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00:00 Hello and welcome to BQ Prime.
00:02 You're watching Earnings with BQ.
00:03 I'm Monath Sangui and our guest today is Mr. Yugal Sikri,
00:06 Managing Director of RPG Life Sciences.
00:09 Welcome to the show, sir.
00:11 >> I'm Monath. Thank you so much for getting me on to your show.
00:16 >> Sir, we've had a wonderful quarter with revenue of 15 percent,
00:20 net profit up 21 percent,
00:22 EBITDA up 16 percent.
00:24 Margins have come in for the quarter at around 21.8,
00:28 almost 22, 23 percent.
00:30 What has led to this growth?
00:34 What is keeping up the growth?
00:35 Looking at a trajectory of a couple of years,
00:38 we've been building strongly and growing.
00:41 What are the plans that you have for the company?
00:45 >> If you allow me,
00:50 I think I need to give a little bit of background,
00:53 just to answer your questions.
00:55 One is RPG Life Sciences is around 55 year old company.
01:01 It was earlier a joint venture between SERL and RPG.
01:10 Toward the end of '90s,
01:12 the SERL decided to exit and this company became RPG Life Sciences.
01:18 Why am I giving this background to answer your question is,
01:22 this specific fact has given some unique advantages to
01:28 RPG Life Sciences and those advantages
01:31 have been inbuilt into the strategy of the organization.
01:35 What are the unique advantages which we have?
01:38 You won't find a company of this size to
01:40 have representation in all the three segments,
01:43 domestic formulation, international formulation, and API.
01:46 But RPG Life Sciences is into all the three segments.
01:49 Number 2, you won't have a company of this size to have both the plans,
01:55 API plan as well as the formulation plan.
01:57 We have both API and formulation plan.
02:00 Third, this company also has the advantages of having
02:05 a very balanced kind of the management because it has
02:12 old hats and as well as it has new blood also into the top management team.
02:17 One more point I must add here is that this is the only company which has
02:25 unique advantage of having brands which are global brands.
02:31 We actually call them as textbook brands.
02:34 These are the brands which are even featuring in
02:37 the medical textbook with the MBBS and MB guys go through.
02:42 Lastly, I think it has a strong parentage of RPG.
02:45 In our strategy, we have tried to maximize on all of these advantages
02:50 and decided to have a sustainable, profitable growth.
02:54 That was our overarching objective.
02:57 The domestic formulation contributes two-third of the business,
03:03 and therefore, it is the topmost priority.
03:07 The domestic formulation, we identified five pillars,
03:12 and we are very actively working on those five pillars in the last five years.
03:17 With the result, we have got the revenue growth higher than the market.
03:21 Margins have significantly improved to now healthy double-digit margins.
03:27 If you allow me to give you the five pillars of the domestic formulation strategy,
03:36 first was product portfolio rejuvenation.
03:37 We had old products, but we had great brands.
03:41 We did a lifecycle management strategy to make sure that we maximize
03:45 the legacy product which are growing currently at 18 percent for the last four or five years.
03:52 A very extensive lifecycle management strategy.
03:54 Just to give you an example,
03:57 we have a painkiller called Neprosyn.
03:59 It was 18 crore in FY19.
04:01 Last year, we cropped in 62 crore.
04:04 This quarter also, it is moving ahead.
04:07 Perhaps, this will become the first 100 crore brand of the company going forward.
04:11 Second was productivity enhancement.
04:13 3.4 lakh productivity.
04:15 Every year, productivity went up.
04:16 Currently, we are at 5.8 lakh productivity.
04:19 Third, building strategic asset out of the brand.
04:22 I gave the example of Neprosyn already to you.
04:26 Likewise, we have identified three or four brands which can become the mega brand going forward,
04:32 and that's where the work on lifecycle management is going on.
04:35 The last but not the least is making sure that there are efficiencies in the system
04:40 because of which a strong cost reduction drive
04:45 so that we are able to have the margin upward trajectory going on.
04:48 That work with respect to the domestic formulation which contributed two-third of the company business.
04:54 These are the five pillars which I just mentioned to you.
