Ladies and gentlemen, good day, and welcome to the Hester Biosciences Q3 9 Months FY '25 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Nisha Shetty from ICICI Securities. Thank you, and over to you, Nisha.
Thank you, Laiba. Good afternoon, everyone. On behalf of ICICI Securities, I welcome you all on Q3 FY '25 Earnings Conference Call of Hester Biosciences, and I thank the Hester Biosciences management team for giving us this opportunity to host this call.
Today on this call, we have with us Mr. Rajiv Gandhi, CEO and Managing Director; Ms. Priya Gandhi, Executive Director; Mr. Nikhil Jhanwar, CFO.
I will now hand over the call to the Hester management team for the opening remarks. Thank you. Over to you.
Yes. Hi. Good afternoon. Thank you, Ms. Nisha. This is Priya Gandhi, Executive Director, Hester Biosciences.
Just one little correction in your introduction. With us, we have our CFO, Divyesh Maru, with us now on the call. So just that one correction.
So thank you, everyone, for joining today as we present our performance for the third quarter and the first 9 months of FY '25.
While Q3 presented some challenges, we continue to remain focused on our long-term growth strategy, operational efficiencies and new product introduction. We have maintained a steady momentum in the first 9 months, achieving a year-on-year profitability growth while navigating some market fluctuations and some challenges in Q3.
On a consolidated basis, our divisional product sales have increased by 2% for 9 months and profit grew by 85% compared to the previous year. Although Q3 divisional product sales declined by [ 6% ], our profit has increased significantly. This is mainly due to the improved operational efficiencies and unrealized foreign exchange gains in our African subs.
Coming on to the division-wise performances, speaking of our Animal Healthcare division. In Q3, the Animal Health experienced a 24% decline in sales, while the 9 [indiscernible] continues to show a growth of 4%.
There are quite a few external factors which I pointed out, which has contributed in the 24% decline of sales that we see in this quarter. First one being the earlier-than-expected end of monsoon season in some regions did affect the market dynamics [indiscernible] in these regions. Secondly, lower milk prices in some states where Hester has a strong presence, the lower prices to the farmers has led to this decline because that made the farmers prioritize more on the essential healthcare needs of animals, and that has also led to this decline. Third reason being a regulatory ban on nimesulide, which is an active ingredient in one of our products, which was a regulatory ban happened in the last quarter did prompt us to recall that brand from market. We were prepared for some time for this. And in this separation, we've already started working on launching a new product will be replacing this and the impact of which we will be seeing in the coming quarters.
Despite the Q3 decline, our focus continues to remain on the steady growth of this division. Our PPR and Goat Pox vaccines in for the National Immunization program also has continued [indiscernible] in the momentum that we had [indiscernible] planned, and we are committed to expanding our offering in the dairy sector.
Speaking of -- coming on to the Poultry Healthcare division. Our poultry division has delivered strong growth with the sales increasing by 12% in Q3 and 22% in 9 months. This is primarily [indiscernible] core strength, which is vaccine. Our vaccine sales has grown by 20% in Q3 and 27% in 9 months, which has been one of the big contributors. The main contributing factor is rising awareness of the Newcastle disease and Marek's disease [indiscernible] vaccines in which Hester continues to be one of the market leaders in producing and supplying this vaccine.
We have also introduced new feed supplements and disinfectant, and we are expecting this to contribute significantly in the coming year. With global demand for poultry products rising and our continued market penetration efforts, we are expecting to maintain this momentum. We are also working towards launching the vaccine against avian influenza in the coming financial year, which will also significantly boost our Poultry Healthcare division.
Coming to the Petcare division. Our Petcare division [indiscernible] the strong growth trajectory, of course, with the base being small. But yes, we are continuing the stable growth trajectory, achieving approximately 105% growth in Q3 and 38% in 9 months of FY '25. This was driven mainly by our strategic focus on our key brands and keeping the seasonality in mind, focusing on the seasonal product demands and also working on expanding the newly launched pet food range within the Petcare division, also got launched in Q2, as I had mentioned in the last call.
Veterinarian engagement and market penetration efforts have improved our brand [indiscernible] and increased the prescription driven sales, which is something that we want to focus on. While this division is still at a late stage, its growth potential remains very strong, and we are committed to expanding our presence in the pet care market.
