SMS Pharmaceuticals Limited (SMSPHARMA) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to SMS Pharmaceuticals Ltd. Q4 and F526 Earnings Conference Corps. Today we have with us Mr. Vamsi Krishna Potluri, Executive Director, Mr. Lakshmi Narayana, Tamini, Chief Financial Officer, Mr. Tirumalesh Thuma, Company Secretary and Compliance Officer. 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 date of the call. These statements are not the guarantees of future performance and involved risk 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 the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now have the conference over to Mr. Vamsi Krishna Patluri, Executive Director. Thank you, and over to you, Mr. Patluri.

Good morning, everyone, and thank you for joining us today. I appreciate your time and continued interest in SMS pharma. FI26 was an important year for the company. While the operating environment remained dynamic across several API segments, we remained focused on increasing market share in our key APIs, strengthening backward integration, and building a diverse product portfolio. These efforts enabled us to deliver 13% revenue growth, expand the EBITDA margins to 20%, and continue investing in future growth platforms. More importantly, FI26 was a year of rebuilding the foundation for the next phase of growth. Over the last three years, we have invested significantly in backward integration, product registrations, plant engineering, and capacity expansion. Much of this work requires time before it translates to commercial results. We believe FI27 and FI28 will increasingly reflect the benefits of these investments to higher revenues, stronger volumes, and improved profitability. Before discussing developments across our business segments, let me briefly review our financial performance for the quarter and full year. Turning to our financial performance, revenue for Q4 FI26 stood at 238 crores. For the full year, revenue increased by 13% to 887 crores, supported by strong growth across our anti-inflammatory and ARV segment. Gross profit for Q4 stood at 81 crores. For FY26, gross profit increased 14% to 303 crores, while gross margins remained healthy at 34%. EBITDA in Q4 was 40 crores, with margins at 17%. For the full year, EBITDA stood at 171 crores, up 23%, with margins improving to 20%. Reflecting the benefits of Backward integration, favorable product mix, and operating leverage. In Q4, FI26, Pat was 33 crores, including a 12 crore contribution from our associate company, BKD Pharma. Including this share of profit, Pat's today 21 crores compared to 20 crores in Q4, FI26. For FY26, Pat rose 47% to 102 crores. Supported by margin expansion and a 14 crore contribution from VKT Pharma. We anticipate VKT Pharma's full-year contribution to be sustainable and strengthened into FI27. Extending our share of VKT Pharma's profit, Pat grew 28% to 88 crores compared to 67 crores in FI25. Across our key therapeutic segments, we continue to see encouraging developments. In the ARV portfolio, our superior cost structure has enabled us to gain market share and strengthen customer relationships. We are also witnessing encouraging traction from recently commercialized products. In the anti-inflammatory APIs, we continue to see progressive volume growth with a significant portion of our planned capacity already committed for the coming year. Upon completion of our current CapEx program in Fi27, our installed capacity will increase to 800 metric tons per month. We expect capacity utilization to reach a high level by Fi28. Let me also address the anti-diabetic segment, which has been a key area of discussion over the past few quarters. Anticipating the evolving pricing and demand environment, we proactively adjusted our strategy at the beginning of Q3-FI26 before the impact became visible. We consciously redirected time, focus, and resources towards segments where we see stronger long-term opportunities and more sustainable unit economies. Particularly ARVs and anti-inflammatory APIs. With that overview of our business performance, let me discuss the strategic initiatives that are laying the foundation for our future growth. A key pillar of our strategy is maintaining a robust product pipeline. With this objective, we filed 12 DMFs and CEPs during FI 26 and intend to maintain the space with 10 additional filings targeted in FI 27 and further 10 filings planned for FI 28. Our brownfield expansion project is progressing as planned. Against the total in the planned investment of approximately 280 crores, we've already invested around 130 crores. This expansion includes multiple high-margin molecules that are expected to generate profitability above our current portfolio average. We expect these products to begin contributing meaningfully during Fi28, with further scale-up expected in Fi29. We are also making encouraging progress in peptides. We have already invested in peptides R&D capabilities, and initial results are promising. Currently, we are working on multiple products, and we will give greater clarity on the commercial roadmap after the next two quarters. While the peptides remain a medium-term opportunity, many of the foundations being built today can become an important growth driver and meaningful contributions expected from SI29 onwards. Similarly, our CREMO initiative remains an area of strategic focus. We continue to evaluate opportunities and build the required capabilities. The project is progressing well, and we expect to be in a better position to provide a more comprehensive update after the next two quarters. Taken together are... Core API business, new product launches, brownfield expansion, peptide platform, and CDMO initiatives provide a strong platform for sustainable growth throughout FI30 and beyond. Our objectives remain clear to build a larger, more diversified, and higher-margin business while maintaining our focus on operational excellence and disciplined capital allocation. Coming to FI27, while we remain optimistic about the opportunities ahead, we are adopting a prudent approach in our outlook. Ongoing geopolitical developments in the Middle East have introduced uncertainties around logistics, trade movements, and supply chain stability for both raw materials and finished products. Taking these factors into account, we are guiding for 15% revenue growth while aiming to further improve. At the same time, if the external environment stabilizes and logistics conditions improve, we believe there is potential for growth to exceed our current guidance given the opportunities we see for our products. Overall, we believe the investments made over the last several years have positioned the company well for the next phase of growth. We are entering FI27 with stronger capabilities, a broader product portfolio, improving market positions in multiple growth drivers that provide a long runway for growth. With that, I would like to conclude my remarks and open the floor for questions. Thank you.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Vihan Bhakti with Umayu Advisors. Please go ahead.

