Poly Medicure Limited analyst Q&A

The first question is from the line of Jaiveer Shekhawat from AMBIT Capital. Please go ahead.

Mr. Baid and team, congratulations on another great quarter. Sir it was very nice to see your team at Arab Health recently, driving the fairness of Poly Med brand. Could you highlight some of the initiatives you are taking apart from, say, persuading these exhibitions to promote acceptance of Poly Med brand across more regions in Europe and outside that as well?

You have a great question, and thank you for visiting our stand at Arab Health. So I think as you've seen at the stand, we were trying to push concepts. And we were not talking about products there. We were talking about that, okay, if you are looking at infusion therapy, this is the concept we offer for infusion therapy or for renal or for blood banking. And I think you have seen that across or of oncology or for diagnostics. So the idea was to sell concept to customer that we are a total solution provider under this category of products. And that's why you should lean on our company. So that was the message we were trying to give. We also launched our cardiology products. You must have seen that. There was a display for cardiology also. So as we are speaking, we have done that. I think the response was good. And I think the idea is to stand out from what other people are doing. And that is helping us to perform better and better, and I think that was all idea at Arab Health.

Sure. And sir, you highlighted in your opening remarks that your domestic business growth has been lower than anticipated. So one, could you explain why was that the case? And then also, what is it that you're doing to sort of address growth going forward?

So see, the growth was only 18.5% as compared to 21%, 22% we were targeting. So I think that drop in growth is probably due to seasonal issues or maybe because normally, winter season is a healthy season. So we have seen a little drop in demand in domestic market, which is very marginal. But I think also we are going to put more people on the ground. And as new divisions are lining up basically. So, we should be, and we have started small sales from the new division already and it is in our buildup sale. So hopefully, once this new division on track in the next few months, we and again, the plan for next year is and renal is also going to grow a lot faster because renal this year has grown only by 21%, 22% overall. So, which was supposed to be around 30%, 35% because of the regulation and the Chinese imports. But now we see a good traction going forward. We've already seen some changes in the market. So next year projection for renal is already 50% growth. So from 20%, 22%, if we are going to 50%, so everything will pull up. And these 2 new divisions will also contribute. So overall, I think next year, the target is to grow by around between 22%, 23% in domestic business.

Sure. And sir, given the high amount of cash on your balance sheet, I'm assuming must be over INR150 crores plus also a lot of operating cash flows that are being generated, so any sense in terms of how you're thinking about deployment of these over the next 3 or 4 years? Because your capex needs, I'm assuming will not be much. And also, if you can highlight about, say, operationalizing of the new facilities. You said you are yet to receive some of the molds and plant and machinery. If you can just highlight that.

Yes. So on the cash front, we basically we’re still on a high capex cycle. As I mentioned, in first 9 months, we have spent around INR185 crores in capex. And then the plan was to spend close to around INR 200 crores, INR 220 crores for the year, but we may exceed that plan. And maybe spend around INR 230 crores, INR 240 crores. And also next year, because as these new plants are new, we'll be adding more equipment machines. So maybe next year also, we'll probably have a capex of INR 100 crores, INR 150 crores, and we are setting our own gamma sterilization facility. So that will also go live in maybe end of sometime end of next financial year. Just to mitigate our risk for our dependence on outside vendors. So currently, we are having some heavy cycle, we'll go to a moderate cycle. And hopefully, by the end of next year, the capex deployment should kind of taper down. And we hopefully would look at inorganic opportunities. I think that's the one we should look at. And what's your second question? Sorry, I forgot.

No, actually, it was around deployment itself and then the facility is getting operational as you've highlighted...

I think facilities are getting operational already. So, we are getting more machines because we have started already. So initially initial 1 or 2 years, we started 30%, 40% utilization, and then scales up to around 50%, 60%, 70% as time progresses. So that is where we are. And I think this will continue to rise only, the capacity utilization.

The next question is from the line of Harsh Mulchandani from Kriis PMS. Please go ahead.

Congratulations on great set of numbers. Just wanted to understand that like you mentioned in the opening remarks also that we are awaiting contracts over $15 million, $20 million. Can you help us understand what kind of discussions are going on and what has moved in the last 6 months pertaining to these discussions?

