Alkem Laboratories Limited (ALKEM) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Alchem Laboratories Ltd. Q1 FY27 Earnings Conference Call, hosted by Motilala Oswald Financial Services Ltd. As a reminder, all participant lines will be in the lesson-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touch-tone form. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudani from Tilal Oswald Financial Services Ltd. Thank you, and over to you, sir.

Thanks, Yusuf, and sorry for the delay in the start of the call. Good evening, everyone, and warm welcome for first quarter FY27 earnings call of Alcan Laboratories. From management side, we have Mr. Sandeep Singh, Managing Director, Mr. Nitin Agarwal, CFO, and Ms. Purvi Shah, Head of Investor Relations. Over to you, Purvi.

Thank you, Tushar. Good evening, everyone. On behalf of Alchem Laboratories, I welcome you all to our Q1 FY27 earnings call. Earlier today, we announced our financial results along with the press release and investor presentation, all of which are filed with the stock exchanges and are also available on our website. We hope you have had an opportunity to review them. Before we begin, I would like to remind everyone that this call is being recorded, and the audio recording and the transcript will be made available on the stock exchanges and our website shortly after the conclusion of the call. Please also note that today's discussion may include certain forward-looking statements, and this statement should be viewed in conjunction with the risks and uncertainties that are associated with our business and the environment in which we operate. With that, I now would like to hand over the call to our MD, Mr. Sandeep Singh, for his insight. Over to you, sir.

Thank you, Purvi. Good evening, everyone. Thank you for joining our call. The period under review has been one of continued execution of a strategy. While the operating environment remains dynamic, we have stayed focused on the fundamentals, Strengthening our core business, improving operational efficiency, and investing selectively in areas that can support a sustainable and profitable growth. We are encouraged by the progress we are making across these priorities. At the same time, we remain conscious of external challenges and are maintaining a disciplined approach to capital allocation, costs, and risk management. I will briefly walk you through the key developments and our outlook, after which we will be happy to take questions and engage. The key highlights are that our revenue from operation was 3,740 crores, with a year-on-year growth of close to 11%. India sales were 2,497 crores, and year-on-year growth was 10.3%. International sales was 1,222 crores with year-on-year growth of 16%. EBITDA margin was 20.5. The growth was 3.7% year-on-year. R&D expenses was 4% of our total revenue. Profit before tax was more or less flattish, technically 1.8% of growth. And the net profit, there was a degrowth of 21.7%. This is purely because of taxation reasons, and I'm sure our CFO will deep dive into this later on. According to Equia data, the company registered a growth of 13.2% year-on-year versus the Indian pharmaceutical market, which grew by 12.2%. This is a 100 basis point outperformance, just as we had guided you earlier. Acute segment reported a growth of 12.3% versus the IPM, which grew by 10.1%, which is a 220 basis point outperformance. Chronic segment reported a growth of 17.9% versus the IPM, which grew by 15.4%, 250 basis point outperformance. We have outperformed IPM in seven key focus therapies. Anti-infectives grew by 1.1 times of the market. Gastro grew by 1.2 times of the market. Vitamins and minerals grew by 1.4. Pain by 1.8 times. Antidiabetic 1.4 and respiratory 1.6. And last but not the least, Dharma 1.6. During the quarter, for the U.S. market, the company received five ANDAs approval. One of them was a tentative approval. Recently, a Daman facility has received an OAI status. We have already initiated comprehensive, corrective, and preventive actions and remain fully engaged with the regulator to address the observations. While this represents an important regulatory development, approved product supplies from the facility continue to the U.S. market without any interruption. With this, I open the floor for Q&A. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. This question is from the line of Sayon Mukherjee from Namura. Please go ahead.

Hi, good evening. Sundeep, you mentioned about growth in India higher than IQVIA market growth. As per IQVIA, we have seen some improvement in growth rates, but, you know, 10.3% is lower than most of the pharma companies who have reported so far. Can you throw some light around the dynamics here? What do you think is impacting the growth rate in India? And is there something that would ease to improve growth rates, growth rate in deep quarters?