Yeah, hi. I'm on Audible. Yeah, you are Audible. Please go ahead.

So, my first question is, what was the reason behind the decline in gross margin on quarter-and-quarter basis?

Okay. So, the reason for decline in gross

profit for quarter-on-quarter,

so

it's a 2% decrease on quarter-on-quarter gross margin compared to FI23 to FI24. This is mainly due to increase of raw material consumption, and this is due to increase in solvent cost in March. So, because of the war, the solvent costs have increased drastically, and that resulted in... Increase of raw material cost for the product.

All right. I have another question. It's regarding the CAPES. So I wanted to understand the breakup of the CAPES as well as the timeline of the launch of the different projects.

Break up of the product. The project is for backward integration project. We are investing on ibuprofen to further enhance our capacity. We are currently sitting at 500 tons per month capacity. Now we are increasing our capacity to 800 metric tons because we are almost 80% already utilizing our existing capacity. So we foresee a good incremental increase in our sales. So we are increasing our capacity to 800. So that is one. And we are doing a brownfield project. We are building dedicated block for four or five new APIs that we are filing. The DMS that we filed, we have to commercialize it. Our existing capacities do not support the commercialization of the products that we are filing. So we are creating a block for high-value, high-margin products.

And by when do you expect these projects to be commissioned?

So this will be completed by FI27, March, and the capex will be completed, and we expect incremental revenues from FI28.

All right. And over the next two to three years, what could be the EBITDA margins we would aspire to do?

So, see, our all-time high EBITDA margin was around 22%, and definitely, we are targeting that this year, and the subsequent years, we are trying to probably exceed that. Our historical highest was 22% in the company's history. So, this year, we are at 20% already, but next year, we are trying to reach 22%.

All right. Thank you so much, sir, and all of us for your future.

Thank you.

Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of May 3 Shah with Sapphire Capital. Please go ahead.

Yeah, hello, I'm audible. Hello.

Yes, you are. Please go ahead.

Yeah, hello. Good morning. A few questions. Firstly, you said that EBITDA margins we see increasing to over 22% this year. What do you think is driving such growth in the EBITDA margins when the supply chain is facing a lot of disruptions currently? What kind of, I would say, molecules are driving this EBITDA margin growth, if you could explain on?