So, this is what regarding the U.S. business. We already have the contracts in place. And this is all about now starting so we have started selling the products to the U.S. market. And we have received our first clinical feedback from the customers because you can't sell anything without getting the U.S. FDA approval. So we have sent the first products. We have some got the feedback, and we are now working on some improvements on the product based on the feedback we have received. And hopefully, in the next 1 or 2 months, we'll start sending shipments out of the U.S. and bigger shipments. And this is a buildup so the $15 million to $20 million is a buildup over the next 3, 4 years. So end of, let's say, FY-28, our U.S. revenue would be close to $15 million to $20 million year-on-year basis.

Got it. Got it. And one other question was any reason to give a guidance of 20% next year when we are seeing a good ramp up possible in terms of the new business and...

I think we start at a moderate number and then we can revise as I said, after end of Q1 or early Q2, we'll definitely make a revision and then start with a moderate number with the current situation vision. And I think we should be able to do better only. So let's start with the number, which we think is really achievable. And then we’ll even for this year, we did the same thing. We were at 20% in the beginning. And then during the end of first quarter, early second quarter, revise the guidance of 22% to 24%.

I'm audible?

Yes, please.

Congratulations on a great set of number. I just want to know that what will be our tax rate for this 9 months?

Nareshji, can you answer that point?

Our tax rate is 25%.

Okay. And sir, what about the renal business, if you can share the quarter 4 number or 9-month number for this year?

Yes. So the renal business will do almost INR90 crores this financial year. And out of that INR90 crores, probably we have done close to around INR62 crores, INR63 crores for the first 9 months.

And 9 months of last year?

So we have totally 22% growth, roughly on this business.

Okay. And one question, sir. Sir, U.S. contribution, if you can tell me that how much of the U.S. sales are currently if you had begun U.S. sales?

No, it's a very small number right now. As we have just started the business. Yes. So it's not worth mentioning right now on the call.

And sir, dialysis machine, you said you'll add 200 dialysis machines by FY-24. So currently, how much has been added and if you can give numbers?

So we don't give numbers like this. So in the middle of the year because that's a very sensitive information from a competitive point of view. So we are in line to deliver 200, 250 machines for the current fiscal. And next year, as our made in India machine with local board local content gets launched, so we'll be able to ramp up these numbers more faster.

And Europe growth in contribution, if you can share?

Europe, sorry, which contribution?

Europe sales contribution.

Europe is 40% plus revenue order of exports revenue.

The next question is from the line of Vishal Manchanda from Systematix Shares. Please go ahead.

Well, this is a very different number, Vishal, to share because it's a very widely held. So number would be 3,000 plus or even more, actually, or even 5,000 because we don't track end-to-end because a lot of distributors are selling products directly into the market and through the trade channels. So end-to-end, we don't drive, but actively, we track close to around 300 to 400 top hospitals in the country.

So that is where you would be directly reaching through your own sales force.

We will be reaching though our own sales force, but the supply chain is managed by the distribution partners.

Understood. And again, on this on the domestic business, like if you could share as to what which one would be your top 3 portfolio products and what would be their contribution?

We don't share that, Vishal, individually. Sorry, I can’t do that.

Okay. And if you could share what percentage of the market are you currently addressing with your portfolio? And what is the scope of kind of building up there in terms of the addressable market on that...

Overall, we probably have a 5% to 6% market share on the products we do. And I think the scope is to increase it to around maybe 10% in the next 3 to 4 years. That's what we are trying to address right now.

So, in the covered market, you have 5% to 6% share.

Yes, that's correct.

Sir, can you expand the covered market? So would you be addressing 50% of the addressable market.

I think the idea is to that’s how we will take more market share. So it's basically a total market share, not covered market share, total market share. So once we increase our coverage, then we'll be probably addressing about close to 10% of the market. So that's the plan for next 3 to 4 years.

The next question is from the line of Purva Jhaveri from Girik Capital. Please go ahead.

Yes. Am I audible?

Yes, please, please go ahead.

I just wanted to ask for the capex, what was the guidance about the capex which you gave?

Yes, the guidance for the capex was close to INR 200-plus crores. We have done close to INR 185 crores already in 9 months and because there's an expedited capex we are doing. And we'll be spending maybe another INR 40 crores, INR 45 crores for the current quarter also.

Say again, I'm sorry, you are very strained. I can't hear you very well. Maybe you are you are on a speaker phone.

