Poly Medicure Limited analyst Q&A

Thank you very much. The first question is from the line of Karan Khanna from AMBIT Capital. Please go ahead.

Thanks for the opportunity and congratulations, Mr. Baid on another strong quarter. Himanshu, my first question is on the exports business in particular, Europe, which continues to grow at about 25% plus for the company. What's driving that? And how do you see exports' growth over the next few years? And then what's the kind of visibility that you have from your distributors and customers in that market? And similarly, on the U.S. business, are there any updates on further FDA approvals? And how is the feedback for the shipment that you completed via GPOs? And how do you see the distribution evolving here?

So I'll first answer, Karan, with Europe. So Europe, I think we have a great traction in Europe market. And I think we have a long-term visibility because most of the businesses we contract in Europe, they are long term basically over spread over 3 to 5 years. So and a lot of these businesses are new businesses, which we have got into in the last few years. So we have a great visibility in Europe. So Europe will continue to outperform the growth general growth of the company. So we expect Europe to grow in the range of 30% to 35% in the next coming couple of years also. On the U.S. business side, I think we have already as I mentioned on the call, we have already got our second, third orders from the U.S. So I think the feedback is great, and I think we are moving ahead with that. All the products we have launched in the U.S. market, we have given a guidance for USD2 million to USD3 million for the first year where we'll be selling at least four to five products in the U.S. And we are still waiting for FDA approvals to come. And hopefully, early next year, we should have we should get a few more approvals. That's what we're expecting in first quarter of the next calendar year. And once we have the approval, we will start building businesses for those products also. On the...

Sure. My second question is on your expansion plans to set up 4 new plants. What are the timelines for commissioning these and likely capex for the same? And what kind of peak revenue potential do you anticipate once these plants are online?

So we have put an outlay of INR500 crores for these three new facilities, which is part of the QIP fundraise. And this facility should be live by live from mid to end of 2026. And land has been acquired for all the 3 facilities, Haridwar, Jaipur and Faridabad. So these are in the existing areas we currently operate. So these are adjacent facilities, some are nearby, some are adjacent. So this helps us to leverage our current infrastructure and expand quickly with new products.

Sure. And lastly, on your new divisions such as cardiology and critical care, what kind of further investments do you anticipate? And similarly on scale, what kind of scale do you anticipate for both these divisions over the next 3 years to 5 years?

So I think the cardiology is a big business going forward in intervention cardiology. So there are too many players in the market but what we have seen is mostly import-driven, especially on the consumable side. We're not talking about stents here and mainly on the consumable side. And I think that is the area we are targeting right now and Poly Med because of its manufacturing expertise. So we are able to bring some new products in the market, which are locally manufactured, Make In India products, and that will actually drive that market. So I think in the next 3 to 5 years, I think maybe in, let's say, by 2030, we should be able to look at INR300 crores to INR400 crores revenue also from cardiology business.

Great. Thank you, Himanshu and Happy Diwali to the entire team.

Thank you so much Karan. I appreciate.

Congratulations on a very good set of numbers, Himanshuji.

Thank you, Girishji. Thank you.

My question was relating to the capex, which we had done earlier. I think 4 plants were to be operational. Am I is it correct to assume that all the 4 plants are now operational? And can you give a guidance of what kind of capacity utilization we are running at, the new ones?

So all the new 4 plants are operational, and most of the plants probably should be working around 50% capacity. We are still doing a lot of capex in this plant. As you see the first INR150 crores, which we have spent in the first 6 months, all that capex has catered to existing plants only, the new plants and the existing plants. So a lot of automation is being added. And some of you have already visited plants, have seen that how much amount we have spent on automation. And automation becomes very critical to our business because quality is the most important part in our products and we can only achieve through automation. And that is already happening. And I think when we look at the revenue side, I think as you are already aware that if you spend rupee in capex, we see a revenue of around INR1.2 to INR1.3. And that's been actually the guidance for by us. And also that's more or less the industry standard also.

