Morepen Laboratories Limited analyst Q&A

Yes, sure. Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Purva Jhaveri, an Individual Investor. Please go ahead.

Yes, congratulations on the good set of numbers. And I just had one question regarding the EBITDA margin. So on a blended basis, what will be the EBITDA margin going ahead?

Purva, we do not, of course, give overall specific guidance, but as I shared that with the increased investment in backward integration and with better buying power of the raw materials and, of course, a lot of investment in R&D, our EBITDA margins are expected to go 3% to 4% over a period of next two to three years and now this year, for example, is around 12%. So we are expecting it to go to 15%, but I'm not saying in next quarter or next year. So this is a process and a journey and we are not allowed to speak much on the future projection, but I'm giving you that, okay, this is how the trend is expected to be. And we are seeing the past trend from last year around 7.89%, we're moving to 12%. So there's a substantial increase in EBITDA margins.

Okay. Thank you. And another question was on the ca pex side. So what is the capex outlay going ahead, like, as you raise the QIP? So what will be the capex outlay and how it will be going?

As, Purva, you may already might have seen in the presentation, so 61% of the money, around INR123 crores, is being used for the capex and out of which around INR75 crores is for the -- INR78 crores is for the APIs, for the increasing capacities of the APIs, from 400 KL to 600 KL. And then around INR43, INR40 crores is for the medical devices, where we are in creasing capacity of the glucometer from 2.5 million to 5 million, glucose strips from 500 million to 700 million and BP monitor 1.2 million to 2.5 million and API capacity from 400 KL to 600 KL.

Okay, sir. And sir, just one last question from my end, regarding the tax rate, sir.

Regarding the?

So can you just -- regarding the tax rate. Tax rate.

Tax rate. Yes.

Yes. So can you just guide on the idea of tax rate, what will be the tax rate going forward?

Ajay, you can help that?

Hello?

Yes, Ajay, go ahead.

Yes. I think tax rate currently, we are having around 26%, so we should be maintaining this much, because we'll be doing capex next year, so that effect will come in, say, '25, '26. So more or less whatever tax rate is coming, that will be maintaining.

Okay, thank you so much.

Thank you, Purva.

Thank you. The next question is from the line of Sunil, an Individual Investor. Please go ahead.

Good morning Sir, Regarding the -- in last previous quarter, you have mentioned that one of our competitors is exiting about the Indian market. Any update about that, sir?

Competitor is exiting?

Yes.

Yes, Sunil, in medical devices, in glucometer line, we had told that there is no official news about it, but Roche has upfolded its sales team into their diabetic team. It's the media news. And certainly, they are in an attempt to only focus on the distribution of the strips and meters to a distributor, and they are trying to reduce the focus on the sales team, and that's only a media news. So I do not have any official confirmation from them, but yes, that's what is our reality. But in the market, w e know that we are getting more and more shares, and the competition is really -- the main competition is really, really noticeable.

Thank you, Sunil.

Thank you. The next question is from the line of Sakshay, an Individual Investor. Please go ahead.

Many, many congratulations for the numbers. I have simply three questions. The first one is, since we have so much in cash in hand right now, are we looking for any acquisitions in the upcoming quarter?

Certainly, as per the QIP plan purposed, we do not have any immediate plan because the money has been raised for the capex and of course for the working capital. But that does not mean that we are not open for acquisitions. If we get a valid acquisition, it adds to our synergy and it adds to our strategy, so we certainly will be able to do that. But if it's an immediately on hand, we are evaluating multiple things, but certainly we have to see the cash surplus if we have surplus to acquire. But certainly, we have to come back to you in case we have some any bigger plans. But as on today, we are certainly looking for more of a capacity expansion. And if we get some readymade plants wherein which meets our standard and strategy, so we are open. But we do not have any big financial outlay plan for that out of the existing QIP.

Okay, excellent. And any upcoming launch in the OT and finished product segment?

There are multiple launches, but I do not have any ready data with me. And of course, the major product in OTC, which we can talk, is we are launching a weight loss product. Weight loss and obesity is the biggest category these days globally and even more so in Europe and U.S. India also is trying to copy. So we have a product coming from U.K., which we have assigned a joint ventures and they will be supplying the basic ingredient and we will be doing the product distribution, marketing and everything in India. So this wo uld be launched anywhere between September to October. We try to catch the festival season, but we are still at least a month, month and a half away. So that's a big thing for the weight loss category. Because most of the companies are focusing on the doctors' chamber and of course the products are very costly, semaglutide, liraglutide. So many products are being talked and there are injectables also. But we have seen the trend, the consumer still wants something at home in the comfort of home, which he can follow at peace. And according to his guidance, nobody wants to be treated by a doctor for weight loss. Weight loss is more of a lifestyle issue. So certainly, whenever we have an update, we'll come back to you. Thank you.

