Aarti Drugs Earnings Call for Q1FY25

Summary

The conference call with RT Drugs Limited discusses the company's performance and outlook. Domestic demand remains steady, but export demand is slow, with expectations for growth in the second half of the year. The company anticipates a full-year growth or decline in financial year 25. They also address the stability of API prices, the impact of audits on formulation exports, and the potential of new product developments, particularly in oncology, aiming for revenue between 300 to 400 crores at peak.

Takeaways

• 📈 Domestic demand appears stable, with expectations to achieve performance, but export demand remains slow.
• 🔄 The company anticipates a decline in demand for the full year, with growth expected to pick up from the third quarter onwards.
• 📉 There will be a negative rate variance in the first half of the fiscal year, but it is expected to improve in the second half due to price reductions in the December and March quarters.
• 🚀 The introduction of new products and better capacity utilization are expected to boost volume growth and performance in the second half of the year.
• 💊 Specialty chemicals are on track for commercialization from Q2 of the fiscal year 25, with significant supply and capacity utilization expected.
• 📊 The company projects a potential 50% growth in the second half of the year for specialty chemicals, based on successful product and market availability.
• 🤑 Operating margins are expected to improve in the second half of the year, with gross margins currently at 34.1% and a target of around 35% for the standalone business.
• 💼 The company has experienced a significant drop in formulation export, which was 33% year-on-year, attributed to strategic reductions in domestic business and an increase in international focus.
• 🌐 Export sales have been affected by various factors including audits, production disruptions, and geopolitical issues in certain regions.
• 💹 API prices are currently stable and at the bottom level, with no expectation of significant increases in the near future.
• 🛠️ The company is investing in R&D for new product development, with launches planned for the next two to three financial years, particularly in oncology and other regulated markets.

Q & A

What is the current status of domestic demand according to the transcript?

The domestic demand looks okay and the company expects to achieve performance, but the export demand is still slow.

When does the company expect the demand to pick up?

The company expects the demand to pick up from the third quarter.

What is the company's expectation for the full year growth in terms of demand?

For the full year, there might not be any growth, and they expect to see a decline in demand.

How does the company plan to manage the negative rate variance in the second half of F25?

The negative rate variance will go away in the second half of F25 because the prices had already fallen down in December and March quarter.

What is the company's strategy for new product development and its impact on volume growth?

The company plans to launch new products and expects volume growth to be quite good for the second half of the year.

What is the expected growth rate for specialty chemicals in the second half of the year?

If everything goes well, the company can see a 50% growth for specialty chemicals in the second half of the year.

What is the company's guidance on operating margins for the second half of the year?

The company hopes to achieve around 13-14% operating margins in the second half of the year.

How does the company explain the decline in revenue despite stable API prices?

The decline in revenue is due to a decrease in selling prices year over year, especially in the export market where there is a lag in order execution.

What impact did the change in IP regulations and the fire incident have on the domestic market?

The change in IP regulations caused a temporary disruption in production, and the fire incident impacted dispatches of anti-inflammatory products, affecting the export side.

What is the company's focus in terms of formulation business and how does it plan to expand?

The company is focusing on maximizing utilization for the export business and undergoing a Brownfield expansion to increase capacity by 15-20% in the next quarter, and almost double the capacity in 12-15 months.

What is the company's expectation for the contribution margin in the second half of the year?

The company expects the contribution margin to improve, hoping to achieve around 13-14% operating margins in the second half of the year.

How does the company plan to manage the volatility in raw material prices?

The company is trying to register more products in the European market and increase sales there, as exports generally yield higher gross contribution margins.

What is the potential revenue from the new oncology products the company is developing?

The company is developing about 15 oncology products and expects peak revenue for the oncology segment to be between 300 to 400 crores.