Okay. So with this new capex now, which is being planned with the QIP money which we have raised, and you mentioned that it might be operational by end of financial year '26. So what will be the increase in the capacity like in terms of percentages?

See, basically, what we are doing is we are going to expand capacity in three core business areas. One is renal dialysis, where we will double our capacity from our current level where we operate. And what we have in pipeline right now, a lot of capacity also comes during this year. So from where we end this year, we'll almost double our capacity in the next 2 years because as we are growing at 50% in this business. And similarly, we will be also expanding some new products in cardiology. So there also we will because the market we have just started selling some products. The division has just been launched. And if you see renal is a 5-year-old division and almost we'll be ending around INR150 crores. So now we see a big ramp-up happening. So initial part is the regulatory part is slightly slower. But as we move on, we will see the ramp-up happening faster. So a lot of new products will be added in the cardiology and critical care. And critical care is more driven towards oncology segment, cancer care. So we have a lot of products which we are making in Italy today. A lot of these products will be shifted to India and also scaled up in future. So we are already looking at expanding that area of business where still India is around 80%, 90% import dependent.

Okay. And last question. Going forward, let's say, in the next 3 to 4 years, do you see any change in the product mix between infusion, cardio, renal and critical care?

See, I think we have not extrapolated that data, Girishji. But I think the infusion still will remain our core business. So that is where we have a global excellence on that product category. So that will continue to be our core business. But as new businesses pick up, for example, renal by, let's say, next 5 years, will constitute around roughly, let's say, around 10% to 15% of our business. Today, it may be only 5% to 6%.

Okay.

So similarly, cardiology, which is probably only maybe I mean there are no numbers for cardiology right now. But maybe in the next 5 years, we will see it growing to around 5% to 7%. So all this will keep on evolving basically.

Okay. Thank you so much and all the best.

Thank you, Girish and Happy Diwali to you, sir.

Thank you. The next question is from the line of Zain Hussain from Dolat Capital. Please go ahead.

Congratulations for a great set of numbers. I have few questions. It's regarding domestic business guidance, you have given for only 20%, 22%, and but we're in H1, we are already running at 11% as an average. So do you tend to change the India guidance, domestic guidance or you wish to maintain that?

No, we will I've already said in initial part of the call that we will do around 20%. And then that because currently we have done an H1 to H1 growth of 13%. In the first quarter, it was only 6%. So in fact, we are not growing faster now already. And as you know, the private market is growing faster for us, and government business is kind of where we are exiting part of the government business. So that's the reason first quarter numbers were a little skewed. But overall, if you see a private market trajectory we are growing 75%, 25% in that category. It’s only a government business where we saw, but for the whole year definitely we are maintaining our guidance of 20% plus.

Okay, sir. And sir renal care sales in Q2 as well as in H1 was?

Say again?

If you can share that number, renal sales?

So we have not shared any numbers. What we have shared is that we have seen a growth of around 40%, 45% in renal care business in the first 6 months.

Okay, sir. And we are told that 500 dialysis machines to be installed by the end of this year. So it is maintained around 500?

Yes. So total installation base will go over 500 machines by end of this year. And particularly this year, we should be able to sell between 350 to 400 machines in this particular, 350 machines. So the earlier base of 150, plus 350 this year, we will be able to cross our installation base of 500 machines.

Okay, sir. And sir, infusion category contribution in domestic as well as in export?

Absolutely. So it is close to around 65%.

Okay. And domestic?

Same, same, same contribution.

Okay. And sir, export has also grown very well. So what are factors driving this export business?

Could you repeat that question, sir, again?

The export business, growth factors, it is driven by?

It's driven by infusion business because that is where we have global excellence on that product category. And then we have a lot of products, which are innovative. We have patented products and that is driving that growth in that segment.

Okay, sir. And sir, guidance for EBITDA margin, do we maintain our margin guidance?

Yes. So if you see in the beginning of the year, we gave a guidance of around 100 to 150 bps improvement in the margin. And I think you already have seen the results, and I think that's being reflected in the results also.

Okay, sir. And sir, last question, working capital days is?

That is around close to 100 days right now.