In the international market, as we shared in the previous commentaries that we are looking for exports and certainly for export market, we have to develop large capacities and of course go for backward integration. So we are working on the backward integration. Of course, now not a part of this QIP, but in general, we are going for backward integration for the strip manufacturing. So of course, we are already doing most of the backward integration of the electronic part. But once we do that, so we'll have a large base for the capacity and we have already been in dialogue with Walmart, Walgreens and CVS of the world and I'm not saying any specific name, I'm just generally telling these broader names. And one of them has already visited our facility and they have started auditing the facility. One company from Korea has also done the audit of the facility. So basically, at a larger level, their capacities and their requirements are huge and we see that India is just the tip of the iceberg and we are just, I would say, 3%, 5% of the market. So if we open the global market, which has a huge capacity, so we have the whole world with us. And that's where we see a lot of big opportunities.

Sir, that's it from my side. Thank you. And congratulations again and best of luck for your future endeavors.

So nice. Thank you very much. I appreciate.

Thank you. The next question is from the line of Abhishek Gupta, an Individual Investor. Please go ahead.

Thank you for the opportunity. My question is regarding medical devices, like other than gluco and the BP. What are the sales and the growth that we are seeing on the other devices like the pregnancy kits and all?

Yes, Abhishek, as I shared that we this is a very fast-growing business, rather the fastest growing business in our kitty. So we have been growing at 27%, 28% CAGR year-on-year. And last year we grew 35%. But that actually was not a part of the CAGR, which is overshooting. But this year we have grown 21% in case of devices business as a whole. And wherein BP monitors have grown 20%. And I'll just pick the number for the glucometer also. Glucometers have grown 17% and BP monitors have grown 20%. So going forward -- BP monitors have grown 29%. Going forward, we expect the same CAGR to continue between 20% to 25%. And God willing, once we have increased capacities and we are able to have connect with the global market, so we can expand and grow at a much faster pace. Very promising line this, Yes.

Look, Abhishek, certainly, we are in the market. We are in the trade. We are there at the 128 retail outlets. We are there in the market. So we don't have to take any major extra steps to capture that because if the other product is no t available at the counter and we have the best alternative available, so customer certainly comes to us, as Dr. Morepen, we have established. But you're right, we still have to have some extra marketing efforts and everything. So last year, we had a big campaign with Rahul Dravid and on both BP and glucometer. So this year, I don't know, KBC is the most prestigious show in the country and of course most watched family show and Amitabh Bachchan is personally leading the show. So we have our display ads on KBC and I don't know if you have noticed. So on the desktop, which is in front of Mr. Amitabh Bachchan and in front of the candidate also. So both places, you would see Dr. Morepen's glucometer. So this is the best we could have done. So well, it's just the beginning and we are certainly keep on exploring that, okay, how do we get to more market share? But I would say advertising alone is not enough. We have to have service, we have to have relationships and we have to have backward integration, we have to have cost saving, and more importantly, any technology of development. So there's a lot happening and certainly the whole idea is that if it's growing despite all these things, there is something right we are doing.

Sure. Got it.

Thank you, Abhishek. Thank you.

Thank you. The next question is from the line of Tushar from Motilal Oswal Financial Services. Please go ahead.

Yes. Sir, just extending on this medical device piece, so maybe like over next one to two years, which region would be the focus area or which region we are already established if you can elaborate?

Tushar, the way I look at it, of course there are two broad markets, India and exports. So India market has a share th at we already have 128,000 retail outlets and we are going up to 3 lakh retail outlets in next three years' time. And major is that of course, as in today, the company is still dominant in North and East. So we still have a lot of work to do in South and West and we need to keep on working for that. And for that we need to have more distribution, more reach and more of, I would say, retail coverage over there. So we certainly need to expand our market reach and once we have all India reach, without doing much, our top line and our reach would increase. But important here is that India market is still in the nascent stage. So we -- even if we grow at 25%, 30%, it's fine. But if we get global market within the next two to three years' time, so we will get a much bigger jump. So I would like to say, for next three years, it is going all India in a big way.

