IPCA Laboratories Ltd

Unichem last financial year had -- their U.S. business has not grown up, mainly because on certain high-volume businesses, they have lost certain market share. They again started gaining the market share. And I think in current financial year, their U.S. business should grow by around 10%. So hopefully, with that, the margins will also move up. They have done well in European market in last financial year. And we also see from further from that point of view that business will improve and margins will improve there.

Plus they have also incurred some certain additional costs in last financial year because of their Ireland facility, there were -- manufacturing was happening. So that is closed. And some -- those people were also given your package on severance and all those kind of things. So that cost also got debited. And all those productions are shifted back to India. So that is also will result in better margins overall on production of those products here.

And also the overhead costs, they were incurring and incurring in at Ireland facility may be around EUR 4 million to EUR 5 million. So that expenditure will also stop in the current financial year. So overall, there will be better improvement in the Unichem also in the current year.

We foresee that I think Unichem margin may become around 12% to 13% in the current financial year from that level. And from that level, again in future years as our filings in other markets

start coming up and then we start launching products in other markets. Margins will keep on improving.

Okay. Sir, this 12% to 13% that you mentioned, that is the overall margin for FY26-'27? For Unichem, yes.

Overall, the full year margin, right? Yes.

Okay. And sir, the second question is, this inventory at Unichem seems to be on the higher side.

Last quarter also, I raised this question, you said there are some actions being taken, but the inventory remains more or less at the same level as '25?

Overall, I think inventory-wise, a lot of actions has been taken. And -- but if you look at the nature of business itself in case of Unichem because it's a U.S. business and supply chain disturbances, all were happening. So certain kind of inventory, the movement was taking longer time by ship and all that. They have started shipping everything from ships instead of air shipment. Significant amount of air shipment was there in Unichem maybe a year back to almost around 40% kind of shipment was moving by air.

Now it's hardly around 4%, 5% kind of shipments are moving it. And that's for the whole transit time has improved and increase in all that. So that has little inventory has gone up on that account. But overall, we don't see any kind of concern on that account. The U.S. cycle itself is a little longer, and their business is mainly U.S.

As far as Ipca is concerned, if you look at overall last 2 years, if you look at '25 and '26 by large, put together, our inventory is at the inventory and receivables entire -- there's hardly any money has been put in overall in working capital. The entire -- your cash generation is overall, there is accruals are there, and there is hardly any kind of money has gone in working capital in last 2 financial year. We have perfect control as far as your overall inventory cycles are concerned.

Okay, sir. Sir, lastly, the question is on the Lyka Labs subsidiary. So the performance has been deteriorating. So because lastly, you took an impairment for Krebs Bio. So will it also lead the same way because the performance is really deteriorating quarter-on-quarter?

Let's say, I should not be speaking for Lyka Lab, I think you should be talking, but to Lyka Lab on that part. But otherwise, I see broadly, if you look at they have started marketing their injectables and animal health care products in the market, and they have recruited a lot of field force. And it takes time. Last 2 years, a significant amount of expenditures has gone in creating the more sustainable business because of that. Because of addition of addition of field people, there is on P&L account, there are pressures.

But I think journey is going very well as far as those -- the animal health care and team, which has launched and also the critical care team they have launched, they are progressing well, and we don't foresee much of concern on that account. Maybe the profitability is currently lower.

But as the time goes, these teams start maturing and business start building up, margins will start moving up there also.

Our next question comes from the line of Shashank Krishnakumar with Emkay Global.

I think Unichem that other expenditure has moved up is largely because of R&D because they are looking at some kind of institutional business in U.S. So around 4 to 5 products has been -- technology transfers are given to third-party manufacturers so that from -- we can manufacture those products for the U.S. itself to supply to -- for the government purposes.

And therefore, this quarter had around INR10 crores to INR12 crores of additional expenditure on account of those technologies transfers to the U.S. are supporting manufacturer. So other than that, there's hardly any kind of exceptional cost. The other expenditures by and large, moved only on that account.

Got it. So what was the R&D for Unichem and Ipca this year, FY26 as a percentage of sales? It's around 3.71%.

Got it. Sir, just secondly, if you could just share the market-wise growth trends for the year gone by for both branded formulations and generics, particularly because this quarter, we saw an increase in generic revenue, for which market primarily drove that. If you could just share some color around how the individual markets have performed?

Domestic has grown by 12% for Ipca. Branded formulations has grown by 14%. Institution has declined by 33%. Generic market in this quarter has grown by around 39%. So that's overall Ipca is concerned. And as far as the whole of the financial year is concerned, domestic has grown by around 10%, branded by 14%. Institutional, there is a decline of around 24% and generics has gone up by around 17%, yes. So that is already given in press release. If you go through our press release, yes, all those numbers are very well displayed there.

So I'm looking for more market-specific trends, which you usually share any particular market which drove growth this quarter or during this financial year?