04:57 Coming to the international formulation with a second priority,
05:00 I'm happy to share with you that that business also has grown at 15 percent.
05:04 And with a very healthy margin, not behind the domestic formulation.
05:09 That is also picking up to become a growth driver.
05:13 And to make sure that the international formulation business comes on a strong pedestal,
05:17 we have a plant on which we are spending quite a significant capex.
05:22 And we are modernizing the plant which is there at Ankareshwar
05:25 so that we are able to export the products to the regulated markets
05:30 as well as the emerging markets from there.
05:32 In terms of the product portfolio in the international formulation side,
05:37 we had a smart product portfolio strategy worked out which was focusing on niches.
05:43 One is an immunosuppressant product portfolio niche, which is what we are pursuing.
05:48 Number two is a complex generic product where there is some complexity,
05:53 you can command a better margin.
05:55 That is the second category of the product.
05:57 And third category of the product is the products which need special manufacturing conditions.
06:01 And the fourth is identify those products which have low competitive intensity,
06:08 where the biggies don't get attracted.
06:11 So with that smart product portfolio strategy, we are now R&D working on all of these products,
06:16 which should become yet another growth pedestal for us going forward.
06:21 This is on the international formulation side.
06:23 And third, in terms of the API, which was the third one, which contributes 15 percent to our sales.
06:28 And there again, modernization of the plant is going on.
06:34 We have heavy capex being put over there.
06:36 By the end of this fiscal, our plant should get modernized.
06:40 And simultaneously, we'll put R&D structure also in place.
06:43 And we have a good R&D pipeline decided on which our R&D is working on.
06:48 So both the prerequisites of having a good, approvable plant.
06:52 And the second is good R&D pipeline is being worked upon,
06:56 which should become the future growth drivers for our business.
07:01 That's in a nutshell, the summary of the three segments we operate
07:05 and what is the strategy we have put in place to make these three segments grow.
07:09 And of course, the first emphasis was the biggest contributing segment,
07:15 which is domestic formulation.
07:17 So we've been talking about investments,
07:19 and a lot of investment is going towards APIs and international formulations.
07:24 Does that mean that we'll see an increased contribution to the revenue
07:29 from these two fronts?
07:30 Or is domestic formulation still going to be two-thirds of our business going forward?
07:36 I think it's a good question.
07:38 As I mentioned, when we started our journey five years back,
07:44 let me indicate to you how we went about.
07:46 We first fixed the fundamentals, which includes the organization,
07:52 the certain kinds of processes, etc., etc.
07:55 We did that.
07:56 Then we set up process excellence.
07:59 So processes involved in manufacturing, regulatory, marketing, sales,
08:04 all of that involved.
08:05 Third, we worked on achieving the benchmark performance.
08:10 So I'm happy to share with you that today,
08:14 our performance on all the five kind of ratios,
08:19 we are number one in most of the ratios,
08:23 in the competitor group of the company which has a turnover less than 1000 crore.
08:29 So we did that.
08:31 Now is the time when we are scaling up.
08:34 So in that journey, since domestic formulation contributed two-thirds,
08:41 our focus was on domestic formulation.
08:44 Now, domestic formulation basics, fundamentals have been put in place.
08:49 All the five pillars are now working.
08:52 Now we have moved our focus, domestic formulation plus international formulation.
08:57 So as I just mentioned to you,
08:59 that international formulation can only work on two points.
09:03 One is planned upgradation so that you can get the best of regulators' approvals.
09:09 And second is the R&D pipeline.
09:11 So we are now put both of them in place.
09:14 As you know, there is a time lag involved by the time the product gets out of the new product development process.
09:22 And by the end of this fiscal, our product plan will get modernized to be approved
09:27 by best of the regulators in the global context.
09:30 I think international formulation will contribute more to the turnover.
09:36 Similarly, API, API also, two things.
09:40 One is planned. So we are investing quite a bit of capex on modernizing the plan,
09:48 which also get over by the end of this fiscal.
09:51 Plus, we are now putting in place R&D, which is working on identified molecules in identified niches, as I described earlier.
