- 3 years ago
#IPO Adda | #ConcordBiotech's IPO to open at a price band of Rs 705 - 741/share.
Company's CEO Ankur Vaid and CFO Lalit Sethi share insights. #BQLive
Company's CEO Ankur Vaid and CFO Lalit Sethi share insights. #BQLive
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00:00 Thank you, Pram. You're watching IPO Adda. The company in focus today is Concord Biotech.
00:04 The company is coming out with its IPO on August 4th with the price band of 705 to 741.
00:11 It's an oil fest for 2.09 crore shares. And the selling shareholder is Helix Investment,
00:17 one of the investors in the company, amounting to nearly 1550 crores. The company is valued
00:22 at over 7,700 crores at the upper end of the price band. And joining me today is Ankur
00:28 Lal, joint managing director and CEO, and Lalit Sethi, who is the CFO of the company.
00:34 Gentlemen, thank you very much for joining us on BQ Prime. To start with, Mr. Ved, give
00:41 me a sense of, you know, it's primarily an oil fest where one of the investors which
00:46 holds 20% stake in the company is exiting. Does the company not require any capital for
00:55 its growth going forward? In this transaction, basically, this is a complete oil fest. And
01:02 as such, we are not having any kind of a primary issue at this point of time.
01:08 Okay. And you don't need any capital also going forward, Mr. Ved?
01:14 Yeah, so I think we don't need any capital because we have built in sufficient capacities
01:21 at our end, whether it is the API or the finished formulation for the future growth. So at this
01:27 point of time, we do not require any additional capital in the company.
01:33 Give us a sense of your business, how it looks and the entire business model as such,
01:41 if you are into API manufacturing and formulations, especially into immunosuppressants and
01:46 oncology-based drugs. But what is the kind of business model that you have? Is it completely
01:52 domestic or international? And how do you sell your APIs?
01:57 So I think we are into the manufacturing of fermentation and semi-synthetic APIs. And,
02:06 you know, globally, there are very few companies in this space of fermentation products. And I
02:14 would say Concord in that way is quite uniquely positioned. In terms of our therapeutic areas
02:21 that we are present in, we are there in the immunosuppressants, oncology, anti-infectives,
02:26 and antifungal. And these are very complex niche fermentation APIs. We are present in over 70 plus
02:34 countries and are catering to more than 200 plus customers across different geographies.
02:40 Our clients are there in India, US, LATAM, Japan. So we are working with all the major
02:47 leading companies across different geographies to cater to their requirements on such kind of
02:53 niche fermentation API products. Give me a sense of your raw material
02:59 security, which is there because the top two, three suppliers account for nearly 49.2%
03:07 and top 10 represents nearly 81.45%. How are you securing your raw materials going forward?
03:16 So most of the raw materials that are typically used in the fermentation industry are the agro-based
03:24 products because typically, you know, in the fermentation space, you're working with living
03:30 microorganisms. And typically, they need basic carbon, nitrogen, oxygen sources, which are
03:37 readily available in the agro-based products. So which again, India is very rich in this. So,
03:46 you know, our major raw materials are very basic raw materials. And that is something that we
03:53 procure locally. And what about your dependence in China?
03:56 So we are a fully integrated company. And, you know, we have zero dependency on China,
04:06 in terms of the requirements. We have sufficient capacity, because as I mentioned,
04:13 that in fermentation, you require the basic raw materials, which are more agro-based.
04:18 And that's something that we procure from India only. Our dependency going forward is,
04:25 I would say almost nil dependency. Give me a sense of your beta margin,
04:32 Mr. Sethi, roughly around 40% in FY23 for you. Is there a scope to increase this margin? What
04:42 kind of headwinds do you see, or tailwinds that you see to push this margin higher?
04:47 No, in last financial year, when we made the sale of around 853 crores, our beta margin had been
04:55 40.45, means around 41%. And this has been the trend in the past also. Historically also,
05:03 we were operating at the same kind of a beta margin. So going forward also, I don't see any
05:07 kind of a challenge in achieving at these kind of a beta margin. The one thing more I just wish to
05:13 mention that since the capacities has been expanded already, so both with respect to the API
05:18 and the formulations, so that it's going to be further improved as and when the capacity gets
05:24 amped up. Give me a sense of your exports, because you do export to other countries. I think US,
05:35 if I'm not wrong, 17.6% of your revenues come from US and nearly 32% comes from rest of the world.
05:41 What is the kind of client profile that you have in these countries?