Okay sir. Thank you.

Thank you. The next question is from the line of Yash from Stallion Asset. Please go ahead.

Hi, thank you for the opportunity. So I just wanted to understand that since you've kept INR250 crores out of the QIP money for acquisitions, what are the new products or new sort of areas that you can pivot to with this amount of money?

See, basically INR250 crores is just on amount on the QIP part. But the company also has internal cash and internal cash generation. And we are not limiting ourselves to INR250 crores. So we are looking at opportunity adjacent to current product area. For example, anything in cardiology or anything in oncology space or anything in critical care. So any new product areas. There are thousands of products in this space. We do only a few, maybe 20, 30 products. So what other areas. So we are looking at adjacent areas in these therapeutic areas. And then whatever and we are looking at technology basically. Because currently, what we need is a technology and regulatory clearance so that we can fast track those projects. And otherwise, once we do it on an organic basis, that is going to take a long time because typically, time frame is 3 to 5 years. So that is one of the reasons that we are looking at some acquisition opportunity. And as and when we have something, we'll definitely announce that.

Right. And sir, I just wanted to understand that apart from Europe, what could be potentially more fast-growing sort of regions for you? Would it be like Middle East or Southeast Asia? Or have you sort of explored some of the countries there where you can potentially have the same kind of growth that you're seeing in Europe?

No, I think if you look at the global landscape, around 35% global market in U.S. in terms of value and then followed by around 25% in Europe. So and then I think India is only 2%, 3% today. But again, being our presence in India and we have been present for a long time now, we have a bigger market share in India compared to other global markets. So I think for us these three geographies will continue to be the key market for us as we go along in the next 3 years to 5 years.

Got it. Thank you.

Thank you. The next question is from the line of Zain Hussain from Dolat Capital. Please go ahead.

Thank you for the follow up question. Sir, guidance for gross margin, if you can give?

See, gross margin, we normally give guidance to EBITDA margin. I don't have those numbers. But typically, we operate between 60% to 65% gross margin.

Okay, sir. And the capex guidance of INR100 crores to INR120 crores in the next 6 months will be from internal accrual or QIP?

Internal accrual these are mainly capex happening in the existing plants. Some, of course, will also capex will be directed towards the new facility as we start building them up. But the majority will come from internal accruals and some of the QIP money will be also partially on the INR500 crores. But the major QIP utilization will start sometime early next year.

Okay. Thank you.

Thank you. The next question is from the line of Vihang Subramanian from Zaaba Capital. Please go ahead.

Congratulations on a good quarter. Just one question from my side. In some of your remarks initially, you mentioned that you're seeing a lot of traction from U.S. customers due to potential tariffs, right? So could you talk about what are the tariffs currently on our products as well as similar Chinese products in U.S. and Europe? And if we see an increase in tariffs after the U.S. election, do you expect to get more competitive versus China?

So it's a great question, Vihang. So let's first talk about the tariff, what are the current tariffs. So current tariffs are 0 from India right now. So when you export to Europe, there's 0 tariffs, and Europe is not going to change any tariffs. And Europe is our major market. Today, it is more one-third revenue comes from Europe or one-third. One-third is India and one-third is rest of the world. So U.S. is also not very significant. You know the numbers already. And currently, the U.S. tariff is 0. But even if U.S. puts a reciprocal tariff, which we are hearing from Mr. Trump's speeches, I don't know who's going to come, but let's assume that he's going to come. So India has a tariff of around 10% on medical devices. So the reciprocal tariff can be only 10% in my view, number one. Number two, current tariffs on Chinese products range from 25% to 50%. So there will still be a big gap. And I think the most important thing is the global supply chain with this current uncertainty and what is environment, I think it's going to shift a little bit to India and I think in Medtech space also. And I think that change should come in next, let's say, 2 years to 5 years. So and we are building. Most of the tariffs become effective now till January 2026. So in this period, I think if we can catch hold of some good companies and products, I think that is the target we are trying to set up for ourselves.