See, I think the main important driver will be the backward integration, because for a very key important product like ibuprofen, if we have not backward integrated, like we have not taken this call of backward integration a couple of years back, we would have probably, you know, been in a very bad situation now because of the current market scenarios, because of price escalations, we wouldn't have been able to survive in the market. But because we backward integrated, we are manufacturing our own intermediates. And, you know, this has actually helped us improve the margins as well as stabilize our, you know, I mean, customer confidence also on SMS pharma in delivering products. And definitely, there is a price increase also that is happening in products like ibuprofen, which, so definitely, because of this war, the price.

So just to quickly answer the question, the previous question.

Because of our strong, distinct couple of years now, we've taken this decision of backward integration. So that actually enabled us to make sure that, you know, we are competitive in the market at this point of time. So this is the major, major road driver for the EBITDA margin increase for coming years, because the actual potential of these backward integration projects will be taking effect in this.

That is great. So the 22% margins we are currently guiding for is through the backward integration and post that, the 4-5 new APIs that we are adding will kind of drive it even further. Exactly.

The 4-5 new APIs that we drive at will definitely drive the margins better. That is great.

So these four or five new APAs that we are adding, what therapeutic areas are we targeting? Are they in the inflammatory side? Any kind of concern on that? And also, what sort of market size do these have? How do we see the growth coming from these going forward?

See, one is the antiretroviral. There are multiple segments. It's not any particular therapeutic category as such that we are currently working on. I mean, none of them are in any of the major therapies. There are new category segments.

And how do you see the high-value share kind of inching up with these coming on board? I think we are at 44-47%, so how do you see that kind of contribution going up in the years going forward?

I'm sorry, could you repeat that again?

The high value of product share is, I think, currently at 47% of our total sales. With these new APIs kind of adding on to it, how do you see the share going up in the medium term?

Yes, definitely. We see the share going up.

Any quantification on that?

Probably around, like, 60%.

And the last thing I wanted to ask on was on the chemo side. I think they're doing it with the JV. Any updates on that, if you could share with us?

So, it's a continuous, so the JV products are, so the JV business is continuously happening. So, we are already developing five new products for them, so which will be commercialized in this financial year.

Five products, are we expecting them to commercialize this year? And what do you think, Matt, do you see for that going forward?

So definitely, it's a big, these are good, strong products, high-value products, and we definitely have a very strong partner in chemo who will promote these products across the world. So we anticipate good sales from these JV products. Similar to ones that you've seen on the anti-diabetic segment, similar kind of growth could happen coming forward.

And secondly, on currently, what sort of export percentage do we have from our India business?

Export percent? Just hold me a second.

I think 70% will be exports for us.

Okay. And do you expect this to scale up with the new APIs coming on board, or are they more domestic?

Yeah, it will be around that range, growth of maybe 4-5%. Yeah, I think it will be around 70-75%.

And the 15% growth, you said, for this year, it's on the conservative side with the market scenario. First, everything is kind of solved. We have the new CAPEX in front. FI 28, 29, how do you see the growth kind of shaping up?

So definitely our target is to hit at least 20 to 25 percent. That is our actual target. But, you know, conservatively we project a little lower just in case, you know, some things happen like the war and all that are not in our control. So we sort of be a little pessimistic on the projections. So we anticipate at least a 20-25 percent.

Thank you. Misha, please rejoin the queue for more questions. Next question comes from the line of Bhawani Prasad Kulkarni from PMS. Please go ahead.

Yeah, I was just going through the revenue share.

So, are we trying to increase anything in anti-erectile and anti-ulcer?

So, these are our very old segments. You know, we've been on the anti-ED and anti-alpha segments since a long time. And definitely, I think new products are coming out in these segments, which we are focusing. And for sure, I mean, these are very staple segments for SNS pharma. These are one of the top three segments for us as well.

Correct. So, on the same grounds, a follow-up question. That's why I asked this question. There is this OCF conversion ratio also. I was just looking at it has increased commensurately comparing to 23-24. So, is the OCF conversion ratio, are we looking at increasing it further?