05:47 So as I mentioned that we are working with all the major global
05:52 pharmaceutical companies, and they are market leaders in these kind of products.
06:01 So be it Japan or US or Latin America, we have a very diverse customer base that we are working
06:12 with. For a company like yours, which supplies APIs to major drug manufacturers for their
06:22 formulations or tablets or injections, whatever, one of the key things to watch out for is the
06:27 kind of drug pipeline that is coming in, drugs which are in the clinical trials, drugs which are
06:33 pending approvals. So can you give us a sense of what is the kind of pipeline that you have
06:41 of drugs which are in clinical trials or pending approvals, because those are the
06:46 things which are going to translate into orders for you when you move forward?
06:50 So we work mostly in the generic space and most of our APIs are generic APIs. However,
06:58 we have a very strong R&D and close to around 150 people are working in the R&D department.
07:06 And we do work on certain niche products which are under patent. And we are developing non-infringing
07:14 processes for such kind of APIs to support our end customers, which are the formulation partners
07:20 on their parafor launches. Okay, so how many of that launches are in the pipeline?
07:26 So we have quite a few. So we have a good blend of generic APIs as well as
07:34 patented APIs that are there in the pipeline. Will you be able to quantify that? Because that
07:41 would help give us a sense of the milestones that your company would like to watch out for?
07:47 So maybe I won't be able to share the exact number of molecules at this point, because again,
07:54 in fermentation, it can take at times, it's a very complex process. So at times it could be,
08:02 maybe in the next one or two years time that you look at these opportunities,
08:06 but maybe I may not be able to share the exact number at this point.
08:10 But you will have those opportunities on a yearly basis going forward?
08:14 That's correct. Okay. Give me a sense of your customer profile as well. If I'm not wrong,
08:23 nearly 33.5% of your revenue comes from top five customers in the API space,
08:31 which is where are these customers located and what kind of relationship that you have had with
08:37 them in the past? So we've had very strong relationships with them and our relationship
08:44 with our top five customers would be anywhere ranging from say 10 to 12 years. And these
08:52 customers are primarily based out of India, US and Europe. So as I mentioned earlier, that our
09:01 customer base is quite diverse. And over the years, what we have done is that as we have kept on
09:06 increasing our product portfolio, we have been working with our set of customers, more and more
09:14 in time in terms of developing a basket of products to cater to their needs. So maybe for
09:20 some of our customers, we would have started with one product. And at this point of time,
09:24 maybe working with them on eight to nine products. So that's how we have grown our relationship
09:29 with our customers. And this is something not only about the top 10 customers, but across
09:35 the diverse customer base that we have. Mr. Sethi, give me a sense of the capacity
09:41 utilization because I was looking at some of the numbers. Your formulation facility
09:46 capacity has been very low at 9.9% in FY23. At such a low capacity, what is the kind of
09:54 outlook you have for to increase the capacity in these facilities? Basically, in 2023, we added
10:01 the capacities and that is where the actual capacity utilization is looking at a lower side.
10:05 Our capacity in 2022 was 503 million units, which has been increased to 802 million. So in terms of
10:13 overall volume, there is an increase, but in terms of percentages, it is looking like
10:17 at a moderated level. Another thing with the, for example, for unit number three,
10:24 of wherein which we have recently commissioned in financial year 2021,
10:30 there the capacity utilization is around 32%. And in unit number one,
10:35 Dolca facility, which is operating at an optimum capacity of around 75%.
10:41 So is there a guide map to how the capacity can be increased further from here?
10:47 Yes, if you see that the unit three at Limbasi, which has been recently approved by the US FDA,
10:55 without any observation, without basically 0483, is likely to cater to the global market now,
11:02 the regulated market now, which will also help in ramping up the capacities at unit three.
11:08 Okay, give me a sense of, you know, you have a PLI for drug manufacturing. How's that doing?
11:19 And have you been able to fully work on the capacity there in that you need to get the benefits?
11:26 Yes, as far as the eligibility criteria for availing the benefits and the PLI was concerned
11:32 is about the capital expenditure, which we have already done. It's more than what the minimum
11:37 requirement under the scheme was there. So it is now we had also made an application, we are also
11:43 working with the government of India for the PLI benefits. This financial year also we had made an
11:49 application for our eligibility, which is based on the incremental revenue. And we have also accounted
11:55 for around 15.91 crores of rupees in the financial year 2023 for PLI benefits.
12:02 And are you working full capacity in those units to get the entire value of subsidy?