Yes. Can you just tell about those 4 plants, which you'll be running like, which you've mentioned.

Yes. The 4 glass, we are in Faridabad, 2 are already up and running. And 1 plant is in Jaipur SEZ and the fourth plant is under construction and at the final stages, will be also have in Faridabad.

At this moment, there are no further questions. We have a question from Mr. Vishal Manchanda. Please go ahead.

Am I audible, sir?

Yes, Vishal, I can hear you. Very well.

So on the renal segment, as you mentioned, you would be scaling up faster next year. Sir, would that qualify you for the PLI incentives next year because there's a critical number that you need.

Vishal, I think we are not basing our business on PLI. I think we have to base it on merit. And I think that is more important. So we want to gain our market share based on the merit of the product. So PLI, we are not sure. I think we'll have to do more because PLI is almost INR 60 crores year-on-year revenue for the business. And that's the reason only a few companies have taken PLI in medical device sector. Out of, I think, 20 or 30, they have allotted only 4 or 5 have taken the incentive, especially companies making large equipment's. I think otherwise, I think PLI is actually with a non-starter.

Okay. So, you said 60 the companies need to companies would need to cross INR 60 crores.

Yes, INR 60 crores year-on-year revenue growth.

Okay. Okay. And there are only specific products in the renal segment, not the entire renal segment?

No, no, no. They are not you can't increase the range, you can't cross segment or this is all fixed.

Okay. Okay. So basically, it would only be so you won't get those incentives, but you would continue to gain build that business larger?

No, no. We are building business was not set on PLI the business was set much before PLI came in.

Got it.

PLI was just an enabler I would say, but maybe has not worked.

Sir, the first question is around the acquisition you made in Italy. I think it was a product or the oncology specific product. Can you give us some idea of how that has ramped up? And are you able to cross-pollinate that in multiple geographies?

Yes. I think the whole idea was to see what about the synergies between the 2 companies. And because Poly Med has a deep manufacturing infrastructure, so we were able to leverage that on our Italian factory. And also because Poly Med exports it's products over 100 countries. So we are able to get access to those customers directly for our Italian business. And because this is a Class III device, it takes sometimes 2 to 3 years to register in each country. So these are implantable devices. So I think over a in the last 2, 3 years, we have leveraged that already, the company has grown reasonably well. And I think in next 4, 5 years also, we will see new registrations, which are going to come through in some very important geographies, and that will also help us to ramp up the business. So I think the companies have good track now deliver started delivering profits. So I think that the whole transformation, which we did over the last 2, 3 years has actually worked well.

I mean, is it material enough.

It will be material because in next 2, 3 years, it will become quite important for Poly Med. Because strategically, also, that places are much above. So there are also cost benefits to Poly Med because as a company, when we go to customer vis-a-vis also are making products in Europe. So then there is a huge stress in the whole organization.

Okay. All right. And for your EU sales, I'm sorry, I was a little late on the joining the call.

Never mind.

So EU sales year-to-date would have grown by how much? And what portion of your sales should be constitute for year-to-date?

So, Europe sales around 40% plus sales of the total export revenue. Export revenues around 65%, 70% 66% 67% of total revenue of the company. So out of that 40% revenue.

And it's grown by?

It has grown by around 35% to 40%.

Okay. So this year has been very strong. Has it come because of addition of new geographies.

No, no, the geographies are the same. It is all, I think, we were able to launch a lot of new devices in the European market last few years. And I think that's the result of that.

Okay. So you're saying that you started with I.V. Cannula, but now you've added to your product.

Okay.

I didn't say that.

Can you give some more color on I mean, in terms of product basket?

No, we can't give you that detail. I'm sorry.

Okay. Okay.

it's confidential to the company values.

Okay. And on overall sales, is it possible to give some idea of how much is I.V. Cannula today?

We don't give these numbers out.

All right. All right. Yes. And the 4 plants that you are commissioning, 2 are already running, you indicated. In terms of utilization next year, where do you see being able to reach at what utilization.

We're around 30% to 40%, that's what I mentioned in the call earlier.

Okay. And full utilization could be to?

Would be probably end of year.

End of year. And this could disbalance to your capacity, if I recall it correctly.

