Shiven Ar November 04, 2024 Ladies and gentlemen, good day and welcome to Blue Jet Healtheare Limited Q2 FY 25 Eamings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions afier the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Advait Bhadekar from Emst & Young. Thank you, and over to you, sir. Thank you, Del. Good evening and a warm welcome everyone to Q2 and H1 FY 25 Eamnings Call of Blue Jet Healtheare Limited. Please note, investor presentation and the financial results arc available on the company website and the stock exchanges. Also anything said on this call which reflects our outlook for the future, or which could be construcd as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. The conference call is being recorded and the transeript along with the audio of the same will be made available on the website of the company as well as on the cxchanges. Please also note that the audio of the conference call is the copyright material of Blue Jet Healtheare Limited and cannot be copied, rebroadeasted, or attributed in press or media without specific and written consent of the company. From the management side, we have with us Mz. Shiven Arora, Managing Director, Mr. VK. Singh, Chicf Operating Officer and Mr. Ganesh Karuppanan, Chicf Financial Officer. Now I would request Mr. Shiven Arora, Managing Director of Blue Jet Healtheare Limited to provide you with updates for the quarter and half-year ended 30th September 2024, Thank you and ov to you, sir. Good evening, festive grestings and thank you everyone for joining us today. I am pleased to share that we remain a leading CDMO company focusing on export regulated markets. Our esteamed customers include top players in the MedTech and FMCG sectors along with innovators in diverse therapeutic arcas. For Q2 FY 125, we achicved a turnover of INR2,071 million, marking a sequential increase of 28% and an 18% growth year-on-year. Our EBITDA stood at INR695 million, and we reported aPAT of INR583 million, our highest ever net profit for a quarter, representing 28% of our total revenues. This quarter, we proudly completed our first ever dividend payout of INR1 per share, amounting to INR173.5 million. We continue to maintain a debt-free status with healthy liquidity reflected by our cash and cash equivalents and our treasury investments totalling to INR3,233 million as on September 2024. Following up from the last quarter, we have successfully commissioned Plant 6 at Unit 2 in Ambernath, incurring a total cost of INR900 ‘million. This facility adds 120 KL of additional capacity which will cater to our customers in the PI and contrast media segments. Commercial production of our PI client in cardiovascular therapy commenced in mid-September. ‘We anticipate reaching our optimal capacity utilization in Q3 and Q4. Additionally, we initiated validation for our contrast media intermediate for an NCE molecule and expeet the facility to meet surging customer demand in the second half of FY '25. The end APIis showing exceptional performance, positioning us to fulfil long-term client needs. Looking ahead, Unit 3 capabilities arc projected to go commercial in FY '26. We aim to use this as an opportunity to produce a key raw material which is currently being imported. Our capital expenditure plan remains on track. Engagement with existing and new clients continue to be promising, with strong forecasts across all three product categories, specifically PI or CDMO category. Demand remains robust, which our Plant 6 capacity will support effectively. For contrast media category, Q2 supplies were steady, and we expect the demand for customers to stabilize from Q4 '25 onwards. Thank you. On this note, I would pass it on to Mr. V.K. to give more insights about the business. Hi. Good evening, cveryone. Season's greetings and a Happy Samvat 2081. For a CDMO business, there are clearly two growth enablers, manufacturing capacity and R&D. At Blue Jet, we contimously de-bottlencck and add new capacity to keep in step with the growth that we envision. Our capacities are often co-engineered and built to suit, to support our go-to-market strategy for customers who are mostly innovator and CDMO companies. We also build capacity to complete backward integration, which is a stated goal for cost leadership and strategic independence, Our current capex cyele, as Shiven mentioned, is mostly in step with what we had indicated in the past and is also synchronized with the customer lock- ins and supply contracts. At Unit 2 Ambernath, we have added about 120 KL ata cost of about INR9O crores. This capacity went on stream in the previous quarter, and commercial supplics commenced in the last quarter upon suceessful completion of validation batches. ‘While this capacity is versatile, its been specifically deployed for making the intermediate for the CDMO cardiovascular opportunity that we were pursuing with an innovator company. As indicated in the previous call, we are commissioning incremental capacity of about 80 KL in the same block, and as we speak, the validation batehes for an advanced intermediate orientated towards the NCE in the MRI space are ongoing. We expect commercial supplics to commence from this capacity in quarter three onward. At Unit 2, we are also building a small volume plant, which we envisage will be ready for commissioning in quarter one of FY '26. This plant will be primarily used for proof of concept, regulatory filings, and supplics of small GMP validation quantitics to innovators for the clinical developments and trials. With the small volume plant, we complete our stated objective of building robust kilogram to ‘multi-ton capabilities. Moving to Unit 3 at Mahad, at this site, we are creating a built-to-suit capacity for backward integration for contrast media. The effluent treatment plant at this site is ready for trials, and other common infrastructure is also nearing completion. We believe that this new capacity will get commissioned, as we had indicated in the past, in quarter one, FY '26. With regard to R&D, which is our second growth enabler, we have, in the last 12 months, doubled our R&D hardware and strengthencd our scientific talent pool. Howerer, to keep in step with the growth that we envision and the surge that we are witnessing in the CDMO RFPs, the number of R&D labs and scientific talent pool shall be further augmented Some new chemistry platforms, like pyrophoric chemistry, iodination, enzymatic platform, and a platform which is dealing with amino acid derivatives, have been very recently added. As far as sustainability is concerned, between our windmills and solar, we have built capability to gencrate about 70% of our encrgy from renewable sources. We are continuously striving to achicve a high level of atom cfficiency in our chemistrics and endeavour to make our industrial processes and plants environmentally friendly. With this, I pass it on to my colleague, Ganesh, to take you through the financials in detail. Thank you. Good evening, everybody. I hope you are able to hear me. Before we get into Q2 performance, T just wanted to recap our Q1 performance, which was majorly impacted by Red Sea issucs, whereby we had higher goods in transit. This resulted in a lower sales recognition, and our performance in Q1 was lower compared to its sequential quarter. During Q2, despite of having higher goods in transit, higher than Q1, we were able to record a profit after tax of 583 million, highest ever quarterly profit reported. Our reported turnover of 2,070 million for Q2 FY 25 is an inerease of 28% on a sequential quarter basis and 15% on year-over-year basis. For the same quarter, we recorded a gross margin of 57%, higher by 2% sequentially, and we were able to sustain similar margin on year-over- year basis. Our reported EBITDA at 695 million is an increase of 57% sequentially and 11% year-over-year. ‘We ended the quarter with a profit after tax of 583 million, an increase of 54% sequentially and 22% on year-over-year basis. For the half year, we recorded a tunover of 3,711 million, an increase of 3% year-over-year basis. EBITDA reported for halfyear, first halfis at 1,137 million, this is lower by 6.4% year-over-year basis, while profit after tax at 961 million is an increase of 4.5% year-over-year basis. Now, let me just take you through some of our key product scgment. We will first start with contrast media. In the contrast media product category, Q2, we reported a growth of 76% ona sequential basis, while it has de-grown by 11% year-over-year basis. The HI, we reported a turnover of INR1,779 million, a de-growth of 31% compared to HI of last year. In the previous

