Earnings Call Transcript - XNSE:SMSPHARMA 2026-11-05

Manohar Mulamma, Other

Ladies and gentlemen, good day, good afternoon, and welcome to SMS Pharmaceuticals Ltd. Q2 and H1 Fi27 earnings conference call. 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 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 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 your touch-tone phone. Please note that this conference is being recorded. Also, today we have with us Mr. Vamsi Krishna Potluri, Executive Director, Mr. Lakshmi Narayana Tamineeti, Chief Financial Officer, I'm Mr. Manohar Mulamma, Company Secretary and Compliance Officer. I now hand the conference over to Mr. Vamsi Krishna Potlari, Executive Director. Thank you, and over to you, sir.

Speaker 9

Hello. Good afternoon, everyone, and thank you for joining us today. Detailed press release and investor presentations have been uploaded on the stock exchange and our website. We maintained our growth momentum in Q2, FI27, and delivered a strong operational and financial performance. Revenue grew 30% year-on-year to 3-1-bix crores. This was driven by higher volumes, improved price realization, and continued growth across our product portfolio. Backward integration gives us a structural cost advantage, not a temporary pricing benefit, and this quarter shows that clearly. It reflects five years of investment in backward integration and capacity building, and we will keep investing in backward integration across our core portfolios. Let me now take you through the key financial highlights. In Q2FI27, revenue from operations stood at 316 crores, a growth of 30% over Q2FI26 and 53% over Q1, driven by strong volumes and improving price realization. Gross profit, including manufacturing expenses, rose 41% to 111 crores, and gross margin expanded to 35%. EBITDA stood at 68 crores, a growth of 40 percent, with margins expanding 145 base points to 21 percent, aided by operating leverage. PAD grew 57 percent to 39.6 crores, a PAD margin of approximately 13 percent. The trend over the last three quarters is clear. The gross margin has moved from 34% in Q4-FI26 to 36% in Q1, and 35% this quarter. This was slightly below Q1, but well above the 32% a year ago, driven by backward integration. EBITDA margins have moved from 17% to 20%, and now 20% driven by operating leverage. For H1 FI27, revenue grew 19% to 523 crores. EBITDA grew 24% to 109 crores, a margin of 21%. FAD grew 36% to 59.8 crores, including our share of weekly profit. Net profit grew 33% to 60.8 crores. Moving to our performance by therapeutic area, our growth this half was broad-based. ARV and anti-inflammatory led the way. In first half, ARVs grew 47% to 150 crores on Earth's market share gains, and anti-inflammatory grew 25% to 110 crores on ibuprofen demand from regulation markets. Our other therapeutic areas also contributed, anti-migraine group 32%, anti-eplexic 42%, anti-anginal 45%, and anti-ED 52%. Across the portfolio, high-value APIs continue to climb as a share of our revenue to 49% in first half from 47% in FY26. We are growing our market share in products where economies of scale and backward integration gives us a structural advantage. I will now share some key updates on our business. Starting with R&D, our team has over 200 professionals and completed 19 BMS and CEP filings over the last 24 months. We continue that momentum into this quarter. So far, we have completed six filings. Four in the first half and two more in October. Well on track for our Fi27 target of 10. They cover anti-ulcer, anti-migraine, anti-depressant, anti-fungal, anti-fibrotic APIs. As a result of these APIs, we now expect 6 to 8 new molecules to start commercial production in Fi28. As we scale up over the following six quarters, we expect them to be a bit accretive and to diversify our revenue. On iGoogleFin, we expect to complete our remaining capex in the coming quarters. This will take our total capacity to 9,600 tons a year, and the volumes will ramp up gradually over the next few quarters. Turning to our CAPEX program, we have deployed 160 crores of the 180 crore program so far, and the program remains on track for completion by FI27. It adds capacity for a few of our existing molecules and for the 6 to 8 new molecules in our pipeline. Coming through peptides and CDMO, we have set up SMS Peptides Private Limited, a 99.9% owned subsidiary. To build a dedicated peptide business, its peptides R&D facility is now fully operational. To support its expansion, the board recently approved a loan of 50 crores to the subsidiary. Balance scale production is targeted for Q4FI27, and we expect our first CRO revenue from it in Q2FI28. We have also set up SMS Collab Private Limited, a whole-in-home subsidiary, as a dedicated CDMO platform for APIs and peptides. Finally, let me turn to our outlook. For FI27, guidance was revenue growth of 15% with an EBITDA margin of 20%. The pricing in our key APIs is expected to remain stable in the near term, and on the back of a strong first half and the outlook for the rest of the year, we now expect to exceed both. This is the moderator to open the lines for any Q&A.