Yeah. So, see, I think the India growth rate is kind of dragged down because of the trade generics. Trade generics growth was flattish to a very mild growth. And trade generics now contribute reasonably to our domestic formulation. So, that drags it down, Sian.

Okay. And you branded?

Yes. And what was the branded growth this quarter? Branded generics? It was 12%.

12. 1. 2. Okay.

Nitin, on, you know, the costs have gone up. I mean, you had, I think, guided earlier, employee costs and other expenses are on the higher side. So, if you can, you know, indicate how much of the cost is on account of CDMO, MedTech, which might not be contributing at this point, or for that matter, if you can talk about the EBITDA loss from these businesses in this quarter.

Sure, Sam. So in terms of employee cost, yes, the growth is more than 16% in the quarter. There are two, three reasons. One is definitely the annual increment. The second is we have added around 1,200 MRs in last few quarters. So that also impacted the employee cost. And the CDMO business in engine became operational from November 25. So, that was the third impact on manpower. In terms of other expenses, yes, there were expenses on account of engine CDMO business, plus the conversion rate for dollar has increased, which has also benefited us in terms of top line. But the impact is also on other expenses, where all our subsidiaries, foreign subsidiaries expenses got converted at a higher rate. It's almost 10% higher than the last year rate. So these were the reasons. MedTech, yes, we have completed the acquisition of Ocrotech, but that was in mid of July. So, our quarter one numbers were not impacted because of Ocrotech. Yes, the ortho business which we acquired, but I think small in scale, at consolidated level, the impact is not that high. But just to share the numbers, yeah, there was between, you can say, if we exclude the diligence cost and all of Klutech, there was a beta loss of around 5 to 7 crores, because we are also investing into this business. We are filing our products outside India. So, definitely, this business will break even maybe in next 12 months, but the scale is small, like at yearly level, we will do around 50 crores of sales from the auto business, other than auto business.

And the U.S. CDO, CDM operation, I mean, how much is the drive from there?

U.S., we incur around 60 crores of operational expense. So, definitely, it's a new business. So, we plan to break even in the next, say, four to five quarters. But, yeah, for the quarter, it was around 60 crores.

Okay. Thank you.

Thank you. Next question is from the line of Sandeep Kumar S. from Klendas. Please go ahead.

Thank you for taking my question. So, the first question is on like, what is the current status of denosomal biosimilar in the U.S.?

Yes, the denosomal biosimilar approval is a little bit off. So, we did not get the approval on the goal date. So, that is pushed off by at least a few months.

So, my second question is on the EU region. So, on the following approval of OSCE, are there any specific targets like region markets where the launch is being prioritized, or is it like full EU, is it availability expected simultaneously?

Okay, no, no. So, sorry, I didn't get you properly asking about Denosumab Euro plan, right? Yeah, OSCE.

Yeah, OSCE probably are biosimilar.

Okay, okay. Yeah, we have your usual suspects. So, we have a partnership with a company called Theramax. So, they are our partners. We are not doing it directly. And as you know, it's very competitive. So, there are many, many players even in Europe, just like US. So, it's not going to be a very meaningful ramp up for any one of us for some time. So, it's not something very significant.

Yeah. Okay. So, my last question is on the reason, the opinion on Xchiva Biasimula. So, when can we expect the launch of Xchiva Biasimula in Europe?

We could be like three months away.

Three months away. Okay. Thank you. Thank you for the subject.

Thank you. Before we move to the next question, a reminder to the participants to ask a question, you may press star and one. Next question is from the line of Amlan Jotidas from J.P. Morgan. Please go ahead. Hi, sir. My question is regarding the India biosimilar front. Sorry to interrupt, Amlan. There is a background noise coming from your end.

Yeah, is it all right now?

Yes, please proceed.

Yeah, sir, my question is regarding the India biosimilar front. You had some 6-7 all biosimilars in India launched through the India entity. How has this portfolio done since launch, and what has been its contribution to the India revenues per se?