Let's say, branded is by and large driven by, let's say, our CIS market and French-speaking African market. India is by and large driven by our pain and cardiac and derma and neuro and CNS portfolio what we have. Institutional has by and large declined because of funding constraints currently being faced by the institution. And generics are -- both Europe has done well. Australia and New Zealand has done well. So it's broadly all markets and also the U.S. launches, which has happened current year. So overall, the business has been good as far as generics are concerned.

Got it, sir. And just the last one, if I could squeeze in. Could you just comment on the performance of subsidiaries ex of Unichem this quarter and for the full year?

As far as Unichem are concerned, I think current year was tough for them. I think -- and I have already shared the guidelines as far as Unichem is concerned that how they will be performing in current financials. They should be growing around 10% in current financial year, and they will improve their EBITDA margins also.

Other than that, we have domestic subsidiary, which is called Trophic Wellness. They have done well. I think they have significantly contributed. They are marketing neutraceuticals with business around, maybe around INR125 crores, and I think they're generating profit of almost around INR40 crores plus overall profit. So that's that. Lyka already talked, but it's not our subsidiary, it's an associate company.

As far as the Krebs are concerned, their performance is improving now. One of their plant, which is at Nellore has started EBITDA positive. Other plant, there are certain concerns going on right now as far as polishing departments are concerned. So once that is resolved, I think hopefully, we should be able to put that plant also on EBITDA positive kind of number.

As far as the U.S. -- European subsidiaries are concerned, we have 2 subsidiaries in U.S. One is Ipca formulation marketing company and another is Onyx Scientific, which is doing your business of rendering the research services to the other formulation company. Onyx is facing some kind of issues there because of overall inquiry levels for those kind of projects has gone down because of current overall environment. This subsidiary has been last 8, 10 years has been doing very well.

But the last 1, 1.5 years, there are certain issues. But we are now seeing sign of improvement there. And Ipca subsidiary which is marketing the formulation in -- particularly in U.K., that has given a loss of almost around 2 million to 3 million kind of bonds. And largely because of last financial year, the pricing scenario in that market was very, very bad. But we are seeing now, again, there are a lot of shortages and overall improvement in the prices. So we hope to do better there also.

As far as U.S. subsidiary is concerned, Ipca is only one, which is a major one, which is Pisgah Labs. So there also there is a formulation facility is under construction there. I think probably I think in the fourth quarter of the current financial year, they should be able to ready to commission the plant. So any meaningful turnover coming from there will be, I think, in next financial year only, not in current financial year. And their API facility is also seeing now good order position now. So hopefully, there will be further improvement in that operations also.

Our next question comes from the line of Tushar Manudhane with Motilal Oswal Financial Services.

Sir, on the export exports front, you have guided for broadly 12% to 13% revenue growth. Is this considering the currency depreciation as well? Or is this in INR terms?

No. The guidance given is in INR terms, Tushar.

Okay. Got it. And as far as domestic formulation is concerned, given the raw material linked price hike, but if you could at least -- if you could share what could be the price volume new launches growth that we can expect for FY27?

No, the guidance given for domestic branded business is around 12%. Maybe out of that 1% to 2% could be new product and balance price increase and volume.

And Tushar, if you look at our overall material cost to sales ratio of Ipca is only 25%. Even if there is an increase, that will get offset by overall your overall increase in the top line and also overall the profitability of your products in domestic ROW and all those kind of things. So we don't foresee that this ratio will significantly alter. Maybe it's only 0.5% here and there.

How has been the freight cost trending? Or will that -- maybe like at the gross margin level, I understood like the -- it's possible to pass it on the increase in the raw model. But how to think about the freight or the logistics costs?

Normally, let's say, our branded formulation business and certain API business, that all happens through, let's say, C&F basis. There are a lot of other generic businesses that happens on where the freight are borne by the party. So overall, I think our freight cost has moved up by almost, I think, in the fourth quarter by almost around 25%. And that trend is continuing currently also.

So that will have some impact on the overall number on the profitability till the time this issue of -- issue remains of Iran-U.S. kind of conflict, which is currently happening, the Strait of Hormuz and all that kind of thing.

The oil prices are elevated. Wherever air shipments are concerned, the freight has multiplied now. And even getting the sometimes the cargo availability of space also, it takes a lot of time.

So sometimes material remain for 10, 15 days. So availability itself is becoming an issue now to the various destinations. So that issue remaining, yes.

So then effectively, will this have impact on Q1, but overall, we think that subsequently in the coming quarters, we'll sort of come back.

There will be some impact, but if business improvement is also there, but like say, last year, we have grown by 10%. This year, we are guiding for 12% to 13% kind of growth. So that growth will offset everything because the material cost to sales ratio is around 25%. So if you take your overall gross margin addition itself will be high. So all these costs should get offset.

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

Yes. Since all questions are answered, I think we can close this conference call. Thank you, everyone, for participation.

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.