November 04, 2024 call, we had highlighted a lower offiake by a key customer for calendar year 2024 and certain Red Sea issues impacting our goods in transit, thereby impacting our revenue recognition. Inthe pharmaccutical intermediate category, we were able to sustain Q1 performance in Q2 also, while if you look at the H1 of FY 125, we reported a turnover of INR1,198 million, a growth of 282% compared to H1 of FY '24. As VK Singh mentioned, the commercialization of one of our key products in the cardiovascular therapy has started in September from the new capacity, and that's Plant 6. And we believe this new capacity is expected to drive scparate growth for us in the scoond half of FY 125. In the artificial sweetness phase, our turnover is more or less similar to last year. In H1 of FY 125, we reported a turnover of close to INR60 crores similar to last year. We are able to sustain our turnover this year, despite of headwinds from imports. Now, some of our key balance sheet items, we reported a return on capital employed at 33% and an asset turn of 3.39%. The new capacity addition impact, we could actually see in the second hal fof FY '25. Our working capital is at 140 days, down by 7 days compared to Q1. We gencrated a free cash flow before Treasury investment at INR318 million. Our cash conversion, which is profit after tax as a percentage of cash generated, is at 0.76, which means that we are able to actually convert 76% of our cash this quarter. The capex during this quarter is at around INR43 crores. So, with this, we will actually take your questions. The first question is from the line of Sanjesh Jain from ICICT Securitics. . First, [ will start on the contrast media. We have shown a remarkable improvement sequentially, but on a Y-0-Y basis, we are still 11% down. And if I remember in the previous call, you did mention that for the full year, we will be able to hold on to the volume of last year. Then is it fair to assume that in the next quarter, there could be a sharp jump in the volume to meet for the flattish volume versus last year. Will that be a fair assumption on the contrast media side? There will be two parts. In H2, we arc going to have a better product mix. So, one of the new products would get launched, we expect this in Q4. And we have got a strong order book on the NCE molcetie also. So, we should be in a position to improve our performance in H2. When you say a new product and NCE, are they two differcnt products that we arc speaking about or the same product? Itis the same product. So, when you say better product mix, what do you really mean by that? Earlier, if you look at our H2, in addition to the couple of products what we have commercialized, you will have a bracket of 5 to 6 products, including some of our old products, which are actually getting traction. So, in terms of volume, if you look at contrast media as a segment, we belicve we should be in a position to come closer to our last year’s numbers.