09:59 So that will also start contributing to the turnover more than what it is contributing today.
10:05 So earlier it was domestic formulation.
10:07 Going forward, it's going to be domestic formulation, which will continue to be the focus.
10:12 Plus international formulations and API also contributing more than what it is contributing today
10:18 because of the interventions both on the planned upgradation as well as the R&D pipeline.
10:28 That perhaps answers your question.
10:30 So I have a couple of questions on the numbers.
10:32 Now, what sort of capex outlay have we already made?
10:36 What are we planning to make all through the year?
10:38 Maybe a number would help.
10:39 Also, what are the revenue targets that we are envisaging, not just for the year ahead,
10:45 but also the long term, because the kind of growth that you're talking about right now,
10:48 with all three segments of your business growing, with a lot of investment being put in,
10:53 do we have a revenue target in mind?
10:57 I think it's a good question on your side.
11:00 The first was capex.
11:03 You asked me a question on capex.
11:04 Now, we have invested over 100 crore capex.
11:12 We are in the process of investing close to 100 crore capex for both the plans,
11:18 in API plan as well as the international formulation plan.
11:21 And as I mentioned to you earlier, this will get over by the end of this fiscal.
11:25 Now, how we have funded that capex?
11:28 All have been internal approval.
11:30 We were in FY19, we had around 15 crore on our books.
11:36 Today, we have a cash surplus.
11:38 Last quarter, we have 119 crore cash surplus available.
11:42 This is after paying for the capex in the last two years.
11:48 And this will also contribute to the reminder capex payment in this year.
11:53 So that's the question on the capex which you asked me.
11:57 Now, in terms of contribution to sales, yes, I expect these products which are in the R&D
12:04 pipeline will start contributing to the sales both in the international formulation side
12:10 as well as the exported API side.
12:13 And I generally don't give the revenue targets.
12:18 But since the first obvious revenue target is 1000 crore, and as we reach to that target,
12:24 I think our eye is not stopping at 1000 crore.
12:28 I think it has to go forward by the strategic framework which we have put in place and which
12:33 we are actually putting into execution.
12:36 So this 1000 crore is by the end of, I mean, by when, what year are we looking at?
12:43 Yeah, I think it's difficult to put a year to that 1000 crore.
12:49 But that's my obvious target, frankly speaking.
12:53 And it happens in two years time, it happens in three years time, it's only the time will
12:59 tell how it progresses.
13:01 But I basically focus on the strategic framework.
13:04 And I'm happy to share with you that the strategic framework is absolutely put in place.
13:11 And that's why we are actually focused on executing.
13:13 Also, sir, you said that you have another 119 crores to its capex.
13:18 I had another question on the R&D, we're making quite a bit of investment there as well.
13:23 What is the ratio to sales if we had to look at what was it in FY23 and what are the targets
13:29 for FY24?
13:30 Also, now with the capex and R&D funding, how is there going to be a balance between
13:36 the two?
13:37 I'd also read this small note that you're developing more of biosimilars as well, which
13:41 I believe also require quite a bit of an investment in terms of research and development.
13:46 So how is this entire journey going to be funded?
13:50 And what sort of, you know, and is that going to propel us towards the 1000 crore mark,
13:54 as you mentioned?
13:57 I think, let me explain to you what our strategy is.
14:05 The overarching goal of sustainable, profitable growth should not be compromised.
14:12 That's the overarching goal.
14:13 That's the reason how we have been able to up our growth in the margins, as well as in
14:18 actual volumes.
14:20 So for domestic formulation business, I'm happy to share with you that we have identified
14:27 45 new products in the new product grid, 28 line extensions, and out of which we have
14:34 launched 10 line extensions already, and close to about 15 new products already in the last
14:39 two and a half, three years, and following the remaining products from that grid.
14:43 Now, how are we sourcing about new products?
14:46 And that's where a little bit of smart strategy framework comes into play.
14:50 We are, we are very well evolved CDMOs in the country, contract development and manufacturing
14:57 organizations.
14:58 And we are sourcing all our domestic new products from CDMOs.