Exactly. Absolutely. It will double our capacity in terms of manufacturing later. So, the ramp- up would take time, nothing starts like it's not like a machine and start producing numbers. And with every country we need registration, every market we need to penetrate by getting products approved by hospital doctors. So it's a process.

Right. Right, sir. In terms of margin, initially, when new plants come in, they tend to have fixed costs, which are not efficiently or fully utilized. So do you see over a period of 3, 4 years, the operating leverage that gets created from utilization ramp-up in these plants, aiding for your margins further?

The current P&L has already absorbed all these costs. Yes, number one. Number two, as we start ramping up capacity products on these plants, definitely, we will see better performance. That's what we think, and that should happen.

The next question is from the line of Sumit Gupta from Motilal Oswal. Please go ahead.

I think the most important thing is domestic market is very fragmented. And because India is a large geography, so we'll have to keep on adding more feet on the ground to address more hospitals. So we have added 50 to 60 people this year, next year plan is to add across all the 6 divisions, around 100 people. And also, we'll be rejiggling some of our leadership teams to ensure that we go deep down with most of our customers whom we are working with today. So we are working all across, and I think that's a important market for us, very, very important market, and we will continue to go faster here. And especially with make in India focus, I think a lot of new opportunities have opened, especially with our 2 new businesses of critical care and cardiology.

Okay. So what is the current field force in India?

I think it's close to around 400 people, including sales, marketing, clinical, PM product management teams and also application teams all includes.

Okay. So over the next 2 to 3 years, you expect this, the sales force productivity to increase?

See, of course, the current key accounts will go more deeper, so same people would be there. But if we have to go wider, then we have to add more people. So I think in next 2 to 3 years, we'll add probably 100 people each year probably to address that market.

The next question is from the line of Dheeresh from WhiteOak. Please go ahead.

Sir, 400 people, you said how many are on the ground people, which are dealing with the hospitals directly out of this 400?

Sir, could you repeat that question? I could not hear it properly.

Sir, I heard in last question, you mentioned 400 people in the total sales division, out of which how many are on the ground dealing with hospitals?

On the ground would be around 330, 340.

These 330 people would be covering roughly how many hospitals?

Over 5,000 hospitals.

Over 5,000 hospitals. Okay. And you're saying 100 people every year, you will be adding.

Yes. We have to add because the full new division as was the existing business expansion.

Okay. Sir, for the 9 months, if you I don't know if you already shared this because I was delayed by a few minutes. So 9 months, if you can share region-wise growth. Like I think I heard you say that Europe was on 40% growth, right, this year.

But we don't give out region-wise growth. We only give out domestic and export business. And out of that, we call out for Europe business because that's a significant part of the company's business, 1/3 of the company's revenue. So that is what we have called out. So domestic business grown around 18% 18.5%, export has grown around 23.5% in 9 months.

You're giving for 9 months, right?

Yes. That is correct.

Okay. And within exports, obviously, Europe has grown much faster, right?

Anyway other countries are very badly affected because of currency crisis globally. Well, we are but for us, Europe is the prime market. So that market is growing. And for us, that is more important.

Sir, outside of Europe, what would be the second largest export market?

Then we have LatAm.

Okay. And LatAm, you obviously bill in dollars, but it is the local country has been impacted.

Not in LatAm. LatAm is not very affected and the whole of Middle East, Africa, that is more impacted today.

The next question is from the line of Deepak Lalwani from Unifi Capital. Please go ahead.

I can't hear him. We'll come back to Deepak.

The next question is from the line of Girish Jain. Please go ahead.

I can't hear anybody.

The next question is from the line of Nihaar Shah. Please go ahead.

Yes. Okay. Great. So you've spoken about 50% plus growth in the renal segment, and we're also adding new products in the critical care and cardiology. So, with that in mind, are we facing some pressure in the base business in the domestic market.

Not really. There is no pressure because, again, is about getting the getting more deeper into the market. So the growth rate, of course, we are not happy with that, around 18%, 18.5%. So we would like to move to that number of 22% 21%, 22%. And of course, the base is also increasing. So I think we don't see any it's about going more deeper and wider with the existing business.

Understood.

New businesses will take time to scale up. Not that they scale up immediately.

The next question is from the line of Deepak Lalwani. Please go ahead.

Yes, I can hear you, Deepak.