Shiven Aror

Shiven Aror

Shiven Ar

November 04, 2024 We still hold that we will do, because of the new product launches and traction in the cxisting product, we will be able to produce the same volume as the contrast media, despite the first half being slightly softer. Another related question, Ganesh, there is a INR42 crores increase in the stock in trade in the first half. This is a normal situation, would have books as a revenue? That's actually the raw material cost. This quarter also, the sales cut-off is almost close to INRI100-0dd crores. So, this sale will actually flow in Q3. Predominantly, the contrast media. ‘When you have this incoterms delivery at place, we can recognize shipment only when it reaches the customer's place. So, tll then, it will be shown as book-replacement. This INR42 crores otherwise would have been revenue, right? Which are because of the Red Sea issuc delays the delivery, is not getting recognized as revenue, correct? You are right. In a normal course, would that be a revenue for us in the HI, correet? We have already invoiced; it will be recognized in next quarter. On the contrast media side. We were anticipating one product on the Todination side. Where are we in the process for that product? ‘We had very encouraging diseussions during the customer mects and the trade shows recently. As indicated in our last call, the validation is successfully completed. The validation is completed? We are expecting to scale up in Q4 this year. So, that supply also will start up in Q4? We said NCE in Q4 and this one also in Q4, Shiven, right? That's right. For NCE, there is a proper PU. But for the Todinated product, we still don't have a PU. We are through with the validation. Is that the right understanding? That is absolutely the right understanding. And it a matter of time when we communicate this propetly in the next call. One on the pharma intermediate side. We said that we have started production in the Unit plant in September. But revenue appears to be flattish. The shifting has not happened and hence the production and revenue recognition, there is a lag. Is that the way to look at it? And the sccond related question is that, I think, Shiven, you mentioned in your opening rematks that by Q3, Q4, we expect to completely seek out the utlization. That means this 120 kI will reach a peak utilization and the revenue recognition in the two quarters? Shiven Ar