Backward integration, Tushar, is already on and we have already done the civil part. So during this financial year itself, the backward integration of the chips would come. And of course, the expansion of capacities for BP and gluco thermometer and weighing scales, all is happening, as we speak. And this certain ly will keep on seeing the results from Q3 onward, Q4 onwards. But the backward integration chip manufacturing, which is more of a technical part and we are working with our counterparts abroad, I'm not sharing the news. So we are working with them, and at appropriate time when we have a news to share, certainly we'll come back to you. But that's the main event the company has in this cart.

Understood, sir. And then on the API side, is this like the price is softening across the geographies or is it more certain region-specific? And secondly, is it across the products or is it certain product-specific?

Tushar, what had happened is that during the COVID time, China was acting very pricey and very, I would say, strategi cally they were trying to increase the prices, and of course, we were blaming them for COVID and they were making all the money there. So they had jacked up the prices of almost all the intermediates. I'm not saying that our product or all intermediates, whether it is paracetamol or it is ciprofloxacin or diclofenac, I mean, everything had become costlier and our revenues had also jumped. And honestly, customers were also paying high price because of the COVID, because of the panic. But this was very tempo rary and China got a big, I would say, slap on their face when everybody started boycotting China. And on the other side, post-COVID, demand had slowed down. So all their high-value items, all their pricing things came to a stop because nobody was buying, because there was no demand. Post-COVID, there was a lull. So now the position of China is that they are sitting on full warehouses, fully-stacked warehouses and there are no customers to buy because the demand was not so much as was at the time of pressure in COVID. So there is an overall drop in prices in the -- in China and that softening has helped us to regain our price levels. And rather, we have strategized in such a way that, okay, we should be able to increase our margin. So we, last year, our g ross margin was higher. This year -- this quarter, it's certainly higher. So certainly, going forward, we do not want to depend too much on China. But yes, that's a global phenomenon. So it may keep on affecting. The whole idea is, for example, in medical devices, they're trying to bring everything in India so that we don't depend on them. We all know what happened in medical devices. So that's where government of India is caring now that they want to put everything in India.

Yes, sure. The next question is from the line of Dhaval Jain from Sequent Investments. Please go ahead.

Yes. Sir, I just wanted to know that we are d oing a capex of INR123 crores. From that, INR78 crores is for API and INR40 crores to INR45 crores is for the medical devices. So can I know the asset turn that can be a potential from all these capexes for API as well as medical devices?

Ajay have -- you're asking about the asset turnover, is that right, Dhaval?

Yes. Asset turnover for the capex, yes.

Yes. Ajay, you have the numbers with you ready?

Yes. So asset turnover for API, we have 7.2. So we shall be able to maintain this asset turnover. In the future, maybe we'll improve our asset turnover. We are putting the new modern machinery so that will really enhance. And because we are putting capex at one point of time, we will improve the efficiency level as well. So asset turnover definitely will improve.

So 7.2 for API and for medical devices?

Medical devices currently it is quite high because it is around 10.5. But as we do more backward integration, so it will stabilize around 9 or something, 8.5.

Sorry to interrupt. Mr. Dhaval, can you just mute your line while the speaker is speaking? There is some disturbance from your end.

Yes. Sorry about that. I just wanted to know what are the margins that we aim to maintain for API and medical devices? Is there a ratio on that? Or do you just have a blended margin that we always support?

Ajay, do you have the numbers?

Yes. You are talking about EBITDA margin for API business?

Right.

And devices? Yes.

Yes, pharma as a whole. Pharma and devices as a whole.

Yes. pharma as a whole, because this quarter we have done EBITDA of 12%. So going further, for this financ ial year at least, so we should improve from 12%. And going forward, we are targeting that it should improve at least by 3% in another three years' time. So that is for the overall. So EBITDA margin will definitely improve.

Yes. In fact, for pharma business, we have EBITDA margin of currently -- one moment. We are targeting for this financial year EBITDA margin of around 10.5%. For devices, we are expecting EBITDA margin of around 15%.

Okay.

Yes.

Okay, sir. Sir, just one last question. What are the working capital days for the medical devices business?

Yes, working capital, if we see the last financial year, the working capital days were around 70- odd days for devices business. For API, it was 90 days -plus. So I think we should be able to maintain these numbers as we go further. Maybe in devices, because we are doing backward integration, the working capital will go up as we do more in-house manufacturing.

Yes. Dhaval, on the working capital, I may add that we had a very interesting position in medical devices because we sell on advance payments. So we were getting credit from China and Korea, and of course, selling on advance payment. So virtually, we were working on a negative working capital for the medical devices for a very long time. But now, since we are going more backward integration, like Ajay said, so our holding time increases and certainly we have to hold inventories of raw material, work in progress, and finished goods, everything taken together. There is a nominal increase in the working capital, but it pays back because we have better margins.