15:05 Some of the products are actually being developed for us, which will get some regulatory approvals.
15:12 But they are being developed by the third party or CDMOs.
15:16 So our all the new product requirement, which I just mentioned to you, which is which is
15:20 45 new products and 28, 29 line extensions are all being sourced from the CDMOs.
15:28 So that's on the on the domestic side, new product pipeline.
15:34 So we don't have much of investment on that side.
15:37 However, for international formulations and API, we are developing the product in house
15:43 with our own R&D.
15:46 And that's where the investments are happening.
15:49 Now, your question was, what is the percentage to sales, etc.
15:54 I think we are since our product portfolio, which you identified is very focused and targeted,
16:03 and which is what you want to maintain, we are managing our R&D budget very, very prudently.
16:10 Currently, it could be it's around two and a half to 3%.
16:14 And going forward, I expect this to move to around four and a half to 5% on on the R&D.
16:21 There again, our emphasis is on collaboration.
16:24 We are also getting part of the product developed from third party and part we are taking it
16:31 in house so that our sustainable, profitable growth objective doesn't get compromised.
16:37 But we are also having a good R&D pipeline.
16:41 Now talking about your third point, which you mentioned about biosimilars, the we do
16:46 not have a fermentation facility, we don't have a plant fermentation.
16:51 So all our biosimilars are again being sourced from the CDM.
16:58 We have launched five biosimilars.
17:01 And we are done quite reasonably well on those five biosimilars.
17:05 But all of them have been sourced from CDM.
17:09 The entire strategy of the company is that you develop the brand, grow the brand.
17:16 And when that becomes substantive, it reaches to a threshold, that's the time we should
17:21 look at our own internal capacity build up.
17:24 If this is a specific class of product for which we do not have manufacturing infrastructure.
17:29 So also, this was another thing, you know, with every my conversation with most of the
17:38 analysts and people positive and looking at pharma very closely, branded formulations,
17:43 the domestic branded formulations market is the place to be in.
17:46 So what is the rationale, which is also telling us to expand in the international markets
17:50 and APIs?
17:51 Do you see something there that most people are missing?
17:55 You know, why are we targeting those areas even more?
18:00 Yeah, I think this is also a very good question.
18:02 Now, as I mentioned to you, we are, first of all, we have focused on domestic formulation
18:12 that will not, I will not go away from the domestic formulation, because that's the basic
18:20 business for us.
18:22 Now, we can grow the international domestic formulation business, maybe 2x the market
18:29 growth, or 1.5, 1.6x the market growth.
18:33 Beyond that, we need to either have an inorganic route of growing, or we focus on the international
18:47 formulations and API.
18:49 Now, for us, it is important, because we have plans available to us, we have the necessary
18:57 skill set available to us, we have got the necessary departments and the people who are
19:03 required like regulatory is required, R&D is required, project management required,
19:07 all of that is because of our legacy, we have in system.
19:12 So we thought why not we use international formulations and API also to drive our growth
19:21 agenda.
19:22 Now, but there, we are, as I mentioned to you earlier, our strategy is very, very specific
19:27 and well defined, we will not go into high volume products, we will go into the product
19:33 niche.
19:34 So, first niche which we have identified is immunosuppressant.
19:40 Immunosuppressant, if I have to talk about, these are the drugs which are used generally
19:45 for a number of indications like rejection of organ transplant, etc, etc.
19:51 So we are focusing on four molecules, azathioprine, mycophenolate, tacrolimus, and cyclosporine.
20:00 All variants are being developed.
20:02 We are very strong in one of the molecules called azathioprine.
20:06 We have almost 50% of the sales coming in the international formulation from one product.
20:11 And since we have the customers which are sticky customers with us for the last 15 to
20:17 20 years, we can have the advantage of cross selling through them.
20:24 And therefore, the entire basket of four products is now being focused upon from the export
20:30 purpose.
20:31 Second, as I said, the niche which I've identified is the product which has some complexity called
20:36 complex generic product.
20:37 We have launched one product, we have developed one product for sodium biphosphate for prolonged
20:42 release formulation.