Yeah, Nathan, you want to take that? You know the percentage.

So, we have already launched seven products, as you said, and we do around 150 crores of annual sales. So, I think we have done really well, and because of this backward integration, the margins have also improved for these products. It comes from earlier.

So, sir, this revenue is a part of your India revenues, is it?

Yes, yes.

Okay. Then next on Offlotech, so, sir, since you have closed the deal in July this year, how do you see the growth for this business as a whole going forward, and how do you see the margins expanding up? I remember you guided to some reaching 10% margins in the near term. So, does this guidance hold still?

So, this year, see, the original plan was to complete the acquisition and start integration sometime in first quarter, but that got delayed. So, we just completed the acquisition last, in mid of July, and we have started the integration. So this year for around eight and a half months, our target for OptoTech is around 400 stores of sales with breakeven, EBITDA, because of delays happening in case of integration. So, yeah, it will be a bit off from the guidance we used last time.

Okay. And so how should you see this margin going ahead, say, in the next two to three years?

So, every year, you'll see a gradual improvement in margins, and as we discussed during our investor meet, that a lot of the integration with India operations will start kicking off from next quarter, but yes, you can see 7% to 8% improvement in EBITDA year-on-year, and we target to achieve our guidance over 3% to 4%. Yes, but it will be a very healthy EBITDA business for us within three to four years.

Okay, and so lastly, if I may squeeze in, from this OAI in the Damban unit, could you share the percentage of revenues from this unit to the U.S. if it's available?

I think 45% of our U.S. revenue comes from this facility.

And so all of these revenues, all of these products are still in supply?

Yeah, yeah, very much.

Yes, yes, absolutely. Thank you. Thank you.

Welcome.

Thank you. Next question is from the line of Kunal Damesha from McQuarrie. Please proceed.

Hi, thank you for the opportunity. Can you throw some color on why the trade-generic business is not growing? What is, is it industry dynamics? Is it company-specific dynamics?

I think it's a combination of both. You know, it has got very intensive, the competition. Four or five years back, you will remember that not many companies wanted to play in this segment. But now, a lot of big guys have entered. And also, it's internal because, you know, at a large number, you know, a lot of large numbers always kicks in. We are maybe the number one or number two in this segment. And we also tighten the market practices slightly, where we are a little strict on the number of days outstanding. So, therefore, it is leading to this.

If you look at our numbers for Jan to June period, we did well in terms of growth. But yes, from April to June, there were some strategic calls taken on outstanding DSOs and all. And also, we have a bit increased our prices because of increase in API prices. So, I think the inventory levels in market may have also gone down. So, in coming quarters, the primary sales or the sales from this business should recover. And the lower growth, which we saw in quarter one, I think in the upcoming quarters, the growth should be higher than that. So, Jan to June, we did well in trade-off. If you look at six-month numbers.

And sir, well means double-digit growth, you know, how to put that, you know, into some form of quantification.

So, it was higher single-digit.

Higher single-digit, okay. Okay, and then we are saying April to June was flat on a year-on-year basis. Yes, yes. So, Jan to March would have been double-digit, you know.

Yes, you can say that.

Okay, okay. Secondly, on the CDMO business drag of, you know, 60 crore, right, that number looks quite big. And so basically, you know, what's the…

Yes. This is annual or quarterly?

This is quarterly.

And this is not… Yeah, this is expense for CDMO. Okay.

So, let's say for us to become breakeven in the next 12 months, what kind of revenue we need to generate? And then in terms of the pipeline of projects, do we have that visibility now?

No, good question. So, next 12 months will not breakeven, just to be very clear. For US, we will not breakeven. That's number one. Revenues, what we need perhaps will be close to $20 million to breakeven. Sir, I didn't get your number, sorry. $12 million. No, no, I said 30 million dollars. Sorry, I said 20, but actually 30. At 25 to 30 million, we'll break even over there.