Manohar Mulamma, Other

Thank you very much, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 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 answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nerali Shah from Ashika Investment Manager. Please go ahead.

Speaker 4

Hi. Thank you for the opportunity. And firstly, congratulations on these great set of numbers. So, I have a couple of questions. Firstly, on the website side, what kind of customer engagement are we seeing at this stage? What would need to happen for peptides to become a really meaningful revenue contributor over the next two to three years?

Speaker 9

Hi, thank you. Thank you for your question. So, right now, peptides, we are evaluating two opportunities, two legs right now. So, the first one would be generic peptides. So, there are different types of peptides that we selected. Some range from GLPs to we are looking at cosmetic peptides as well. So, that is a more generalized field, and at the same time, we are looking for CRO and CDMO opportunities at peptide scale, starting off with, you know, tire C, tire B customers, and then probably proceed up the ladder for a tire A customer. Because this is the first time we are getting into CDMO activities that we'll be starting with peptides. So it might take a little while for us to attract the real top names in the industry to come and work on CRO and CDMO with us. But definitely, I think, in the next two to three years, we anticipate a meaningful revenue coming out from the peptides.

Speaker 4

Okay. You mentioned on the cosmetic peptide side. So, if you could help me understand, what kind of margins are available in this kind of peptide?

Speaker 9

No, it's too early to be honest with you right now because we just started off our R&D maybe a few months back. So, it's too early for us to... Let you know what kind of margins would be there, but typically bedpines have a decent margin with respect to, I think, 40% plus margin.

Speaker 4

Fair enough. Secondly, on our ibuprofen business, sum the color on how the volume ramp-up is progressing and what is the current utilization level?

Speaker 9

So right now, the utilization level is at 90% right now, 90 to 95%. So we are running at full capacity right now. Again, at the same time, we are doing another, we are continuing our existing capexer to improve the capacity further to 9,600 metric tons. So this is anticipated to be completed in the next coming few quarters. Once that is done, we'll be slowly ramping up capacities. But we have enough customer orders and customer interest to... Take care of this.

Speaker 4

So, any timeline on the volume scale-up and how should be the profitability profile of this business?

Speaker 9

Again, it's a, you know, it's a step-up, sort of, it's an incremental growth that we'll be doing. Right now, we are currently doing almost 450 tons per month, 450 to 500 tons. But I think slowly in the span of... Six to nine months, I think you will see a full utilization of, you know, 9,000, I think 90% occupancy of 9,600.

Speaker 4

That's fabulous. That's great.

Manohar Mulamma, Other

Just one question. I request you to join back with you. Sure, sure. I'll join back with you.

Speaker 4

Sure.

Manohar Mulamma, Other

Thank you. The next question is from the line of Raj Agrawal from Navishai Asset Management. Please go ahead.

Speaker 9

Hello, thank you so much for the opportunity, and congratulations on this side. I just wanted to understand on the ibuprofen side, so some of our peers are shutting down capacity, and our focus is also moving towards, you know, U.S., European market, and also we are now, you know, doing some ibuprofen derivatives. Is there a scope for pricing to also improve Yes, definitely. I think definitely there is a possibility of a price improvement on ibuprofen. And typically, for these commodity products, it's always cyclical. There will be a time in the year when the margins will really go up, but the remaining time, the margins will be slightly lower. But it's a cyclical product, and, you know, it goes through many phases. It's been since many years, right, the product in the market. So it goes through multiple phases. You know, there'll be up phases, there'll be down phases, there'll be shortages, there'll be overcapacity. So definitely, I think we are seeing all these phases, and definitely we are equipped to handle all these phases. At this point of time.

Speaker 8

Got it. So another question on, basically,

Speaker 9

you know, how will you now rate SMS cost structure in iGo compared to your peers, since basically we have an integrated plan, you have basically also alluded to a new process. So, you know, is there any scope to now even improve the process for the peers are also adding capacity?

Speaker 8

So how would you rate SMS cost structure in iGoProfen compared to peers in India or global?