Coming on to the financial performance. Stand-alone gross profit margins have remained stable in Q3 FY '25 and improved by 4% in 9 months, supported by a favorable product mix. EBITDA sees a decline by 18% in Q3, but has grown 8% in 9 months due to better absorption of fixed costs. PAT has declined 31%...
Ma'am, your voice is breaking.
Ma'am, I think it is a line of problem. It's nothing to do with our side at all. Is it breaking intermittently or it used to break right from the beginning?
Yes, sir, you can continue.
Okay.
Sorry, was I clear up until now? Or is there anything that I need to repeat?
Now, you're clear.
Should I repeat my explanation, ma'am?
You can continue, ma'am.
Okay. Okay. So I was talking about the financial performance. I was saying our PAT has declined by 31% in Q3, but has grown by 3% in 9 months, which primarily reflects our overall operational efficiency. On a consolidated basis, our EBITDA grew by 12% in Q3 and 15% in 9 months. While PAT saw significant growth in Q3 9 months, this is mainly due to improved operational efficiency and an unrealized foreign exchange gain in our African subsidiary, as I just mentioned earlier.
Talking about the performance of our international subsidiaries, they continue to play an important role in our overall performance. Hester Nepal has reported a net profit of INR 1.87 crores in 9 months, fulfilling export orders and domestic orders for the domestic vaccine demand. This subsidiary continues to remain debt-free, something also which we had mentioned last time and that continues to be the same.
Coming on to Hester Africa, we have significantly reduced our losses to INR 0.57 crores in 9 months compared to INR 13.5 crores in 9 months in FY '24. The Tanzanian shilling depreciate -- appreciation against the U.S. dollar has resulted in an unrealized foreign exchange gain on borrowings for the 9 months of FY '25. We are continuing to participate in international tenders and trade sales across the continent of Africa, also beyond Africa. In fact, in Tanzania, just last week, we did confirm our participation in providing the vaccine for tender in the country also just confirmed and we have closed on that with the ministry. So a little bit in this quarter, but definitely from Q1 and next financial year, we will be very aggressively participating in the tender programs within Tanzania as well.
So I think looking ahead, our focus in the coming quarters is also getting our bottom line steady, which in the first 2 quarters was looking very promising. However, in Q3 to a little bit in the top line, it has impacted the ratios a little bit. We are working on a couple of initiatives, as mentioned in the Poultry Healthcare. Our focus on our core strength in vaccines continues, and we are improving efficiencies, we're working on still further improving our product, product mix, introducing the new ranges within the Poultry Healthcare segment.
Even with respect to our Petcare division, we want to further strengthen it, leveraging its strong growth trajectory and we are committed to introducing products, committed to innovation in the market. Along with that, even in Animal Healthcare, yes, there was a dip that we have seen in Q3. So most of the reasons that I mentioned have been external, not really been in our hand. But at the same time, we do see Q4 recouping and us being able to balance that out.
I thank you all for hearing me out, your continued support and confidence, and we now welcome questions.
[Operator Instructions] First question is from the line of Rushabh Shah from BugleRock PMS.
I have two questions. Your efficiency in a vaccine manufacturing company is really important. So is there an agency which monitors this? And what is your efficiency rate in the vaccine business? And is there any competitor who is near our efficiency rate?
Efficiency in the...
Efficiency, you mean to say the productivity, the product costing, et cetera, what does that mean, or the end result in the field?
End result. End result.
Yes. End result in the field, vaccines are released by pharmacopoeial standards. In fact, tendered vaccines are even tested by the government before they are supplied. Private companies have a robust system to monitor their health programs. And it's a very regimental release of vaccines. So there is nothing even as what we say in Hindi [Foreign Language]. It is what it is as per the release titer, and that's the way vaccines are released.
Okay. So my next question is in business like ours, which is so pertaining, how difficult would it be for any company to stand against us because the difficult part is the registration part, which all other -- which all companies would have. But what separate us from others?
What separates Hester from others? You are asking our USP?
Yes.
We are the only company in India that is into the full range of animal vaccines. If you take all other companies, they are either in poultry or they are in large animals. We are into the full range, whether it is poultry, cattle, sheep, goat, swine. So that is definitely a USP that we have. We have a larger access, a bigger market to cover than the others.
In terms of product quality, I think India is one of the world's biggest vaccine producers in human, of course, and now also in veterinary. I would say that all vaccine manufacturers have good quality, and it is for each vaccine manufacturer to compete in the open market, the technical sales service, with the aftersales service, allied products, et cetera. And we try our best to excel [indiscernible] to our competitors.