Understood. And just in regards to the acquisition that the potential acquisition that you may look at, are there any particular products or any particular kind of therapies that you are trying or at this point, it's more open.

No, this is not very clear so we are very clear that we want to stay adjacent to what we are doing. So we'll only do something, which we are currently operating, whether it's cardiology or critical care or oncology or in renal space. Anything around adjacent to these therapies we're going to do. So we're not going to go out of our therapeutic competence.

Understood. And just last one on the margin side. I think it seems like we have been trending a bit ahead of our guidance. So would you look to revise this at some point? Because it seems like our export revenue salience is driving margins higher. So any thoughts on that?

No, I think we are more important is it is good that we are trending higher but I think we will like to stay in the range. And I think whether on the top of the range or on the bottom of the range, but at least we want to be in the range. And I think see, we don't know what's going to happen in the next 6 months in the global geopolitical situation. So it's good to be prudent and stay prudent. So if we have done well, I think we should compliment ourselves but we don't know about the future. But I think if we can have the company has the capacity to absorb any future shocks even though this the first 6 months, very difficult in terms of global supply chain because freight rates started increasing, the shipment transit times kept on increasing. So in spite of all these challenges, we are able to still make some small improvement in our margins. So I think let's continue with that. I think maybe another quarter, we'll see what is going to happen.

Understood sir. That makes a lot of sense. That’s it from my side. Good luck and wish you and the team a very Happy Diwali.

Thank you. The next question is from the line of Naman Bagrecha from IIFL Securities. Please go ahead.

Sir, just some clarification on the India business part. You highlighted that the first half of this year, we've grown at around 13%, right? So that means that to achieve, let's say, a 20% kind of growth on a full year basis, we will be growing at around 30% at least for the next 2 quarters Y- o-Y or, let's say, first half growing at around 30% second half growing at around 30%. Is my understanding correct? I mean and...

You're absolutely correct. And I think these are the numbers we have with us. So we are pretty certain because we have the buildup. The capacities have gone up. And then, let's say, in quarter 2, we were able to see a 22% growth compared to quarter 1, which was only 6% basically. So we are seeing these changes already in the customer profile in the demand side. And renal business is already growing at 50%, which would be almost INR150 crores, and this will become almost close to around 25% to 28% of our total business, so in India, at least. So we are pretty confident on getting those numbers.

Okay. And as you said on the renal business, so renal business, I mean, if I back calculate, we actually have grown at around 50%, 51% in second quarter. And the asking rate would be closer to around 60-plus percent if you look at INR145 crores of business.

Yes. So the reason we are able to do it because we have added a lot of new capacity in renal business. And most of that capacity is coming live between October and November.

Okay. So basically, this one time...

So currently, we are short of products right now. We can't supply enough.

Okay. And lastly on the export business, if we exclude your these subsidiaries, I mean, you have seen a fantastic growth of, let's say, around what, 28%, 30%? Is my understanding correct?

That's correct. Around 27%, 28%. You're right. Absolutely.

27, 28%. So for the full year, would you want to revise the guidance or this would not be achievable? I mean let's say you guided for around, let's say, 25%, right, for the full year?

We have guided for the full year total overall growth of around 22% to 24% and with India doing around close to 20% with a weighted average of 30% on India business. And then export business, around 70%, weighted average of around 25% to 27%. So I think typically, we have to also look into fact that what is going to happen in the next 6 months. So it is good to give a muted guidance. And if you do better, it's always good. So we would not like to revise margin, let's say, guidance at the end of second quarter. I think after the end of third quarter, we'll be more prudent to revise guidance.

Okay. And one more on if I may. The earlier participant also highlighted that the because of higher export business, we've seen that 50 bps quarter-on-quarter improvement in margins. So given that our export business will be, let's say, growing faster than the domestic business. We expect the margins to be slightly better, I mean probably achieving, let's say, 28% on 4Q exit?

