Prevest Denpro Ltd Q2 FY2023 Concall Summary

Key Takeaways

• License delay clipped the quarter: Export dispatches were held up after 20 September because a manufacturing license arrived only on 27 September, leaving no time to print the number on packages; the rolled-over orders make Q2 "a bit low" but will land in Q3.
• H1 still grew ~40%: H1 FY23 revenue rose 40.88% YoY and PAT rose 31.03% YoY, absorbing raw-material inflation and higher shipping costs.
• A novel product just got patented: An Indian patent was granted for APF Gel, an in-house caries-prevention product that management calls "revolutionary" and expects to be a high revenue-generating product worldwide.
• The US and Canada are opening: Orders have been received from a couple of North American companies for contract-manufactured product, and the company will showcase at the biggest US dental exhibition this month; projected sales from new markets are ~₹10 crores next financial year.
• What to watch next quarter: Whether the rolled-over September dispatches fully convert in Q3, the pace of receivables recovery from Europe, and any concrete revenue contribution from the newly patented APF Gel.

The Q2 Dispatch Hold-Up

• Mechanism of the miss: Indian medical device regulations required a manufacturing license before 30 September 2022; despite completing all formalities, a delay at CDSCO and state authorities pushed grant to 27 September, leaving zero time to print the license number on packages, so all pending export orders rolled to the next month.
• Value undisclosed: Management did not provide the exact value of the held-up dispatches when asked, stating "I do not have the exact value with me right now," and offered only a qualitative assurance that the shortfall would be overcome in Q3.
• Receivables stretched: Trade receivables rose, with debtor days moving from 52 days to 32 days, attributed to delayed payments from some European countries due to the Ukraine-Russia trade war; management expects those payments in the current quarter.

Atul Modi: "We received the license and we had to suspend able dispatches. We had the orders. We could not dispatch because the license was not granted to us. The license was granted to us on 27th of September 22, and there was no time to print the manufacturing license number on the packages. So there for all the pending orders were rolled over to the next month."

Growth Trajectory & Market Position

• Domestic momentum: Business in India is growing at 30% to 40% a year, while multinational competitors are merely sustaining their business; the company's market share is only around 1.5% to 2%, with the bulk held by MNC trading offices, leaving a large runway.
• Cost advantage vs MNCs: Cost of production is almost half of MNCs' cost due to low implied cost, government subsidies and key power; selling price is also comparatively low, making the company "very, very competitive."
• Export engine intact: Export business is growing around 35% to 40% annually, and management states that trend will continue across the existing 80 export countries.
• Saudi Arabia: Regular business flows through annual agreement contracts; the distributor is fulfilling commitments and consumers are happy, with repeat orders and year-on-year growth expected.
• Europe resilient: Business has grown in Europe despite recession in some industry factors; the healthcare sector is growing, and the seven-to-eight-month-old war has had no direct impact on business in Europe or the US.

Atul Modi: "Our market share at present is around 1.5%, 2%... the maximum market share is held by the multinational companies, not by the Indian manufacturers, but by the trading companies who have their trading offices in India. So they are all multinational companies, they are holding the majority of the business in India. So we are competing with them. We have very low market share compared to them."

New Products & R&D

• APF Gel patented and commercialized: The company was granted an Indian patent for a novel caries-prevention product developed by its in-house R&D team; the product has been commercialized recently and management expects it to add substantially to revenue, describing it as a huge market worldwide.
• R&D Testing Center live: The center became operational on 1 October 2022, staffed with four scientists and technologists plus supporting staff; research will focus on biomaterials including 3D printing, with products on bioceramic, biomaterials and 3D resin printing to be rolled out one by one.
• Biomaterials tailwind: Management notes the global biomaterials market is growing at a CAGR of 7.29%, and expects the biomaterials facility to get good business once operational.

Atul Modi: "This is a new novel revolutionary product, which our company has developed in-house with our research team and we are very confident it will give a good business to our company."

New Facility & Capacity

• New facility timeline: The new facility for oral hygiene products, oral care products, disinfectant for medical devices and biomaterials is under advanced-stage implementation, with a slight delay due to late-arriving equipment; management hopes to make it fully operational in Q4 FY23, subject to regulatory clearances.
• Revenue and payback: The new facility is expected to generate an additional ~₹25 crores in revenue, with a payback period of around four to five years; it will be operational from the next financial year.
• Existing capacity sufficient: Management states existing capacity is sufficient for the next four to five years of business growth operating on a single shift, and can reach over ₹100 crores; a second shift or more machines can be added, with ample space available.

Atul Modi: "We are quite confident that our existing capacity will -- is sufficient for the next four to five years of business growth."

New Market Entry: US, Canada, Russia, Brazil

• North America orders in hand: A couple of companies in the US and Canada have evaluated samples and want products under their own brand name; packaging is being developed for them, and supplies will start soon.
• US dental exhibition push: The company plans to attend the biggest US dental exhibition at the end of this month, with meetings lined up with six of the best US companies; a product specialist is traveling from India for hands-on demonstration, and management expects a very good response.
• Sales projection: Projected sales from new markets (US, Canada) for the next financial year are around ₹10 crores, with business growth expected to be more than ₹10 crores from these countries.
• Russia and Brazil next: The company will start business operations in Russia, US and Brazil very soon; these three markets are expected to "definitely increase export revenue."
• Evaluation cycle: The product evaluation process in new countries takes four to six months; it should be completed by the next financial year, with regular business from some of these countries starting then.

Atul Modi: "The Indian products are not at all known in these countries will be the first company from India who is going to introduce products made in India."

Margins & Financial Health

• PAT margin track record: PAT margin has been growing over 20% every year; management states it is sustainable, having been maintained consistently for the last three years, with this quarter's dip attributable solely to the license-related dispatch hold-up.
• Investment in people: The increase in employee benefit costs reflects the appointment of new employees and senior marketing persons across India, which is already driving good orders.
• IPO proceeds deployed: IPO money has been used for modernization and expansion of the existing facility, including the purchase of new high-capacity, high-volume production equipment.
• Dividend stance: Management states it will take a positive decision on dividend but cannot commit anything at the moment; "we are very conscious and we'll definitely take a positive view on it."

Guidance & Commitments

Key Metrics