Per quarter?

No, annualized. Annualized.

Okay. And for that, because CDMO is a pretty big spectrum, right? So, which is the path that we are initially targeting, Abhinu? Yeah, that would be helpful.

Yeah, as you know, Inzine is into monoclonal antibodies, so precisely that. We are just into maps, and we do the development to clinical trial supplies, and hopefully commercials in the future. But right now, these are most of the time clinical trial batches and development batches.

Sure, sure. So, let's say, for that 30 million run rate, would you be, like, you know, how many projects do we need to be working on?

No, no. So, all that we know, it depends. Some projects are pretty large. So, it's not the number of projects. I think we've got a decent pipeline. A CDMO has a sales cycle very different from what we traditionally do as, you know, branded pharma. So, I think we'd have to be patient over there. And the cycle time is pretty large, and to work with these companies who could be innovators, not necessarily large pharma, even small biotech, they take their own time, and it's dependent on a lot of things, how well they get funded, how the clinical track progresses. So I think it's a mix bag where patients would be rewarded. And just like I'm sure you'll track a lot of CDMO companies, you'll know that. So, we cannot measure it with the same tape which we measure the traditional Alchem Pharma or Arrhenia Pharma. But we are positive. Therefore, we have put the facility.

And, sir, lastly, let's say what type of capacities do we have there? Is it currently more R&D related and then eventually would it require for us to put some kind of capital expenditure?

Yes. So, we have reasonable capacity. We are not very big. We have small capacity, but our technology is a little different. So if I tell you in KL, that will not really do justice to what we can produce over there. And second part, at some point of time, it will require KPEX to happen over there as we ramp up. Because without it, we will not really get economies of scale, just like any API slash CDMO or biotech business.

And that will not be this year. And this facility is GMP compliant?

Yeah, of course. It is not USFDA to be approved because that has to get triggered, but it is absolutely in US and we are working with a lot of good companies and we will have to trigger the USFDA.

Okay. Which will happen with some of the clients when they file advice. Absolutely, sir. Okay. And last question on the US plan, we said the revenue contribution is 45% of US. Of the month. Of the month.

The month, yes.

What's the number of pending ANDS and what's the total pending ANDS right now?

Of the month, we'll come back. We don't have the exact number. We'll come back to it. Okay.

Thank you and all the best.

Thank you. Thank you. Participants, if you wish to join the question queue, you may press star and one. Next question is from the line of Kunal Randeria from Access Capital. Please go ahead.

Yeah, hello. Good afternoon. First question on the India business. Last year, you made a parade on OPEX by making a couple of small acquisitions. Would you still be kind of looking to expand this business, or would you rather wait until your media see you as a portrait last year, last year you had made? In India. Sorry, sorry.

So orthopedics, I am not acquired. This is a medical tech.

No, no, no. So you have acquired a couple of small companies, right? Bombay Ortho and...

Bombay Ortho is a medical device, sir. It's not your prescription.

So would you be kind of still standing into this, or would you be kind of, you know, You know, waiting for maybe someone, a new CEO to join and then see how to, you know...

No, no, it depends. So, we are not looking to acquire anything in orthopedics or medtech right now. So, that's the first thing, yes. So, there's no question of waiting or not waiting. I think it is very early, the ramp-up is happening, and there's no need to acquire anything over there, right?

All right. All right. Thank you. Sure. So, but any plans, you know, now we have 57-inch notes, cash, any plans that you would like to share?

No, nothing. Everything is the same like before. Nothing changed from last quarter.

Okay, got it. And just one more, would you be launching Dolvastin in the US this quarter? Yes, sir, we would be. Okay, perfect, sir. Thank you, Anand.

Thank you.

Thank you. Next question is from the line of Abdul Qadir Puranwala from ISA Securities. Please proceed.

Hi, thank you for the opportunity. Sir, my first question is with regards to the trade-generate business. So I understand, you know, it had got impacted because of your receivable policies or your credit period. But, I mean, you know, we have been, the business has been growing at a slow rate for the last couple of quarters. Yes. So, any timeline you'd like to share with us by which you expect, you know, growth in this particular segment to bounce back?