12:08 Basically, the requirement was is under the PLI scheme is on the incremental revenue,
12:14 which we are able to make much, much more than what our allocation by the government has been
12:20 done. Okay, so there is no, there is no problem as far as the eligibility of claiming those
12:27 benefits out there. But just to add that we continue to develop molecules and APIs
12:33 in the fermentation space to make India more Atmanarbar in the area of fermentation products,
12:42 whether they are covered under the PLI scheme or not is not important to us. I think it is more
12:47 about in terms of how we can make India more Atmanarbar. So while as Lalit mentioned that we
12:53 are we are, you know, meeting all the criterias to comply with the PLI scheme, but I think our
12:59 roadmap is that how we can build in more molecules in this space.
13:04 So, if I look at a sales growth 17.6% CAGR between 2021 and 2023, is that the kind of growth that you
13:12 expect to continue going forward as well or there is going to be a glide upwards as well as you as
13:18 the capacity increases, capacity increases basically? Sure, so I think our historical
13:25 growth has been coming from the unit one and the unit two which was there which is the first API
13:31 plant and the formulation facility that we have. And we have recently built up the new fermentation
13:38 API facility which has 800 meter cube of capacity, which is the 450 meter cube that we have at unit
13:44 one. And we are also setting up the new injectable plant which should be ready by the end of this
13:50 calendar year. So we have built significant growth levers at our end at Concord, which would,
13:57 you know, help us ensure that we have better growth in terms of how compared to the historical
14:03 performance that we have. Just to get a perspective, sir, your current revenue base is around 853 in
14:10 FY23 with all the capacities that come into being and if they are fully utilized or at least 80%
14:18 utilized at every manufacturing facility, what could be the potential revenue that you can
14:24 get from these facilities? Normally, if you look at the industry data, fermentation kind of a
14:32 companies in the biotechnology space are, you know, getting the asset turn of around 3, 2.5 to 3.
14:40 So with the asset base of let's say 800 quotes, we can, you know, expect the same kind of an asset
14:45 turn. Okay. My final question to you is that, you know, you are into the US market, which is
14:52 a very competitive market. Pricing issue is one of the biggest challenges there because in the
14:56 last one and a half years, we have seen a lot of pricing price, price erosion coming in as a result
15:01 of it, which consolidation and price competitiveness is coming in. What kind of pressure do you see
15:07 from pricing of your APIs because it will eventually flow back to you as pricing gets eroded
15:13 in the US and other markets? Yeah. So I think, you know, Concord has always continued to support
15:20 its customers in terms of providing them the most competitive pricing with the highest quality
15:27 products. And when we talk about Concord's leadership position in the API space, that is a
15:33 function of how our customers have grown their market share in the formulation space. So, you
15:41 know, we are fully committed to support our customers there in terms of high quality products
15:48 at competitive pricing. And then whenever there is any pressure that comes, I think the way to
15:55 mitigate that is through continuously investing in the R&D for our existing products as well as
16:01 in as well as our pipeline products. Mr. Sethi, final question to you, working capital days 229
16:07 quite high for your company. Is there a way you can bring it down to below six months?
16:13 It's basically very, very peculiar to the industry wherein we are operating.
16:18 Basically, in fermentation industry, the production cycle is a little bit more as compared to any
16:25 chemical synthesis kind of companies. So therefore, the normally working capital days are
16:30 relatively higher as compared to the other industries. So if you look at that, our production
16:36 process itself takes about 60 to 65 days to complete both upstreaming and downstreaming.
16:41 And then since there are a number of fermenters, we have a flexible design of the plants. So there
16:47 is so much of batches which keeps on going on. So that's the reason that we need to have some
16:53 higher working capital because the process is more. And is there an order book position that
16:59 you maintain as well? So we have a very healthy order book position and we kind of work. So our
17:08 production plannings are such that we are able to meet the requirements. What was the bill to book
17:13 ratio? So again, it's quite flexible because it's not usually a long term agreement that we have.
17:22 It's mostly, as I mentioned that we have a very strong relationship with customers. So
17:27 it is very flexible at times. But we do understand the needs of the customers which are there
17:32 and kind of then build on that inventory so that even within a shorter period of time, we can
17:38 support them for their requirements. Gentlemen, it was a pleasure talking to you today. The
17:42 Concord Biotech IPO opens on August 4th, closes on August 8th, ties between 705 to 741. It's an
17:49 OFS of 2.09 crore shares valued at 1550 crores. And that upper band gives the company a value of
17:57 nearly 7752 crores. You're watching iProduct. Thank you for watching.
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