Obviously, it's further strengthening the OPS conversion ratio also.

Right, right. So, I have one last question on anti-inflammatory sales. So, this year, we have almost seen 182% CAGR since 2021 because that's when I started investing in SMS. That's why I was asking this question. So, is there a further scope of improvement on this, sir?

Could you please repeat that question again?

Absolutely. So, anti-implementary sales. Okay, we have considerably increased from 21FI, FI-21 to FI-25. So are we seeing any further increase? Because I see a little bit of decrease from FI-24 and FI-25. So are we concentrating on anti-inflammatory sales further, or is it in the, you know, we are just not concentrating, that's not our code sector.

No, no, that sector, like we have one big product item that contributes to majority in that sector. For sure, we are doing all the capex to increase that revenue. So, that will be the major driver for the company also. So, obviously, at the same time, while we are increasing the sales, with the backward integration, we are trying to increase the margins as well. So, definitely, that is a very, very critical product for us.

Absolutely. Thanks a lot. If I have any other questions, I would reach out to the investor relation officer. If I have time, I have one more question, last question. So, sir, if I am looking at this investor presentation, I see that revenue by customer size in FY26, one of the largest customer is giving us 28% of the total revenue. Right. So, I'm feeling that, are we not completely concentrated on that basis? It was 28% from single client?

A single customer, but it is from multiple products. Okay, okay.

So, it is not a single product contribution, right?

So, it's from multiple products, yeah. So, is it from, I mean, if I may ask, is it from Teva or Panfama?

No, we cannot disclose any customers here in this platform, but if there's anything you can...

I got it, got it, got it. I was just being wishful. I was just being wishful. Thanks a lot, sir.

Thank you. A reminder to all the participants that you may press star and want to ask a question. Next question comes on the line of Jai Prakash with Korman Capital. Please go back. Mr. Jai Prakash, you are not audible. Can you please come in the range and speak a little louder?

Yeah, let me let it time audible. My question is related to this related party transaction you have. I think the VKT, Pharma, and SMS life sciences, I think you own as a company 34% stake in VKT Pharma, and SMS life sciences, I'm not able to understand how much, but you have some related party transactions of like 40 crores in VKT Pharma and about 20 crores in SMS life sciences. If you can just throw some light on that.

So, I think the related party transactions have been disclosed. For example, BKT Pharma, SMS has around 34-35% stake in BKT Pharma, but SMS Pharma does not have as such... Any investment in SMS life sciences. That is a different company altogether. But the promoter, see, it's been coming under the related party because the promoters have some investment in SMS life sciences. So that's the reason it's under the related party group. But for VKT, the sales, definitely VKT buys APIs from SMS. So definitely the sales of 40 crores that you see are from that, sales from SMS pharma to VKT pharma. And from life sciences, SMS buys from intermediates and raw materials. So that is the relation between procurement from SMS pharma and SMS life sciences.

Got it. Any future guidance in terms of bringing these companies in your fold just to streamline the transactions?

At this point of time, again, as I told you, SMS Life Sciences is a separately run, it's an independent company. It's nothing to do with SMS pharma. In the VKT pharma, at this point of time, we have no such plans. And definitely, I think, they're in a different category. They're a finished dosage company, so they're a formulation company, so nothing related to SMS pharma. So, at this point of time, we have no such plans.

Sir, and you can just give a look at the sidebook to see how much it makes of the total revenue.

It's roughly around 20%. It is roughly around 20%. Let me just double check.

I think it's around 20%. Yes, 20%.

Okay. Thank you.

Thank you. Thank you.

A reminder to all the participants that you may press star and want to ask a question. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session. I now hand the conference over to Mr. Ramsey, Krishna Potluri for closing comments.

Thank you. We appreciate your continued trust and interest in SMS Pharma's journey. For any further questions or clarifications, please feel free to reach out to our investor relationships partner, EQ. Wishing you a great day ahead. Thank you so much.

Thank you. On behalf of SMS Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your link.