1/ Performance

-Q2 FY-21 had the highest quarterly sales of 68 Cr, a growth of 84% y.o.y. Top 10 products contributed 71% of topline and Top 5 contributed 45% of topline.

-Growth reasons: Market share gain + Growing demand.
-Company’s traditional products are mainly responsible for this growth.

-Entire growth was led by volume growth of traditional products. They used newer capacities to manufacture traditional products.
-Market requirement has also gone up. No major customer addition. Selling to around 400 customers across 45 countries.

-India sales gone up from 8.5 Cr in Q1 to 16.5 Cr in Q2.
-No adverse effect of COVID-19 on business. Faced some logistics and manpower transport issues in Q2.

-Normalization of activities will continue in the coming quarters.

-Adequate order booking for H-2 FY-21.
2/ Costs

-Employee cost as a % of topline has gone down from 15% to 10% of topline. A larger part of employee cost is absorbed by a bigger topline. Therefore in terms of percentage this will remain in the same range.
-Reversal of M2M loses, FOREX exchange losses, mutual fund losses accounted for 3.2 Cr for H1. (One off)

-In Q2 there was 1% savings in fuel cost due to lower oil prices. But the price has been corrected and they don’t expect these savings to continue. (One off)
-A lot of postponement of expenses happened in this quarter in plant maintenance & upkeep, sales & marketing and admin expenses as migrant manpower was not available during H1 Fy-21 which also led to margin improvement but this also will not continue going forward. (One off)
-No participation in international expeditions and meet global customers. (One off)
3/ Growth reasons

-NGL was able to take market share from some of their competitors. They were quick to get back on their feet and this helped them in gaining volume share.

-The longer the player took to get back on track the more the customers got impatient.
-Customer saw the flow of material and gave them the order. Pricing offered to the customers was competitive even during supply crunch due to which the customer continued to stay with them.
-Growth is not only in the top 3 products which they have been doing since the past 15-20 years. Seeing a lot of growth in the next 5-7 products which were launched in the last 5-10 years.
-Earlier they had a market share of 20-25% in these 5-7 products. Today they have a market share of 50-60% in these products. Gained market share over Indian and Chinese players.
-NGL provided good value proposition, better pricing, and got back on feet much faster. And these small things added to revenue growth.

-They could have increased prices due to short supply which they didn’t in order to win customer confidence.
-This price hike if taken would have been temporary, so in that regard management played it well to offer lower price and retain more customers for the coming quarters. This price reliability to customers is paying off.

-No Pricing pressure so far in the current year.
-3 key things: Quality + Price + Reliable supplier. If the customers don’t find these than they switch suppliers otherwise there is no point switching suppliers. NGL’s endeavor is to maintain these key elements in their operations.
-Initially customer start with 2-3 suppliers but as soon as they realize that one supplier is better than the other they increase their order size for that supplier.
-Another reason for growth could be selective growth in some of the products. Maybe their competitors were focusing on those products which NGL doesn’t deal in and NGL was focusing on those products which their competitors were not focusing on.
4/ Growth

-This year products that they manufacture have grown at 20%+ rate. Only time will tell sustainability of this

-These products have found some new application & lot of players have entered the finished formulations biz. So this is adding to increase in market coverage
-The endeavor is to reach 100% market share. It takes time to grow each product.
5/ China

-Some negative reaction towards china in 2019 but in 2020 China bounced back and supply from China are progressing at normal pace. China outsells India by 8x in the pharma industry.
-NGL has been competing with Indian & Chinese players for a very long time with regards to their products. In their product range they're able to successfully compete with China

-It sells 8-10 products in China

-To compete with China, controlling costs is the key
6/ Products

-NGL commercially manufactures 18 products

-Top 3 product have a size of 50-100 Cr each

-Next 5 molecules market size: 20-40Cr each

-Apart from top 10 products the remaining product have a market size of 20-40 Cr each.
-Molecules are much smaller in size so reliable data regarding size of molecule is unavailable.

-Validation of 2 products out of the 4 new products is still pending. Coz there is a lot of demand for traditional products. However the production will start from the current quarter
7/ Strategy post lockdown

-In Q1 they were just reentering the market so focus was on short term needs. Once things stabilizes they will start focusing on long term goals like introducing new products.
-No progress on poultry. Post the lockdown focus was to start old product, scale them and stabilize them.
-Will focus on 4 products later as a lot of demand is coming from traditional products. Currently all the capacity is diverted to traditional products. Currently all 18 products are doing exceedingly well.

-They've just started production of 1 new product out of 4 new products.
8/ Long term strategy

-Most of NGL’s products find application in livestock. Focus is to add more products which will cater to livestock and larger animals.

-Conscious decision to add poultry products, anti-infectives, pet products to product portfolio.
-Currently working on 8-10 products in different stages at the R&D level.

-Continuous enhancement in the R&D team is going on.

-Focus: Animal health API for ROW market. Concentration remains on Animal health API and Intermediates.
-Working with top 20 animal health companies. Strategy is to add more molecules & more customers

-Except regulated mrkt they're selling to every country across world. Quite few countries are net importer of their products. As customer company scales up NGL will in turn scale up
9/ Competitors

-Lot of action happening.

-Competitors are moving into injectables and other products. Some are forward integrating from API into formulations. Some are partnering with global companies.
-NGL wants to stick to its strategy of manufacturing intermediate and API for Animal health space and cater to ROW market.
10/ Working capital

-Avg credit given: 75 days

-Big jump in receivables due to good sales in Q2.

-No receivables of more than 180 days.
11/ Capacity

-From current capacity 275-300 Cr of revenue can be generated. Capacity utilization: 90% +

-Don’t define capacity in terms of matric tons as some products have 16 chain reactions and some have 3.
-So the product which has a 3 step process can have 10-15x volumes than the product which has 16 step process. So prefer to define capacity more in terms of value.
12/ Macrotech Polychem (Subsidiary)

-Turning profitable. Supply key intermediate to NGL.

-Focus will be to do intermediate manufacturing from this facility.

-Expansions & Debottlenecking will happen in this subsidiary.
13/ Capex

-New plant achieve optimum capacity utilization in Q2 FY-21 which the management thought they will be to achieve by 2022. This led to preponement of capex program.

-Entire capex program will be preponed from next year to current year. This will be a 2 year project.
-New capex will be for unregulated and semi regulated market. And this strategy might continue going ahead.

-New plants will be multipurpose as the old plants. So multiple kind of syntheses can be carried out in those.
-There is no demarcation that this plant is only for so and so product. If the capacity is vacant they use it for some other product.

-They don’t anticipate major issues in scaling up capacities.
-Normal de-bottlenecking will continue to cater to interim growth which will increase capacity by 10-15% every year. Plus there will be green field expansion that will take 2 yrs

-Debottlenecking helps to improve efficiency & capacity without putting much investment (8-10Cr yoy)
-Also open to inorganic opportunities.
14/ Other highlights

-They have not lost customers or market share in their products in the past 10-15 years.

-Production of newer products commenced on October 2020.
15/ Guidance

-For H2 they are looking at similar kind of numbers as there is still a lot of requirements for their products.

-Topline in the next 2 quarters may be at the same level or may improve than that of Q2 but EBITDA margins will decrease due to one of cost cuts in Q2.
–They will be able to determine the sustainability of demand growth in next 6 months to 1 year. Right now they are seeing very good demand growth but are not sure of the sustainability.

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