No, bounce back, what does bounce back mean? So, like, how much do you think we should be doing?

Say, at least in line with what your branded pharma business is growing? No, no, that's very hard.

We don't want to see, also, it's a matter of discipline. We'll have to reset it, and we'll have to figure things out. And we'll see how the market also evolves. So I think, personally, as the promoter, MD, I'm happy with late single digits. It's perfectly all right. We just need execution and discipline in that business more for the next one to two years.

So there's no capex requirement there.

Yeah, ROC is good because, yeah, the CFO always reminds me that. So, yeah, we'll have to be careful on that. Sure, I forgot it.

And, sir, my second question is with regards to any thoughts on, you know, hiring a CEO.

Yes. Yes. So, we told you last time we are looking out. So, thoughts are the same, and hopefully next time we have the quarterly meeting, he'll be there with you. So, we are looking out, sir. As you know, it's a critical hire. We can't hurry up. But we are looking out, sir. It's very clear. Yeah.

Got it. And just a couple of bookkeeping questions. So, for the tax rate, I think last quarter we had guided for 27% to 28%. Are we still kind of maintaining that for the full year?

See, that was for standalone, but at consolidated level, it will be in the range of around 30% to 32% because three of the entities like our SA, NGDOS and all, which are reporting losses, and currently we are not creating deferred tax assets on those entities, because of which our consolidated tax rate looks a bit higher as compared to standalone. So, at consolidated level, it will be in the range of 30%.

Understood, sir.

Thank you and all the best. Thank you. Participants, if you want to join the question queue, you may press star and one. Next question is from the line of Tashar Manudani from Motilal Oswald. Please go ahead.

Yeah, thanks, Yusuf. Sir, just with respect to the India business, did you share price volume, new launches, growth for the quarter?

So, in terms of price, the growth was around 6%. This, we are only talking about other than trade generic business. New launches was around 3%. And volume was around 2%.

And in general, the industry growth rate has sort of improved over the last, I would say, few months. Anything, any change you've seen or experienced which is sort of driving this growth and how sustainable you think these numbers are in terms of overall ITM growth? May it be chronic, may it be acute?

No, sir. According to us, I think there's nothing dramatically changed. I think we know the semaglutide has gone off patent and this. So, those kind of things are driving chronic, I think, by and large. And so, we think it's quite sustainable, whatever we are doing at least.

Got it. And how much benefit would have got from semaglutide for ultimate?

It's very small right now, sir. Yeah, small. But we are among the top three in generics. I can share that with you.

And sir, just second year, U.S. CDMO, this OPEX, how do you see this over full year 27?

You can analyze that. OPEX will remain the same. We'll have to get business and that's how we can break even and eventually make money. We can't cut OPEX too much because you know the complexities of a U.S. plant.

Got it. So some business opportunities got pushed, which is why the break-even is sort of taking time, or this is the way it has been sort of tracking?

I think it's a combination of both, because sometimes reality comes and delays things. So I think we knew that it's going to be expensive and business would take tough, but it's taking more than, let's say, a couple of quarters to reach what numbers we were targeting. And also, CDM is a lumpy business, as you know, so when it rains, it pours, kind of things. We don't, whenever it comes, it will come big, we feel.

Got it. So, the new contracts probably, which is where the efforts are, so some gestation period to sort of get the fruits of that.

Yes, absolutely.

Thanks. Thanks a lot for answering my questions.

Welcome. Thank you. Next question is from the line of Rashmi Shetty from Dalat Capital. Please go ahead.

Yeah, thanks for the opportunity. Sir, just on the U.S. part, you know, if we convert into the, you know, dollar business, in constant currency terms, we see some softness in the U.S. sales during the quarter. So, if you can specify the reasons for that, both on WireWire and quarter-on-quarter, I am seeing that. And earlier we guided that, you know, for the entire year, U.S. will be in high single digit. So, now, after this quarter, what is your outlook? Also, taking into consideration the Zaman Plant OAI.

