Thread by @ValueEducator

#NeulandLabs Q3 FY22 concall highlights 💊💊

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1. Revenue for the quarter is ₹238.4 Cr (2.9% decline YoY). EBITDA for the quarter was ₹34.2 Cr (26.8% decline YoY) with an EBITDA margin of 14.3%.

2. They are facing supply chain issues due to raw material volatility and high logistics cost. They also benefited in the last few quarters due to raw material hedging for key ingredients, but those contracts expired in Q2 which caused a decline in margins.

They are holding higher inventory in case of possible future disruptions.
3. Currently profitability is low due to costs associated with commercialization on Unit 3. They expect more volumes from Unit 3 in the coming quarters.

4. Capex of ₹75 Cr has been done in this financial year for the 9 months period. The capex plan is proceeding as expected and they expect the CMS segment to do very well and improve realizations.

5. They had a very muted quarter in the prime API business. Although they did well in products like Labetalol, there were a couple of key products that did not perform upto expectations.

This is primarily due to lower customer uptake and they expect to be back in the next few quarters.

6. The CMS side of the business did very well. They have done the highest ever sales of ₹100 Cr in this segment. They saw an uptick in development revenues on the CMS side.

7. CMS revenues may look lumpy on a quarter on quarter basis, but on an annualized basis they are steady and the company expects them to provide growth on an ongoing basis.

8. They filed 3 DMFs this quarter for Aripiprazole (sterile), Vilanterol and Tafamidis Meglumine.

9. The reason for underperformance of respiratory, CNS and cardiovascular is because some of the approvals they expected have not materialized. Some approvals which they expected in 2018 and 2019 are coming through now.

10. Broad spectrum antibiotics like Ciprofloxacin and Levofloxacin are degrowing. So they are working on increasing market share in other Prime APIs where there is growth potential to substitute the volume of the products that are degrowing.

11. They have been shifting their supply chain from China for the last several years, even before the pandemic. Previously, 50-60% of their raw materials used to come from China which has been reduced to less than 10% today and they are trying to reduce it further.

12. Today they have 18 molecules in development and they have another 18 molecules in commercial. One of the Phase 3 molecules is very close to commercialization. The Phase 2 pipeline has been fairly active - especially in CNS and COPD.

They are expecting 2 more molecules to get commercialized in the next 18 to 24 months.

13. The capacities in Unit 3 are fungible i.e they can be used for both GDS and CDMO. Unit 3 is where the future growth is going to come from and they have it ready for any increase in volumes

14. They expect the performance of Q4 to be better than Q3. They are more focused on margins than top line growth. So they have consciously stayed away from business which will add to the top line but erode the margin.

15. They have an additional product in the CMS portfolio on which the patent has expired. But it still continues to have steady volumes because it is from the Japanese market and the innovator continues to enjoy high market share post patent expiry there.

16. Out of the DMFs filed, Aripiprazole which is an injectable product is expected to go off patent in 2025. The competition is limited in this molecule because it requires sterilization.

The second molecule which is Vilanterol is in the respiratory space and the patent expiry is a few years away, but they expect to see decent volumes and revenues even during the development phase.

The third molecule Tafamidis Meglumine is a small volume high value product with limited competition. The patent for it will expire in Europe first and then in the US and other markets. All 3 of these molecules are in the range of $20 million (API value) with few competitors.

17. The technology to make peptide APIs is very different from the technologies involved in formulating or packaging a peptide. It is a very exclusive competence.

So formulation companies - both generic and innovators tend to buy a peptide API specialist rather than an integrated API player.

18. Over the last 2 years, they haven’t been able to add many new customers because pharma companies cannot do plant audits and validation due to travel restrictions. So they tend to work with the companies that they are already comfortable with.

19. They tend to work more with biotech companies which are in Phase 2 clinical trials but don’t have a supplier who can supply commercial volumes. Even if they can add 2 such companies a year, it would be a huge addition to the pipeline.