20:43 We have launched that product in the UK market.
20:44 We also launched the product last year only in South Africa and Thailand, those markets.
20:51 And since it is a complex product, we have a market available and we have relatively
20:56 good margins available.
20:57 And the third is low volume products which have some kind of manufacturing special conditions
21:03 required, which is generally in pharma, low relative humidity, low temperature conditions.
21:08 So we have created a plant in Ankleshwar which fulfills those requirements.
21:12 And we have launched first product there called Nicorander which meets the special manufacturing
21:16 conditions.
21:17 So that's the third category.
21:18 The fourth, as I mentioned to you, low competitive intensity product.
21:22 So the strategy is so well defined, so that we are able to have relative security on revenues
21:30 and relatively better margins than the others would command.
21:35 Some is coming out of our legacy and some is something which we have worked now.
21:40 And I'm happy to share with you that whatever the three or four categories of the product
21:44 which I talked about in international formulation, we have put those products already into the
21:49 market.
21:50 One is I mentioned to you Azathioprene which is in the market already.
21:54 We are now working on Tachronimus.
21:56 It is at advanced stage of product development.
22:00 Next generic, we have launched developed sodium alprate, we have launched sodium alprate already.
22:04 And the special manufacturing condition Nicorander, we also launched that product in the UK market
22:09 already.
22:10 So that strategy is having traction already.
22:13 And I think going forward, that strategy will help us to maximize on the international formulation,
22:22 which is not new, which was there in the company for around 15-20 years.
22:29 But we were marketing only one molecule, Azathioprene.
22:31 Now we have identified these four niches, which I just described to you.
22:35 Similar almost similar strategy is in case of APIs.
22:39 So I have one last question.
22:41 And this is a very general question, not just specific to your business.
22:45 How has the market been in these, you know, in these countries?
22:49 We take UK, which is the Europe, which is more regulated, also Africa.
22:56 You know, all of these branded formulation markets, what sort of growth do we see?
22:59 Because it varies from country to country, there are a lot of other companies who are
23:04 also trying to establish footprints in emerging markets.
23:09 While looking at your portfolio, I believe we have quite a solid presence in a lot of
23:15 EMs.
23:16 So what is the sort of response?
23:18 How has it worked for you?
23:19 What are the kind of margins that you usually see in this product?
23:23 If I could just understand the whole?
23:26 I think it's a valid question.
23:31 As far as the developed market is concerned, we are into Canada, we are into Australia,
23:37 we are into France, Germany, and UK, as far as the regulated markets are concerned.
23:42 On the emerging markets, we are in the Southeast Asian markets, six or seven markets, we are
23:48 there.
23:49 Major presence is in Myanmar.
23:50 And we are in some of these African markets also.
23:54 So that's our current footprint in the global situation.
23:58 Our strategy for as far as the regulated market is concerned, following the product portfolio
24:04 niches, which I just described to you.
24:07 Yes.
24:08 So I just want to understand how the overall market functions.
24:11 I mean, are you, how is it between the developed and the developing like the emerging markets,
24:17 which are the markets that you see where you see more growth and a more consistent growth?
24:21 Yeah, yeah.
24:22 So I was trying to answer that question by indicating to you that since our product portfolio
24:28 identification niche one is a nuanced one, we expect the growth to happen in those in
24:35 the regulated market, we are very focused on selective strategy.
24:38 Emerging markets, we are focusing on some baskets, cardiovascular basket, neuropsychiatric
24:43 basket, gastrointestinal basket.
24:45 So these are the immunosuppressant basket.
24:48 These are the four baskets we are following in the case of the emerging markets.
24:52 And that's how our registrations, that's how our new product developments are planned.
24:56 And that's our registration or filing strategy have been planned.
25:01 Thank you so much, sir.
25:02 It was a pleasure speaking to you.
25:03 I would love to connect with you again.
25:05 It is a pleasure.
25:09 Thank you.
25:10 Thank you so much, Mona, for sparing your time and talking to us.
25:13 Thank you so much.
25:14 Thank you.
25:15 Thank you.
25:17 Thank you.
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