November 04, 2024 Yes, that would be the aspiration. I think we are inching towards it. Month-on-month, we scc improved cfficiencics and better experience when it comes from a seale-up standpoint. So, in the next two quarters, I think we should ramp up to our customers' expectations. Basically, there is an order book for the full plant. I¢s just a process we have to complete. And once we start producing it at an optimal level, we are good to go. There is no problem with the demand side or the book side? Absolutely, we have confirmed orders on this particular candidate. And the last question is on the two ofher products in the pharma intermediate would aspiring, one was for oncology, one was for parkinsons. Any update you want to share on those fwo products? So, the discussions with the customers are very encouraging: I think in the next call, we will have better feedback around these aspects. The next question is from the line of Sudarshan Padmanabhan from JM Financial PMS. Hi, thank you for taking my question. Just taking from the carlicr participant on the confrast media side, if my understanding is correct, apart from the new product, the NCE, our existing clicnt was also expected to expand the capacity? I mean, which is also the reason why we had seen the first quarter and some of the carlier quarters, some kind of a shutdown where they were expanding the capacity, ctectera. Can you give some color with respect to whether the cxpanded capacity is in place? When is it expected to start supplying? T'm not in the right position to answer on behalf of my customer, but I feel the overall traction in the market is extremely positive. The usage of contrast media and especially with these market leaders is increasing. So overall, Ifeel that we are well poised for a positive future going forward. On the pharma intermedate side, ifyou can give some color because you have talked a lot about the sealc-up whichis going to be visible from the existing products and also the pipeline. Imean, we understand that oncology product, Parkinson's product, which is yet to hit the commereial in a visible way, the cardiovascular is of course going to be the driver. But beyond this, if you can give some color with respect to the pipeline, I mean, you should not necessarily give a number as such, but how many molecules arc in the Phase 3? How many molceules arc in Phase 2? How do you expect the progression to happen in that way? Can you give some color with respect to the next 2 to 3 years? So, in this segment, as we mentioned in the last call also, we were tracking about 8-10 opportunities. Two of them are currently commercial, but the full scale, for them to evolve, perhaps quarter 4 will be the right time to speak about it. But we are tracking those opportunities and after the conference that we had in Europe last month, I think we have some more very credible opportunities with very high conviction. So, I think in all, we are looking at 12-15 very high conviction opportunities in the space that you spoke about.

November 04, 2024 So, one final question before I join back the queuc is, when I looked at this cardiovascular molecule, I mean, it would be probably the only non-stacking product to reduce cholesterol. T mean, T understand that we have set up the plant and it is expected to ramp-up. But if you can give some color with respect to the next 2 to 3 years, are we having enough land, enough space for us to add additional wmits if it s required? Do we sce potential of this product being substantially bigger than what currently we are secing in the next few months? See, we have currently in our plant 6, we have putup huge capacity: So, I think we have capacity to take care of the current demand and any uptick in demand for the next couple of years. So, we arc in a very good space as far as this molecule is concerned. As far as the outlook for the product is concerned, I mean, I would encourage you to go to, a lot of data and public domain. T think the molecule is very well poised to be a blockbuster. Yes, sure. And one final, [ mean, if am looking at the margins in this quarter, I mean, of course, the mix was very favourable on the gross margin side and operating leverage. I mean, from a longer-term perspective, I mean, what should we be looking at as a steady state margin as the molceule kind of sealcs up? Some coler if you can give. See, based on the current portfolio, I would believe the margin would be in a similar range, maybe plus or mimus 2%. So, this quarter, because of a higher goods in transit, normally the overhead gets capitalized. So, the margin is marginally higher. So, T would actually take it somewhere around 53% to 55%. And that should be a reasonable estimate for the cwrrent product mix. The next question is from the line of Sanjesh Jain from ICICI Securities. I have a couple of them. Sorry, I had to follow up. First, on the chemistrics, which you spoke, VK sir, on the enzymatic process and few other process. I think enzymatic process is something which s becoming very popular in China, and they are significantly reducing the cost of some of the molecules. Are these, in the exploratory stage, are we developing any serious capabilities here? And have we got people who have experience in the R&D for this? So, how are we looking at these new chemistrics and what are we doing to sealc themup? Sanjesh, our reason for looking at these chemistries, particularly this enzymatic chemistry, are two. One is that whenever there is a chemistry where there is chiral selection involved, then the enzymatic process is significantly more cffective than a regular chemical synthesis process. And the way we sec business move, the direction in which the RFQs and inquirics are going, there will be a lot of molccules in that chiral sclection space where we believe that enzymatic chemistry is going to be better. The sccond thing is that as you know, the type of business that we ar in, sometimes the cfflucnt is very high. And when we use enzymatic process, then sometimes, the fflucnt in the cnzymatic is sigaificantly lower. I mean, the ratios could be as high as 1 is to 50. So, if we were gencrating