Sir, my question was your USP. Your, point of view, your USP would be -- it's a full range of vaccine, correct?
Sorry?
Broad range of vaccines.
Yes, broad range of vaccines.
Okay. And my next question is how much of the government intervention bother us like for making the vaccine or rather getting approvals?
No, there is no government. There is a regulatory process which has to be adhered to. If we take regulatory process as a hurdle, I don't think it would be appropriate. Regulatory processes are well defined, and we follow the regulatory process. There -- I would not say that there are any hurdles.
The next question is from the line of Sameer Desai from [indiscernible] Advisory LLP.
Congratulations for the great set of numbers. Sir, I have two questions. What is capacity utilization for 9 months?
Capacity utilization.
For the 9 months period, it would be approximately 70% utilization.
Whatever you say, it's the average or only India you're talking about? What about the other...
No, I'm talking about India, about India.
And what about...?
For the other two, we are utilizing at the moment around 10% to 15%. In Nepal, it would be around 20%. In Africa, it is only 10% utilization. We have enough capacity.
Okay. So current capacity is enough for the growth for next 2 years or we are going to have increased the capacity in India or -- India?
No, no, it is enough.
Okay. And last question, any guidance for FY '26 and FY '27, guidance?
Sorry, your voice was not clear.
Any guidance for coming year, FY '26 or '27 guidance on revenue side or growth side or CapEx side.
We would want to refrain from this guidance to be honest. Yes, we have our budgets. We have our internal forecast. We have every single thing ready. But I would say that the -- as Priya did mention that there has been a little bit a dip in Q3. We are sure to recover. And in fact, our targets are much to better even whatever performances we have done in the last 2, 3 years. And that's the way we are taking forward, and it's our clear determination to improve the bottom line substantially.
Next question is from the line of Himanshu Upadhyay from BugleRock PMS.
This product which -- where the active -- one of the ingredients nimesulide has been banned, okay? How big is the size of that product? And there are new products what you will be launching? Will it be premium to the market? And are there existing products in the market already, which don't have this active ingredients? And how -- what percentage of our business was from this product? Can you give some thoughts on this in Animal Healthcare division?
Yes. So this product has been now banned by the government of India. And this ban is across for human as well as veterinary, if I'm not mistaken, because our focus is veterinary. So therefore, we feel.
So your question is what is the impact on the sales to our company. The impact -- am I right, you are asking the impact?
Yes. The impact in the new product what we'll be launching. Would it be...
Yes, Priya, why don't you.
So the new product that we will be launching is we still working on the formulation, and I will -- unfortunately, I don't have the exact details to give you at this point in time. And in terms of a financial impact, I think around INR 5 crores to INR 6 crores is the financial impact, which we are going to be registering in Q3.
Okay. Okay. And is there a competitive product already there by some other companies or...
I'm sorry, can you repeat -- for some reason, the line today is not very clear. Can you repeat it?
Yes. So my question was, is there competitive -- a product from competition already there in the market, which is fulfilling this requirement or...?
Yes. So mostly all our health care products in the AH division [indiscernible] are not really any unique formulation so far. So yes, there are other products that exist and there have been other companies also that have been impacted with the same.
Okay. Okay. And what would be your top 3 priorities? And how is the poultry market itself doing? Means are we seeing the impact of inflation, which was there on the poultry historically has now faded and the farmers are able to price the product and feed prices are down. So some thoughts on the poultry market will be helpful to us.
Yes, Rajiv, here. The poultry industry is doing relatively better than what it had been doing in the last 2, 3 years. Maize prices continue to dominate the total economy of poultry farmers. So the feed prices, et cetera, have become high, but now it has more or less become a routine for poultry farmers and there is an acceptance to the higher price. And therefore, there is a price adjustment and that is how the poultry industry is now performing. To repeat, it's definitely doing better than earlier. So that's on the poultry industry.
As far as our growth plans are concerned, vaccines and health products, there are two streams of products that we as a company are looking into. One is the vaccine side and one are the non-vaccine products. While we continue to progress on vaccines, while we continue to add vaccines against lower diseases as well as improvise the current vaccine that we have, not in terms of performance because performance is anyway good in terms of internal production efficiency to improve our profitability.
We definitely now are focusing on health products for all the species, poultry, cattle, sheep, goat and swine. And we would want to add a bigger and higher top line with these products as well besides continuing the focus on the vaccines. Vaccines remain flagship. But under the banner of vaccines, we would want to increase our health products turnover substantially, and it should even exceed the vaccine sales in the next few years' time.