Right, sir. Right, sir. Sir, just one last question. For the medical devices, like we sell glucometers and for that we sell strips. So for one glucometer, how many strip sales happen, like if there's a ratio for it?

There is no specific ratio, but certainly we have an average. So that coun try average is low. If we take last three years average, that what numbers you have sold on the last three years, what meters we have sold in last three years and how many strips we have sold. So it is almost 50 strips per meter per year. So basically, once a week people check 50, 52 strips, so once a week people check sugar. But if we simply see based on the current year meter, for example, last year we sold 24 lakh meters, so we had sold 36 crores strips. So on a one year basis, it's 150 strips per meter. Very good. So we are assuming that a three year average shelf life or maybe if we take two year shelf life of a meter, shelf life means people actively using, shelf life is like 10 years, 20 years, it doesn't get spoiled. That's a broad number. 150 meters we sell for every strip, every -- 150 strips for every meter we sell every year.

Right. Perfect, sir. Sir, thank you so much for that, and all the best, sir.

Thank you. The next question is from the line of Pradeep Singh from Finterest Capital. Please go ahead.

Thank you for the opportunity. Sir, can you give me any ball mark number regarding revenue for FY '25? Hello?

Yes, please. We certainly do not give the guidance. But Ajay, you have some estimated numbers? And I feel like we'll continue growing at 15% to 20%.

Yes. We should be able to maintain at least 15% to 18% revenue growth.

Thank you, sir. Thank you so much.

Thank you, Pradeep.

Thank you. The next question is from the line of Kunal Prakash Shah from KS Group. Please go ahead.

Hello Sir, I wanted to ask you. Yes. Your company works in APIs and advanced chemicals. So your competitors have started a new segment for the manufacturing of electrolytes for electric batteries. So are you interested in doing something related to that in the back-end? Are there any announcements yet to come? Or are you interested in it right now?

Kunal, you have raised a very good question. And if we talk in Hindi the hottest topic right now is what else can be done. But I would say, as a part of the strategy, there's nothing in our hands right now. Certainly, we keep doing R&D and many such things. But we keep if something comes up, certainly we will be talking. So we have studied this market for EV and everything together. But certainly, since we are already doing medical devices and we were short of capacities and everything, our whol e idea was to focus on what's in our hands. And then after that, we can go to whatever the whole world wants. But as on today, there's nothing on the cards, but yes, once we have some good news, we'll certainly come back to you.

Okay, sir. Thank you.

Thank you, Kunal. Thank you.

Thank you. The next question is from the line of Sunil, an individual investor. Please go ahead.

Hello, sir. Thank you for giving me a chance again. My question is regarding marketp lace channels like Amazon. We have very good rating and reviews and almost we are of the -- almost top selling products in the glucometer segment. I read many reviews and mostly about counterfeit products on Amazon for glucometers. Are we doing anything to control the counterfeit -- or issue of counterfeit assets?

We have certainly added the new holograms and we keep on changing the packaging. And last year, we even changed the packaging of the BP monitor. We tried to change the color of the pack. Sometimes we make orange meters, sometimes we make blue meters so that the competition doesn't copy. But these sort of, I would say, unethical things people keep on doing. But we always encourage people to go to hologram and there's always a customer c are number and you can always compare the batch number. So Government of India is now coming with a guideline that, okay, you can scan it and check with your QR code. But honestly, our customer doesn't make an effort to scan and go and check, and of cours e, the competition is there. So we are trying to work out that, okay, we should have a foolproof packaging. And I appreciate your concern about it, but we always say on the lighter side that if your products are being copied, it itself means that you have established a brand. But sometimes it spoils our reputation. So we'll certainly working on the new holograms.

Okay. Thank you. That's it.

Thank you, Sunil.

Thank you, as there are no further questions, I would now like to hand the conference over to the management for closing comments. Please go ahead.

Thank you, Shivangi. I would like to thank all the shareholders and I would say old and new shareholders who might be present in the call, particularly the new institutio nal investors for being so patient and thank you for reposing all the confidence in us. And I'm extremely sorry for all the hiccups of -- due to not a better-quality call, as we love that. We are -- I would only like to recreate that it's a historical mome nt. We have entered Morepen 2.0 phase and we are confident that there is no looking back now. Thank you very much guys. Have a wonderful day ahead.

Thank you. On behalf of Motilal Oswal Financial Services Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.