Speaker 9

Thank you for that question, but to be honest, we don't know what Pierre's product is and how they are manufactured, but one thing from our side, we can tell you, we are one of the best. From our point of view, we have one of the best manufacturing processes in the market for ibuprofen, and definitely it's a cost improvement process. As we go and as we take out more batches, our batch sizes are growing, our batch sizes are close to 10 tons right now, and we try to reinvent and try to see if there could be some reduction. So it's an ongoing process. There's no end to that process. We should keep trying to see if we can move. One product like this.

Speaker 8

This is one last question.

Speaker 9

I think you already basically answered a part of it, but I just wanted to understand on the peptide side, if you can, you know, give some kind of sense on, you know, what are the number of scientists today? What would be that count when you're down the line? You know, in what geography do we want to do this peptide business?

Speaker 8

Just want to get a sense, you know, how are we basically thinking about it? How would this business look one, two years down the line?

Speaker 9

Well, definitely. I think from SMS point of view, we are going to give a lot of emphasis on the peptide part. Right now, we have around 30 chemists. Most of them are PhDs. And definitely, I think there is a recruiting process still ongoing because also considering the fact that we just started as R&D a few months back, so the recruiting process is still ongoing. Again, it's fairly new. But again, we have a CEO for peptides, dedicated CEO for peptides, and, you know, there is a different team and division that is working exclusively on peptides, and we think peptide will be a good part of SMS's. Revenue going forward. But it will take time, it will take one to two years, yeah.

Speaker 7

Go ahead, sir.

Speaker 9

Thank you for the opportunity. Wishing you good luck. Thank you.

Manohar Mulamma, Other

Thank you. The next question is from the line of Babica from Navishai. Please go ahead.

Speaker 4

Yeah, thank you for the question and congratulations for the setup number.

Babica, Analyst — Navishai Asset Management

So, just to follow up on the previous question, that how much margins like we make in the ibuprofen business? And also, are we into like the standard ibuprofen or we are also into derivatives? Because I think the peers in the industry have been doing well in the derivatives as well, and that's leading them good margins comparatively to the standard agroprofane. So if you can give understanding on the margin side of agroprofane. That's my first question.

Speaker 9

Thank you for your question. So, with respect, we cannot disclose the exact profit margin on ibuprofen on a call like this, for sure. But definitely, I think our EBITDA margins are in the teens. That much we can tell you on this particular product. And with respect to other products, we have a few other derivatives of ibuprofen. We have multiple salts of ibuprofen. Everything that's available in the market, we are currently already validated, and CEPs and DMFs already filed, and definitely margins on those are much, much higher compared to the regular ibuprofen, and volumes of those products are much lower compared to the regular ibuprofen. So they sort of offset each other.

Babica, Analyst — Navishai Asset Management

Got it. But will it be more than what we are doing at the console level, the margins which we are doing at console level? Ibuprofen margins are higher than that. Am I right?

Speaker 9

I'm sorry, could you repeat that again?

Babica, Analyst — Navishai Asset Management

I'm asking that, like, is it higher than what we are doing at the console level, the margins, which we make at console level? Does the ibuprofen margins are higher than that?

Speaker 9

No, it will be more or less similar, to be honest with you. More or less similar in that range because, yeah, that's a big enough product that contributes, right? So I think it's a similar range.

Babica, Analyst — Navishai Asset Management

Got it. And also, like, because in the last few calls, you mentioned that we are, like, because of the backward integration, we will be able to see the, like, benefit on the margin side of, on the back, like, because of the backward integration in the ibuprofen. So, by what time we will be able to see that benefit and how much it will be, if you can say in the percentage term, like, how much impact it will create on our margin side for this ibuprofen.

Speaker 9

So definitely, see, before backward integration, ours was below 10% margin. So definitely, I think all the backward integration, part of the backward integration work is already done. And see, more important than the margins, the stability on the product. So now we are not dependent on anyone else right now because of the current situation, global scenarios, the prices have escalated so much. If we were not backward integrated, we would have been caught napping, and we wouldn't have... We wouldn't actually have the product to, the intermediate to actually manufacture ibuprofen. Fortunately, since it's backward integrated and we have the control on the intermediates, now we are able to successfully deliver ibuprofen. And, okay, putting the profits aside, which are definitely going to improve, but the stability on the product and the control on the product that we currently have is a big advantage for SMS at this point of time.

