Hester Biosciences Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Revenue crossed Rs. 300 crores, a milestone: Consolidated revenue grew 18% QoQ and 14% YoY, with standalone up 20% QoQ, driven by a poultry recovery and strong government vaccine supplies.
• African subsidiary is the main drag on profits: Hester Africa posted a Rs. 18 crore net loss, almost entirely from depreciation and an unrealized forex hit on the Tanzanian Shilling, while its EBITDA was positive.
• Poultry division staged a sharp recovery: 22% QoQ growth came from an industry upswing, new product introductions, and a technical sales push, but management offered no data to show the upturn is structural.
• Management declined to quantify the future: Citing a "once beaten twice shy" stance after a tough period, the promoter refused to give revenue or margin guidance for FY25, saying only that the trajectory is "upwards only."
• What to watch next quarter: Whether the poultry recovery sustains without hard data backing it, any tangible progress on Tanzania distribution that reduces tender dependency, and the ramp-up of the repurposed BSL-3 facility and new fill-finish line.

The African Subsidiary Problem

• Loss composition: The Rs. 18 crore net loss breaks down into Rs. 6 crores of depreciation and a Rs. 9 crore unrealized foreign exchange loss from Tanzanian Shilling depreciation, against a modest positive EBITDA of Rs. 1.5 crore.
• Root cause is macro, not operations: War, COVID aftershocks, and a dollar shortage in purchasing countries mean tenders are won but vaccines cannot be supplied because buyers lack foreign exchange.
• Distribution pivot underway: The company is building a distribution network that does not depend on tenders, aiming to reduce exposure to sovereign payment crises.
• Dossier pipeline: Hester Africa has submitted dossiers for CCPP and Sheep and Goat Pox vaccines, and already commercializes a lumpy skin disease vaccine supplied to three or four African countries.

Rajiv Gandhi: "Incidentally, we have been going through the bad times and those reasons are beyond our control, war, COVID, dollar issues with all the countries that would need to purchase vaccines."

Poultry: Recovery Without Proof Points

• Q4 surge: The poultry healthcare division grew 22% QoQ, credited to an industry recovery, strategic product introductions, and an emphasis on technical after-sales service including field performance monitoring and vaccine administration support.
• Industry tailwinds cited: Feed prices are stable, overall demand is healthy, disease incidences are low, and the Government of India has permitted production of Avian influenza vaccines, with launches expected in 3 to 8 months.
• Structural shift toward controlled farming: The move to controlled poultry housing raises biosecurity risk and creates more vaccination and healthcare product opportunities, a trend Hester is positioned to serve.
• No quantitative evidence offered: When asked for specific data points proving the upturn is structural rather than a one-off quarter, management repeated the same general indicators without providing the requested parameters.

Animal Health: Tenders, Vaccines & Capacity

• Government tender lift: Q4 was the strongest quarter for supplying Goat Pox and PPR vaccines under the national immunization program, with vaccine margins driving a segment PBIT of Rs. 12.3 crores on Rs. 34 crores of revenue.
• Lumpy skin disease vaccine in development: Technology has been acquired from the Government of India's ICRI; developmental activity should be ready around next year, before the government resumes buying.
• BSL-3 facility repurposing: The facility originally built for COVID drug substance is being converted for commercial production of veterinary vaccines, with all government grants now received and the final milestone payment collected from BIRAC.
• Fill-finish line near completion: Part of the Rs. 168 crores of CWIP, this line is expected to go on stream in the next two months, adding finishing capacity.
• Nepal plant running well below capacity: The plant did Rs. 13 crores of turnover but has roughly three times that capacity available, with plans to increase poultry vaccine manufacturing for domestic and Central Asian export markets.

Rajiv Gandhi: "We did a turnover of Rs. 13 crores. Now, even at this rate, we still have more than double the capacity, three times rather we can do turnover in our Nepal plant from where we are."

Healthcare & Dairy: Early-Stage Bets

• Healthcare division: Q4 saw a slight sales dip versus the corresponding quarter, but the full FY24 showed roughly 49% YoY growth in its first full operational year with all four quarters functioning; management is optimistic about exponential growth in coming years.
• Dairy sector engagement: Lending-linked consolidation is tying insurance to vaccination, creating an entry point; Hester is identifying distributors and connecting them with insurance agents, though progress is slow given the vast, fragmented dairy farmer base.
• Product mix ambition: In coming years, the company wants to focus more on health products, which will shift margins depending on the mix achieved.

Priya Gandhi: "I think yes, the margins will sort of shift depending on the product mix, but in the coming years, we definitely want to also focus more on health."

Financial Health: Debt Down, Guidance Off the Table

• Debt reduced by Rs. 30 crores during the year, alongside improved cash flows and growth in both EBITDA and PAT that closely aligned with sales performance.
• Profit margin expansion was attributed primarily to a strategic product mix shift rather than cost-cutting.
• Management refused to quantify FY25: When asked for revenue growth in volume and value, and for divisional revenue and margin guidance, the promoter declined, saying the company is on an upswing but will not discuss numbers after a difficult period.
• Hester Nepal began paying income tax for the first time, a sign of maturing operations in that subsidiary.

Rajiv Gandhi: "It is like we are working hard towards it... once beaten twice shy, we have gone through bad times. We would not really want to discuss these in terms of number, but sure it is upwards only."

Guidance & Commitments

Key Metrics