of the crop care industry is behind. Could you elaborate a bit more on that and how do you see this business over the next two, three years? We've refocused some of our plans to the personal care business, and generally this business has been almost three, four years of very, very weak performance.

Yeah, so by worst I meant, you see, eventually, if the customers do well, then we will do well. This is a very concentrated business where five customers contribute to almost 80% of the market by value. Even though China has a very strong presence in the generic side, by value they are a small percentage, right? So, these customers have started to do relatively better, their volume growth has come back, and the inventory buildup has gone out of the channel inventory. There was a lot of inventory buildup post the COVID situation. So, that's been almost two, three years, and now that is over, and genuine demand is there from the end market. Why? So, margins are under pressure, but at least volumes are increasing and capacity utilization is increasing. That is what I meant by, you know, the worst is behind us. And winning these projects like the CDMO contract that we've won, these niche molecules, we believe that this is the outsourcing is again coming back in the CDMO space and crops. And we will be one of the few players to capitalize on that, being a strong legacy company in the The cereal must be sent cropped. You know, pricing continues to be a challenge, but we will use our current volume growth to help us drive efficiency in the business.

Got it. That's it for me. Thank you.

Thanks a lot.

Thank you. Our next question comes from the line of Henel Bagatia with Equicorp. Please go ahead.

So, thank you for the opportunity again. So, with respect to the agrochemical division, I think the big four players globally have still flagged the excess channel inventory and also the pricing side issues. So, from when do you actually see better days globally coming in? And because of LN, what impact have you actually seen? Because due to increase in moisture and dampness, I think so, Latin omega is increasing in terms of the need for fungicides.

Yeah, I mean, there has been definitely a slowdown. It's not only because of the weather conditions which have always been there in the crop business. The El Nino effect this year, for example, the domestic crop industry has not had the best of seasons this year. So there are always weather impacts. But what was the difference in the last three, four years which had depressed? The global crop protection market was twofold. One was very high channel inventory built up. Due to COVID and post-COVID. And secondly, there was a continuous dumping of products from China. The dumping of China has continued, but the Chinese inventory is getting depleted. So actual demand is coming back. Again, it's product-to-product dependent. We are not in those very high-volume commodity products. We do very niche and medium-volume products. Where we believe more or less, it's a mixed bag, but overall volumes are increasing in a from distance.

And with respect to one of our peers, I think we've got a few large molecules under the custom manufacturing facilities from some of the large customers. So based on your conversations with these large customers, because on their calls, they've actually died on restructuring, reducing the cost, getting rid of some of the excess channel inventory, not doing some of the products, etc. So based on your conversations, I mean, what new contracts are they looking for towards to developing or to join developing with us?

I think a previous investor also asked this question. The change in the Heikel way of working in the CDMO space is more on the D as well. It's not only CMO. So we're getting, like in Pharma, we're getting involved before the product is being launched. In the development in R&D, and we have a couple of NCEs in crop as well, which were developing the processes in R&D centers, then eventually commercial manufacturing. So that is the kind of conversation we are having rather than just doing a tech transfer of a molecule from Europe or from U.S. And a lot of our business is now coming out of Japan, and in Japan there is a lot of innovation happening, and they are getting involved four or five years before patent, before launch of the molecule. So we are involved early on, and this is the wrapping of the product as we speak.

Okay. So, thanks a lot for the opportunity and wish you all the very best.

Thank you. We have no further questions, ladies and gentlemen. I would now like to hand the conference over to Mr. Samir Hiramad for closing comments.

Thank you. Thank you, everyone, for joining our quarterly and H1 Loanings Call and for your continued interest and support. We remain fully committed to executing our strategy with complete determination and focus. The actions we have taken over the past several quarters and years are laying a very strong foundation for long-term sustainable growth. And we are confident that our progress will become increasingly visible with each passing quarter to show continuous improvement. As we conclude this call, we want to assure you that we are here to address any further questions or concerns. Please feel free to reach out to us, Investor Relations Partners, Strategic Growth Advisors. And once again, thank you for your participation, your trust in us, and wishing everyone a very happy Diwali and a prosperous New Year. Have a very good evening. Goodbye.

Thank you. On behalf of Heichel Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.