Yeah, so I think the last thing I'll answer first. I think Daman Plant Oya is a concern, but we don't see it as impacting our business because, you know, nothing is stopping and Torraptin has kind of gone through. So we feel confident that this year would not be impacted. Also, we believe that we'll come out of this in 6 to 12 months' time, hopefully. So Daman should not have an impact on business this year. And I think the price, NRB erosion was just close to flattish. So price erosion has kind of bottomed out, we feel, for us, and maybe for the industry, I'm not sure. So U.S. is challenging. We really don't have volume growth. It's more because of currency, and that remains a reality in new products.

So you mean to say that you have not seen any major volume expansion in the products which you all have launched last 12 to 24 months?

I would say so. That's a fair assumption.

Okay, so then what will be the outlook for the whole year, till we maintain our guidance of around high single digits?

Or do you feel it will be flattish? I think it will be high single digits to mid.

Okay, mid to high single digits.

Yeah, and we will be helped by currency for sure.

Okay, and this $30 million revenues, you know, which we are expecting from the CDMO When can we anticipate that, in which year, by which year, we can expect the revenue to kick in?

27-28.

FY-28.

Yes.

Okay. And again, on the India business, you know, put together trade-generated business and the branded formulation business, what kind of growth can we expect for the entire year?

Round about what we told us last time, but we could better that by the, say, 100 basis point.

So, you feel that in the subsequent quarters, we'll be able to cover it, whatever growth we have lost in the trade-centric business, and band-back formulation will continue to perform. Is that a right example?

Yes. Yeah, we could end up by close to 12%. Yes.

Okay. Thank you, sir. That's it from myself.

Thank you. So, participants, to ask a question, you may press star and 1. Ladies and gentlemen, anyone who wishes to ask a question may press star and 1 on the touchstone telephone. Next follow-up question is from the line of Amlan Jyotidas from JP Morgan. Please go ahead.

Thank you, sir, for the follow-up. I remember a couple of years ago, you mentioned in your annual report that you are focusing exclusively on the non-U.S. markets and international business. So, has there been any significant development in that? So, this double-digit growth that we are seeing, how sustainable do you think this is?

This is quite sustainable, more than sustainable. We are seeing good double-digit growth. And this will continue. I mean, see, the thing is, U.S. is so big that everything else, even if they grow extremely, like, very high, it will not really move the needle for the next few years. But there are some countries on a low base, they continue to grow in very, very healthy double digits. But they're on a small base. So, like, Germany, you know, grows by 35-40%. We're so small that I don't feel like talking too much about it. It might not be a good use of our time right now.

Even in China and Australia, we did well. China and Australia are both like a big market for us, and we have been doing well.

Okay, sir. My last question is on the cross margins. We've seen improvement on the cross margins this quarter. So, sir, any particular reason for this, and how do you set it from margin suspending in the near term?

So, in quarter one, there were three, four reasons. One is that, as we discussed, our trade-generate growth was lower, and our discussion did really well. Then, there was also impact on account of currency, because U.S. and other markets, even in Australia, also the currency supported us. So, overall, the mix was better for us because of lower trade-generated business and also support from the currency side helped us. For the full year, we maintained the same guidance because there may be some impact on account of TPI price increases, which we have already seen. But since we had inventories, old inventories at an old rate, so the impact was not that high in the current quarter. But in subsequent quarters, there will be impact because of API prices. So we maintain the same guidance of 66.5 to 67% of gross margins for balance part of the year.

Got it, sir. Thank you, sir. Thank you very much.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for the closing comments.

Thank you, Yusuf, and thank you, everyone, for joining today's call. Should you have any follow-up questions or require any clarification, please feel free to reach out to us. Thank you. Have a pleasant weekend.

Thank you, ma'am. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you all for joining us, and human now disconnect your lines.