Hester Biosciences Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Cyclical trough after a record year: FY22 revenue and profit fell sharply against an all-time-high FY21, driven by poultry demand normalization and a near-total evaporation of licensing fees. Management calls it a cycle bottom and expects a bounce in weeks or months.
• Health products grew 44% but compressed margins: The segment scaled fast, yet raw material costs surged on freight and geopolitics and the company absorbed the hit rather than raising prices, so the mix shift toward lower-margin health products also nudged gross margin down a point.
• Licensing fees collapsed from ₹17.6 Cr to ₹3.9 Cr: The Egypt project delay and a lumpy tender cycle wiped out a high-margin income stream; management has now internally reset planning to treat these fees as zero and run the core business for standalone profitability.
• Africa and Nepal are small but growing fast: Hester Nepal hit an all-time-high ₹13.9 Cr turnover, and Hester Africa commercially launched two vaccines with a third awaiting license. Both are pivoting toward higher-margin private-market distribution.
• What to watch next quarter: Whether the PPR tender shipment actually begins within a month, the pace of pet product launches and initial offtake, and any sign that the poultry cycle is turning as management predicts.

The Cycle: What Drove the Downturn

• FY21 was an abnormal peak: Q3 and Q4 FY21 saw record demand driven by a poultry disease outbreak that forced heavy preventive and curative spending; FY22 suffered entirely from comparison to that one-off event.
• Poultry normalisation hit the top line: As the disease pressure receded, so did the urgent demand pull, leaving FY22 volumes well below the prior year.
• Recovery call is a conviction bet, not a data point: Management offered no leading indicators, only the view that cycles "touch bottom and then again touch the peak" and that a turnaround is likely in weeks or a month or two.

Rajiv Gandhi: "I am sure in weeks or probably in a month or two, everything would be set right and there are these cycles always come at one time, it is touching bottom and then again it touches the peak, so we are reasonably confident that we should be able to have this turnaround sooner than later and we should be back bouncing up."

Health Products: Growth at a Margin Cost

• Segment revenue jumped 44% in FY22: Formulations spanning vitamins, antibiotics, enzymes and pharma raw materials drove the expansion.
• Raw material costs were absorbed deliberately: Freight price increases, geopolitical disruption and reduced raw material inflow into India pushed input costs up sharply; the company chose not to pass these on, protecting volume but sacrificing bottom-line contribution.
• Gross margin on product sales slipped from 72% to 71%: The nominal decline was attributed to a higher proportion of health products in the mix, since health products generally carry lower gross margins than vaccines, though management noted some health SKUs can out-earn vaccines depending on product mix.
• Capital efficiency is the strategic offset: Management argued the capital-to-turnover ratio for health products is far more favorable than for vaccines, so even at lower gross margins the segment can sustain overall profitability as it scales toward ₹1,000 crores or beyond.
• Trishul acquisition is the distribution bridge: The 50% stake in Trishul, an existing health-products company, was taken specifically to accelerate market penetration in a segment where Indian competition is high and organic entry takes longer. The stake stays at 50% for now, with the original owners continuing to manage operations.

Rajiv Gandhi: "If you look at a vaccine entity, Vaccine Company the ratio for capital is to turnover is very adverse as what it is in the health products."

Licensing & Service Fees: A High-Margin Stream Dries Up

• Fees fell from ₹17.57 Cr in FY21 to ₹3.85 Cr in FY22: The drop flowed directly to the bottom line and was the single largest profit swing in the year.
• Egypt project delay was the main culprit: The Egyptian partner's project stalled; had it stayed on schedule, service and licensing fees would have risen in FY22 itself. No revised timeline was given.
• Internal planning reset to zero: Management has taken a decision to plan for standard profitability assuming licensing and service fees contribute nothing, treating any future fees as an incremental upside. The stated rationale is that the core business is manufacturing and distribution, not licensing income.

Rajiv Gandhi: "We should derive full income, full profitability from that, let this be icing on the cake."

International: Nepal Delivers, Africa Builds Slowly

Hester Nepal

• Turnover hit an all-time high of ₹13.9 Cr versus ~₹4 Cr in the prior year, driven by FAO tenders, direct country orders for PPR vaccine, and roughly ₹2 Cr in first-time domestic Nepalese sales.
• FAO is discussing 15–20x current volumes: Even a marginal increase from those discussions would sell out Nepal's manufacturing capacity entirely.

Hester Africa

• Two vaccines commercially launched: Newcastle Disease Vaccine and PPR vaccine are now in the market; CBPP vaccine for cattle has been produced, is under test, and a selling license is expected in the next few weeks.
• Tender commitments from countries including Tanzania have stalled: Management attributed this to country-specific situations and is shifting focus to private-market distribution, where realizations are far higher: a product selling at Rs. 100 in India can fetch Rs. 150–200 minimum in Africa, and up to 3–4x.
• Wait-and-watch posture for one more year: On how African economies shape up, management will observe for another year while pushing hard on private-sector awareness and distribution networks; lower quantities sold through private trade could still yield higher revenue and margins than tenders.

Rajiv Gandhi: "I can also tell you that the margins by selling it in through the private, through the trade are immensely high, than what it would be in terms of the tenders, etc., are concerned."

PPR Vaccine: A Global Franchise Waiting for the Tender Cycle

• Hester holds 70–75% worldwide market share in PPR vaccine: The claim covers both India and all international markets.
• Government of India tender for 20 crore doses was awarded: Hester was L1; supplies were to begin in January/February but have not yet started and are now expected within a month.
• UN eradication commitment is the long-term demand driver: The United Nations' commitment to eradicate PPR worldwide is expected to gain traction in the next few years and generate substantial business for both Hester Nepal and Hester Africa.

Rajiv Gandhi: "Today, if you really go to see PPR vaccine, you take a worldwide survey of the supply of PPR vaccine, Hester Biosciences actually produces and sells, has more than 70% to 75% market share in PPR all across the world including India as the country."

New Initiatives: Pet Division, COVID Facility, Capacity Expansion

• Pet division launched with three products on shelf: An Omega supplement is already out with good feedback; six more products are to be launched in the next few months for a total of nine, with a first-year topline target of Rs. 3–4 crores.
• Pet vaccines planned for next year: Two pet vaccines are targeted for launch, leveraging the company's established vaccine strength. Distribution will mix direct-to-retailer/veterinarian channels with online, including direct B2C.
• Animal vaccine capacity doubling: A bulk inactivated antigen facility is expected on stream in Q1 FY23, with fill-finish following in Q3 FY23; the doubled capacity will also allow exports of inactivated bulk antigen to European vaccine producers.
• COVID-19 drug substance facility is complete: Construction is done and all plant and machinery are in place after shipping delays; validation and trial production will begin soon. The facility is multipurpose by design: if COVID vaccine demand declines, it can be repurposed for other microorganisms with no restrictions. The sales outlook, however, depends on the Government of India and Bharat Biotech and is "a little bit open at this point of time."

Guidance & Commitments

Key Metrics