Babica, Analyst — Navishai Asset Management

Got it. And the second question I have on the peptide side, basically, you mentioned that we are doing generic peptide, including GLP and cosmetic peptide. Like, just wanted to understand that initially, are we targeting the domestic players and or the like on the export market? And also, because must be we are at the R&D place, so we must have sent our samples to our customers, like the potential customers. So, what are the feedbacks which we are receiving from them, and what timeline, like, from the feedback and from the industry understanding that how much, like, timeline we can assume for the ramp-up of this peptide business?

Speaker 9

Yeah, again, as I mentioned, right, we just started the R&D a couple of months back. So definitely we've not sent out any samples as of now because the development will take time, right? So again, as indicated in my presentation, I think we will be ready with pilot-level samples only by... Q4, FY27. So we still have some time. So we've not sent any samples as such to any of the customers yet. But definitely we'll be targeting domestic and international both the customers. And definitely there's a lot of interest from the U.S. customers also coming in based on some of our trade shows that we've attended.

Babica, Analyst — Navishai Asset Management

Got it. But even on the CMO side or CDMO side, we are not having any customer on board, like, or any negotiation or any conversation going on with any customer.

Speaker 9

Again, as of now, we've not set up the facility yet, right? So, without the facility or the R&D, there will probably not be any discussions as of now, yeah.

Manohar Mulamma, Other

Got it. Got it. That's all. Thank you so much. Thank you. The next question is from the line of Agnesh Ayer from Tequid Investments. Please go ahead.

Speaker 8

Hello, sir, and thank you for the opportunity. So, my question is, what is the total amount of CAPEX that we have already done in the first half, and what is the amount that we are going to spend in the second half?

Vamsi Krishna Potluri, Other

Yeah, so the total capex is

Speaker 9

for 280 crores, and we've already deployed around 160 crores as of now. So, another 120 crores is deployed at the fore-end of this financial aid.

Speaker 8

Okay, so, would it be fair to assume that we might see a higher debt level by the end of FI 27?

Speaker 9

Can you please repeat it and slowly, please, if you're not able to hear you.

Speaker 8

Hello, hello. Am I audible now? Hello? Okay, so I was saying, considering the prices of APIs are also increasing, and the need for working capital that comes with it, and also considering the KPEX, could it be, can you give a number of what our peak debt would look like by end of the year?

Speaker 9

PE debt?

Speaker 8

Yeah, PE debt, yeah.

Speaker 9

PE debt, I'm sorry.

Speaker 8

See, a peak level of debt that we will reach by end of the year, considering we have a CAPEX plan, as well as higher working capital requirement.

Speaker 9

So, both put together will be around 400 crores by end of this year. Okay, this is the budget you are talking about, right? This is long-term and short-term both. Oh, yeah. Okay, okay.

Speaker 8

I'll get back in a queue.

Manohar Mulamma, Other

Thank you. The next question is from the line of Nerali Shah from Ashika Investment Managers. Please go ahead.

Speaker 4

Thanks for the opportunity again. Sure, one question is on our partnership with Chemo. Can you elaborate more on that?

Speaker 9

I think this has been in the, I mean, it's been ongoing since almost 10 years for now. So we developed a lot of products under the JV partnership, all the Svita Gretzins and the Flozins and a few other products are developed on this partnership, and there's a profit share between both the companies that happen. It's a joint venture, joint development, and we are joint marketing and joint marketing.

Speaker 4

Okay. And lastly, if you were to identify a biggest glued driver for SMS for the next three years, beyond the opportunities that are already visible today, so what would that be? Where do you think the… I can ask that later. I think I'll stop there.

Vamsi Krishna Potluri, Other

Hello?

Speaker 4

Yes, sir. Opportunities beyond the ones that are visible today, what could be the biggest growth driver for SMS over the next three years?

Speaker 9

So, definitely, I think once we are consolidating our existing business, and I think one very strong growth driver that we're still entering is, I think peptides is one big area that we would like to focus and, you know, try and see if we can get some good opportunity and good customers there. Because we have a very strong team on peptides, and we believe that, you know, we have a good advantage on that side. And we're fairly early. I know a lot of people are working on peptides, but I think comparatively we're fairly early into the peptide market at this point of time. So we have a good, strong team that's working on some of our peptides. So we fairly anticipate that's a good growth.

Speaker 4

Sir, I believe in FY29, there is this patent case coming also in peptides. So, that could also be a very huge opportunity for us, right?

Speaker 9

Sure, sure, yeah.

Speaker 4

Okay, sir. Thank you, sir.

Manohar Mulamma, Other

Thank you. The next question is from the line of Maitrisha from Safa Capital Limited. Please go ahead.