November 04, 2024 50 in the regular chemical process, in the enzymatic, it becomes 1 litre or whatever per kg of output. So, these are two reasons for which there is a propensity in our R&D to move towards the cnzymatic processes. As far as capability is concemed, then we have built up that capability. We have further strengthened that capability. And if you would sce the IP space, we have filed a couple of patents also which are leaning on the enzymatic chemistry. So, we are in a good space as far as that part is concerned. Tam telling there is no commercialized product as of now, which s just this process. As of now, no. But, maybe next year, yes. We are vary close to commereializing this work We are close to commercializing, yes. And will it be for a general product, import substitution or again working as a COMO? Are you speaking about this particular chemistry? Yes, this particular chemistry. Ttwill be both. Okay. We are planning for more than one product. Yes. T mean, this is just a platform that we have developed, and we will be evaluating, this opportunity in many, many places because one thing that I forgot to mention was that sometimes the enzymatic is far more cost effective also. Cost effective is well taken, because I think the costs have drastically reduced and some of these processes and that is what is disupting a lot of phama intermediate space. So, T was speaking on GLP-1 in context to our cardiovascular product. Do you see in a medium term any redress because when public reduces their weight, it ultimately reduces their cholesterol level that means the requirement for these preventive cholesterol measures become less in demand. Do you sce the GLP-1 having the entire impact in the medium term on the demand for our cardiovaseular product? So I would say that what you are saying is clearly one line of thinking today, because now we are not looking at cardiovascular and all that. We look at it as one big picture which is cardiometabolic. So to an extent you are right, but then the molccules in pharmaceutical it is not common to see obsolescence.

Tanya Kothar

November 04, 2024 The second point is that the product that we are talking about is actually the first linc of reatment. It is quite possible that these GLP-1s may not for several indications be the first line of treatments. Besides most of these GLP-1s will be injectables. And then even if there is a GLP-1 which can be positioned head on with this molecuile, it s a category. So this molceule will be competing more with - the statins will be competing more with czetimibe which is a non-statin lipid lowering product. So I don't really see why anything should change from the projections that we are talking about. Besides anything to gain traction. Right now, the type of GLP that you are speaking about that can go head on with the product is not there on the market. Lt us say in two years, something is in Phase 3 it comes, then the outcome trials will be needed which means that we are at least four years away. So I would say that for the molccule that we arc speaking about without taking any names, the generic competition will be more credible than the comptition from anything of the sort that you are mentioning. But you bring out a very, very valid point and we completely appreciate that. The next question is from the line of Amish Kanani from Knowise Investment Managers . Question is if you can remind us of the capex that we have alrcady done in the first half and the remaining capex that we are likely to o in the second half and next year. And a related question will be, given that we are secing it in the opportunities looking at any incremental capex beyond what is already budgeted? Yes, so I think we are on track for our capex plans. I think our initial guidance was, on a basc case, INR200 crores annvally. But we arc also cxploring other options from a manufacturing footprint standpoint. So we maintain our guidance. Okay. And sir, looking at the scale-up in the revenue and plan scale-up in the second half, what should we pencil in directionally as an EBITDA margin? We have kind of done 30%-odd in the first half as blended, but second quarter was 33%. Given that there is a scale-up, any indication of what kind of EBITDA margin should we be looking at dircctionally, if not a precise number? We don't give guidance on the future. You can actually look at our historical mmbrs. The next question is from the line of Tanya Kothari from AUM Capital Markets. Please go ahead. T have just two questions, and that is with the contrast media. There is an inerease of 25% scen this quarter, and there were cortain factors that there was a transit-based resolution that contributed in the last quarter. So the revenue - how much of the component is due to transit delay, and how much was the jump due to some other factors in the contrast media? This goods in transit is an ongoing topic. Normally, we used to have 30, 35 days of transi, but because of the Red Sca issucs, now it has become 55, 60 days. So you can almost say that our transit time has doubled after the war situation. So what we try to o is cnsure that we arc able