Well, the target was to improve by 100, 150 bps, and it also depends on the product mix every quarter. But I think we are pretty much online but again, it's a lot of very uncertain situations. In the geopolitical world, we don't know where oil is going to hit. Is it going to impact raw material prices or what is going to happen to supply chain in the current situation. So it's good that we have done better in one quarter. So even if we do bad in other quarter, we'll be able to normalize it. But that is not the case right now. But the important thing is that continuous improvement is required, and we are doing it actually in terms of margins. And as the product mix keeps on changing, as we go more in deeper in, let's say, critical care, more deeper in cardiology, definitely we'll be able to have better margins in these products also in India also going forward as time progresses. Because currently, we are also in a lot of initial investment phase in these businesses. So like for example, we hired 40 new people. So 10% of the workforce is completely new for new businesses, which are not contributing at the same run rate as the original businesses where other 370, 380 people are working. So gradually, we'll see a ramp time. So definitely, once the businesses get more and more, let's say, deeper, we will definitely see margin improvement. Renal business, it's still not a great margin contributor but as we increase the volumes substantially and definitely, margins will keep on changing because the contribution margin will keep on increasing.

Got it.

And I think the idea in this business, I think it's all about technology and volume and what you can do in terms of how you position yourself in the market. If you position in the lower spectrum, then you get lower pricing. But if you start competing with large multinationals, then definitely, you can improve your price points. And that is what we are trying to achieve right now. We are trying to replace the multinationals on the market in India, not replacing Indian companies in the market.

Got it. And just on the sales and marketing addition, the associates, just wanted to understand how does, let's say, their productivity play out? I mean today, let's say, we are in FY '24, we were at around, I mean if I look at...

INR200 crores.

Sales per month for a rep close to around INR8.5 lakh.

INR1 crores a year basically, typically INR1 crores.

INR1 crores a year. Yes, right. So the addition that you have done, so generally, how much time do they take to achieve, let's say, this kind of productivity?

It's a very hard question to answer because it depends on business to business, depends on approval process on each hospital. And some businesses may take longer, some may take faster. So again, it's something we have we continuously juggle with in terms of balancing the people versus the revenue. And but when you have new businesses to set up, let's say, 2 new businesses, then sometimes you have to compromise on that area and say, okay, I need people first so that they can go to hospitals and push their products. So I think in that case, we are very careful in heading the headcount versus but again, when we see end of this year, we'll have 500 people but we'll also see revenue almost touching INR500 crores in domestic business. So this is where somewhere we are in that zone. So we always keep that INR1 crores number in mind.

Okay.

So new versus old, we're keeps on getting blended basically.

Okay. So on a blended basis, you will say that INR1 crores would be the...

Yes, from that business what we are targeting on this. It's on a blended basis because always we have new people coming in, going out, that is always the case.

So sorry, sorry, I didn't understand. So on a blended basis, you will target INR1 crores or to achieve...

On a blended basis, but between this and all together, yes.

Okay. And what were I mean you highlighted that total 100 associates will be added in FY '25. Any other trends, let's say, for FY '26 or on a steady state, you would like to add 50, 100...

So we'll continue to add that many people because the business is growing, we need to reach out to more hospitals. Today, we reach out to 8,000, 9,000 hospitals. We need to reach out to almost 20,000 hospitals in the country, so in the next 3 to 5 years. So we'll have to almost double the headcount in, let's say, in the next 3 to 4 years.

Okay.

Even if we continue with the 20% growth rate, the business will anyways double in the next 4 years.

Yes..

We'll have to continue to increase the headcount to reach more and more customers, and customer means hospitals.

And just one last one. What would be, let's say, the blended capacity utilization? You said 50% or...

For the new plants and for the existing plants is already around 75% to 80%.

What would be the blended number, sir?

Blended would be close to around 60%, 65%.

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

Thank you, everyone for great questions. And I really appreciate the kind of deep study you have done for the business and for the company. Please continue to ask these probing questions. This will help us to do better every year, every quarter. And we hope we also assure you that whatever guidances we gave you in the beginning of the year, we will try to hit those revenue numbers and profit numbers to ensure that the company is on track with the right performance parameters. Thank you again very much, all the participants, ICICI team for hosting this call. Thank you again.

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