And generally, historically, what is the price rise have you been able to transfer in the market for poultry vaccines? Historically...
For poultry vaccines, there is -- our poultry vaccines pricing is something which is a trade business, and we would not really want to discuss on what are the price rise in our price list, et cetera. We are in the market. There are competitors. We ourselves have our USP, and we decide, and it would be a very arbitrary answer to give you on a price increase or something of that sort.
No, no. So what I was trying to understand, historically, inflation which is there, are we able to transfer the...
Yes, that's not an issue at all.
[Operator Instructions] The next question is from the line of Keshav Garg from Counter Cyclic PMS.
Sir, the results are really disappointing, and I think we have clocked a consolidated EBITDA of INR 5 crores, which in my memory is the lowest in the past decade at least. So -- and if we see the consolidated sales have come to only less than INR 40 lakh, whereas last quarter, the consolidated, the sales from subsidiaries was INR 11 crores or thereabouts.
So I don't understand what exactly happened on a consolidated basis. Even the stand-alone numbers are weak, but consolidated numbers are especially bad. So when -- I hope in the fourth quarter, we can see some kind of a turnaround?
Yes. The financial results, the figures say it all. There is nothing different that we have been trying to say as what we have published and what you have read.
The international market, especially Africa, it has been riddled with -- each of the countries with some political issue, with some financial situation in each country, et cetera. We have battled and weathered through all of these in the last 2 years. We see the brighter side now.
Tanzania, as Priya mentioned, tenders have already been published. We have already been awarded. We are moving forward now to begin the supplies in the African continent. This is something which has happened for reasons beyond our control. And that's something which we are still battling and we will battle, not that we will not battle, but it's just that we need one small window because our margins are good, our capacities are very high. There are no other expenses that we will have to put in.
So to answer your question, yes, there has been a turmoil, a little bit of a downside in this, but we are looking ahead to a much, much bigger sales, especially from the African continent. And not just African continent, even in India, we are very confident that we will be pushing things forward.
If you really to see the second and the third quarters, even on the animal side, there are always dip in the second and the third quarter in terms of sales. We are going through this and be rest assured, at least the African business will give a very big leap in the next 2 quarters, which will change the complete complexion of our consolidated balance sheet further.
Great, sir. I hope the performance of the company improves. And best of luck to you and your team.
No, nice of you to wish. And be rest assured, we are working on it. We are determined, and we now definitely see things improving.
The next question is from the line of Rushabh Shah from BugleRock PMS.
So whenever we enter new markets like Africa, you do your R&D. So what could go wrong? What could go wrong in those research and development things because we are having so much registration delays in Africa?
Sorry, your first line was not audible. Can you repeat the first line, please?
Whenever we enter new markets like Africa, so you must have done your own research and development out there. What could go wrong to enter in these new markets because we are having so much -- so many registration delays in Africa?
Yes, yes. See, the registration delay, it is a constant factor for all, whether it is Hester Biosciences or anyway. But at the moment, we are not even battling for registration delays actually. The issue is that the tenders that could come, they have come. There is no registration issue that at this point of time, we are battling to be very honest.
Okay. Okay. And why did you choose Africa as a country for expansion purposes? What was the thought process behind it? And...
Somebody is talking behind, we are getting different voices also. I do not know if everybody else could put it on mute because there is so much of disturbance. Anyway, please carry on with your question.
My question was, why did you choose Africa as a country for expansion purposes? What was your thought process behind it? And what are your thoughts on Latin America?
Okay. Why we chose Africa? This is something which is now a 5-year-old issue. Africa is a growing continent in terms of economics, and that's something -- and health care, the opportunities are immense. And in fact, to tell you, Hester Biosciences is the biggest pharma investor in the country in Tanzania as on today. We see Africa as a very fast-growing continent. Now when things grow, it does not mean that everything grows at the same pace. There are different growth parameters for every industry, so would be even for our vaccines, animal health products, et cetera. But in the long term, that is the place where we feel we should be, and that is why we have chosen the African continent. Why not South? Okay. Another reason for Africa, clearness to India, it's just 5, 6 hours flight away from India, et cetera.