Tanya Kothar

Himanshu Duga

November 04, 2024 to maintain transit stock at similar levels, but last quarter was higher, and in fact, this quarter, it is much higher. Soit all depends on customer offtake, and in temms of transit period, we consider somewhere around 535 to 60 days. So this all depends on the offtake from the customer, and this cannot be predicted in advance. Okay, sir. Sir, docs the company anticipate a normalization in the growth rate for this particular segment, including whatever issucs with the transit is? What is the kind of growth rate we are expecting in the couple of years, if the same sifuation persists? See, ke, the transit is not actually a, one should not really worry about the transit issucs when you look at the long term, because you have an opening and a closing goods in transit, so gencrally, it should iron out. So technically, that to me is not a concern. What you should be actually like looking at is more on the product launches and the opportunities what we have on cach of these molecules. Just one question, that is regarding the margins with cach segment, like product mix, we know, like 55% from contrast media, sweetencrs around 16%, but what is the kind of margins cach segment is, can [ have those data sets? Based on the current product mix, I had already mentioned that plus or minus couple of percentage, we should be able to maintain this margin for the current produet mix. Okay. The blended margin should be between say 35% to 40% or 38% for the anmual ifyou look at this? No, we camot give a guidance, but you could actually evaluate based on your historical performance. The next question is from the line of Himanshu Dugar from SafeGainz Advisors. I want to understand a bit about the timing on this, the volume and revenue recording for the contrast media business because I understand in the last quarter as well as we had some kind of lag in that there was a delay and then something would have accounted this quarter. And similarly, I think last year also there were some similar issues. Could you just help us understand how the accounting works? See it's driven by the Incoterms like whatever contract we have, the contractual tem if it says the delivery at place which means you cannot recognize a shipment till it reaches the customer destination. So this is the first part. And the transit time has actually like significantly gone up subsequent o this war situation. So what used to be a 35-day timeline has now become 55 days to 60 days. And so like if you're familiar with the commercial terms, when you say delivery at place, only when it reaches the customer destination, we can actually recognize it as sale. And most of the contrast media customers would like to have delivery at place as their contractual terms for delivery. Himanshu Duga

Himanshu Duga

November 04, 2024 Understood. So just as a follow-up like if you go back to the last quarter's comments on some amounts, could you just broadly highlight what was the revenue impact which shifted from last quarter to this quarter? It will be around INR60 crores to INR70 crores. And when we think on a like-for-like basis versus the last year that is FY '24 second quarter, how s it like are we input inreased on. T donit have that info readily now because that's a last year number. I think what you should worry about s the sequential number. On the margins. So I think previously couple of times you commented that because of the plan in the volatility and the raw material prices also have significantly contributed in the overall ‘margin volatility. In this quarter, how was it like, was again the raw material prices going up and hence that somewhat on a Y-o-Y-basis I'm asking this question. Did it impact the margins or there arc other factors at play? No, margin raw material prices for our key raw materials were more or less consistent. We didn't sce any high volatility. The top two, three raw materials remained more or less stable. So what would you call it attribute the margin decline to them? No, compared to on a year-on-year basis, the margins were same 55% and during this quarter, it went up by 2%. So currently it is at 57%. The next question is from the line of Aditya Chheda from InCred Asset Management. Can you help us understand the degrowth that we've seen in contrast media for HI to break it down between volume and realization and what arc the factors that drive realization in this segment that would be helpful? There is no significant price variance. It purely volume variance. We have actually talked about two reasons. One of owr customer off-take during this year is lower than the previous year because of certain reasons which we had alrady highlighted in the carlicr calls. The sccond impact is on the transit. So these two impacted. I think one should not really worry about the transit delays because it's just a delay of a quarter. ‘What you ship this month gets actually like recognized as tumover in the subsequent month. In terms of off-take from the key customer, we had already indicated the calendar year 24 is going to be a little bit subdued and we belicve this the offake from this customer in the next calendar year, we should actually get back to the old levels. Got i, sir. And any comments on what drives the realization? Is it purely on product mix incrementally for us or the realization is usually stable for you or volatile if you can help us understand that in this contrast media? @ BLUEJET HEALTHCARE Blue Jet Healthcare Limited

In contrast media, technically, we have not seen any significant price erosion. So generally whenever there is a volume discount, it is generally offset by rupee depreciation. So we have actually not seen any meaningful price erosion in contrast media. So you can actually attribute cverything to volume variance.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

I think we would like to thank all the participants, and we will look forwardto hearing from you in the next call. Thank you very much.