Hi Sir, I just wanted to understand, when you draw your assumption of 20% growth for the next year, just wanted to understand the basis of this assumption from 3 angles. One would be the market itself growing in India and exports. Two, if you could throw some light on the shift from Chinese products that we are seeing today, is it related to these 2 factors? Or is it completely company-led where we have worked on distribution, and we have worked on a lot of products and patents, which is sort of benefiting us.

So I think I would agree with 1 and 3 because the 1 is regarding market book, which is definitely happening, especially in India where we see 12% to 15% growth in the health care sector. So that will directly benefit the MedTech sector. And there is no shift from China today. We don't compete with any Chinese products. We are not doing such products, which where we have competition from China. Otherwise, Chinese are hands down 20% cheaper than any field. So for us, it is more about technology patterns, which we have, and we are able to today build that market for our own products. For us, that is the key.

Right, right. And when you draw the same assumption for the export market, what is giving you the confidence?

Because exports also because we have continuously custom by engagement, and we know that what the customer is needing and we have projections for next year already.

Right. Right. Got it. And sir, you spoke about in your initial comments of the Red Sea impact. So, if you could just throw some light on any revenue any short-term revenue or cost impact that you're seeing.

I think we don't see any revenue cost because most of the freight is paid by the customer. So we don't benefit. Our rates are X factory or X wall. So to us, I think there's no impact, but it impacts the customers in general, where they will have to pay extra for the freight cost or be it longer for delivery of the products. And that is where, because if the customer is not suffering and probably you definitely feel that some cycles could go here. I mean it's a temporary phase. And I think when this correction happens, again, I think we will be fine. Because you'll see a lag of 15 days. Once that lag is over then the cycle is again back to normal.

Sure. Sure. So have you seen any substantial or any significant sort of a delay?

No. I have already told that January was a great month again.

The next question is from the line of Girish Jain from KGMC Finserv Group. Please go ahead.

Am I audible?

Yes, sir. I can hear you.

Sir, I can't hear you. Hello?

Sir, we're not able to hear you.

Yes. I was not able to hear Mr. Girish Jain. Sir, can you repeat the question?

Mr. Girish Jain, can you repeat the question, please?

Yes. Can you hear me?

Yes, I can hear you now. Yes.

Yes. So if you can share any flavor on the U.S.A. business, there have been any new filings?

Yes. So, we have received 2 new approvals of FDA under FDA. So totally now we have 4 approvals. And as I told maybe in the earlier calls, we are looking for 8 to 10 products. So hopefully, by end of this year, we will receive all 8 to 10 approval, which we have planned for. Initial shipments have gone, received some comments and feedback. And based on that, we are making some small improvements in the product based on the user feedbacks. And then once that is done, I think hopefully, in next 1 or 2 months, we will see more shipments go into U.S. But that is everything is in line what we have already anticipated. So this is nothing new or unusual.

So, we are holding on to the expectation of revenue.

Yes, yes, yes. absolutely. The revenue expectation is absolutely in line, and it was based on because, whenever you have to send anything to U.S., you can only send after your FDA approvals. There's a real where they will try the products and really will go for clinical usage.

And the other question was on the capex. If I heard correctly, 2 plants are already operational.

Yes, 3 are operational, Girish. 3 are operational. Fourth one is going to be operational by end of this quarter or early next quarter.

And we hope to hit capacity utilization of 80% 80% or 90% by end of the third year?

Fourth year, I would say.

End of the fourth year?

Because the infrastructure is built over to cater the lease for next 3 to 4 years.

So this capacity will suffice for the next four years?

Okay. And in previous call, I think if I remember correctly, you had mentioned that we have excess land available near the existing factory where we can put up more facilities required in the future.

Yes, we will do that. Because now, I think we have sufficient infrastructure covering us for next 2 to 3 years. And once we see an opportunity, definitely, we will do that. So I think on that side, we are fully covered.

At this moment, there are no further questions. I would now like to hand over the call to the management for closing remarks.

Thank you, everyone, for your participation and really thankful for great questions you have asked today. And definitely, it gives us more motivation to do better in coming years. And definitely, we will follow the recommendation guidance and what you have mentioned today on the call. And thank you for your time and look forward to speaking to you again very soon.

Thank you, sir. On behalf of ICICI Securities, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.