Why not South America? Our own knowledge as Hester Biosciences is very limited on South America, we have done surveys, but still our ability to gather information of that continent has not been very good. It's too far away to reach to the nearest city in South America, it would take approximately 24 hours or if not 24 hours, at least between 18 and 24 hours to reach the nearest city and then do further another 5, 7 hours, et cetera. It has not -- it is not within our thought process to actually look at South America as a market. There are inquiries and we are willing to export to South America, but it is not in our radar to do any manufacturing activity there.
Okay. Since we are on geographic expansion, in one of the annual reports, you have written that North America is the largest market for animal healthcare. So what is your long-term vision? Is it to enter North American market? Are you thinking about it?
No. Our vision -- if you look at the American market, it is more pet-centric, the pet business is the biggest. We have started a pet division in India, and we will now grow it. Our focus right now is on production animals. Production animals means those animals which are geared by human beings to derive a source of income. We are addressing this market.
In growing economies, it is the production animals which are more relevant rather than the pet. And therefore, our focus at the moment internationally is production animals. But in pets, we have started the business, and we are growing that business organically, first in India, and then we will look into it and to grow it further.
And my last question is when you apply for registration, how much time and how much money does it take for the process to get that final approval in Africa?
For different countries we have different time lines. Different countries have different costs for registration. So it's nothing one specific thing. At an average, it could take between 6 months to 2 years for registration.
The next question is from the line of Utsav Adani from Oaklane Capital.
Sir, I wanted to understand the market size for avian influenza vaccine and which geographies do you plan to cater to? Also, are there any existing players in these geographies for avian influenza vaccines?
The market for avian influenza in India is approximately INR 100 crores. Right now, we are focusing on the domestic need. We are still working on the development and release of vaccine, which will happen in the coming financial year. And right now, our focus continues to be the domestic market. And we also -- there are also some inquiries for us to export it in certain countries, mainly Middle East and Africa, and that's going to be our focus.
In terms of competition, yes, there are certain multinational companies. [indiscernible ]will also start -- government will start [indiscernible]. So yes, we do have some competition, but we are very confident on our quality given quality vaccines is our strength. So I think we are reasonably confident to take a reasonable share of the entire market demand.
Got it. So, my second question is about -- so the government of India has allocated close to $2 billion for various vaccination programs in PPR, Classical Swine Fever, under National Animal Disease Control program. So how has been the tendering activity across different programs in India?
We, as a company, are at the moment supplying the PPR vaccine via the government tenders towards the national eradication program. There are other companies supplying other vaccines. Of course, we are also supplying a Goat Pox vaccine for the immunization against lumpy skin disease in cattle.
I would say that the government tendering process is very straightforward, clear and transparent, and bids are made, tenders are [indiscernible] and the government checks every fact that is supplied under their purchases and supplies are made all across the country. It's a well-defined good process.
Right. So do we expect the tendering activity to go up or it will stay at the levels where it is?
No, it will continue the way the tenders are. It will continue. In fact -- see, there is an x amount of population that needs to be vaccinated. If the government is more or less covering around 70% to 80%, what we could say safely is that the similar quantities or with a 10% increase as the population of those species increase, it can go on. But government doing a very good job as far as PPR and Goat Pox is concerned, majority of the axles are covered. So the number of doses required would more or less not less, be the same or a little higher in subsequent years.
Got it. So there have not been material delays for vaccines that you are supplying. It might be for...
No, no, not at all. Nothing, zero delays.
Ladies and gentlemen, that was the last question for today's call. I would now like to hand the conference over to the management for closing comments.
Thank you all for joining the call today and hearing us out. Yes, we take full responsibility and are mindful of the fact that the numbers this quarter have not been very encouraging to look at on a piece of paper. But at the same time, our commitment to not make this disappointment last remains as strong with many quantitative as well as qualitative efforts that we are trying to make.
I mean, a few years ago, we were having a similar discussion with respect to the poultry division, which was seeing a downturn because of the market dynamics. These are cyclic things sometimes impact the business. However, if you all can see, we've recouped our performance in the poultry industry. In fact, this year, we are seeing -- even in the last quarter, there is a similar growth.
Yes, animal health division is a little bit concerning in the last quarter, mainly for external reasons, but we are still continuing to work internally to recover all these gaps. And pet care, as mentioned, the scope is huge. Our base is small, yes, but the scope is huge, and we are trying to cash. A lot of promises that we make sometimes a little slow because they also are a little bit long term in nature, so they take some time. But all I can say is that we are at it, and we thank you all for your support and confidence in us. Thank you.
On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
