Hester Biosciences Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Sales down 9% on a one-off comp, underlying growth intact: Excluding a one-time pharmaceutical sale in the base quarter, sales rose, while Animal Healthcare jumped 41% and Poultry Healthcare grew 35%.
• Profit surged 30% on mix and efficiency: EBITDA and PAT both grew as management focused on high-margin products and tweaked operations, lifting margins materially from recent levels.
• Africa is the swing factor: The subsidiary turned EBITDA positive, has high tender visibility, and management expects a "geometric progression" from here, though the P&L still carries depreciation and FX drag.
• Capacity doubling lands in Q3, with no further capex needed: Freeze-drying capacity will more than double when the new line comes online in Q3; the spend is already incurred and no additional capex is planned for Africa or Nepal.
• What to watch next quarter: Whether the Q3 capacity addition translates into revenue, whether Africa's tender pipeline converts into reported orders, and whether the 21% margin floor holds as the product mix continues to shift.

Topline: The 9% Decline Is Optical

• One-time pharma sale distorts the base: Overall sales fell 9% YoY solely because Q1 last year included a one-time pharmaceutical product sale; stripping that out, sales increased.
• Animal Healthcare led with 41% growth: Driven by both trade and institutional channels, with the domestic dairy sector's positive trend lifting sales of mineral supplements and intramammary products.
• Poultry Healthcare grew 35%: The poultry industry's recovery helped the division regain momentum; field-level technical services, robust monitoring of vaccine administration, and a Newcastle Disease vaccine variant all contributed.
• Petcare rose 29% on vet-clinic penetration: Growth came from deeper prescription of Hester products among vet clinics, addressing unmet needs in parasiticide, anti-inflammatory, and anti-infective categories; a new skin care tonic launch proved popular.
• Broiler price cyclicality is a known pattern, not a trend: The Shravan month normally brings a dip in broiler prices; management sees no negative trend in poultry based on current prices, and feed costs have marginally declined for farmers.

Rajiv Gandhi: "At least this quarter has shown us that a little bit of tweaking that we have done, it has helped us to improve our margins tremendously. The endeavor continues to be in that direction. To give you a timeline on that would be a little difficult at this point of time, but we are working on it."

Profitability: Mix Shift and Tweaks Drove the 30% Jump

• High-margin focus and operational efficiency lifted profit: EBITDA and PAT both grew 30%, driven by a deliberate shift toward higher-margin products, strong divisional performance, and improved operational efficiency.
• 21% steady-state margin is called sustainable: Management confirmed that the current ~21% operating margin level is sustainable, while noting that the historical 33-34% margin reflected a narrower, institutionally focused poultry-vaccine business with low distribution costs.
• The product mix has permanently changed: The business now includes health products, large-animal vaccines, large-animal health products, and petcare, all of which carry different margin profiles and higher go-to-market costs than the legacy poultry-vaccine franchise.
• Internal ambition is to climb back toward legacy margins: Management has an internal determination to reach previous margin levels, but declined to put a timeline on it, calling it difficult given the mix evolution.

International: Africa Is the High-Conviction Bet

• Hester Africa turned EBITDA positive: The subsidiary swung from negative to positive EBITDA; the remaining overall loss stems from depreciation and unrealized foreign exchange fluctuations.
• Tender visibility is unusually high: Management is vigorously engaging in international tenders and cultivating trade demand across multiple African countries, and expressed very high visibility on both private-sector and government business.
• "Geometric progression" is the stated trajectory: Management said the Africa business will go up in geometric progression from here, citing high entry barriers that, once crossed, mean less competition.
• The distribution investment is in place: The network created via the Trishul Exim investment is operational, and positive signs point to orders coming in within a few months.
• Nepal is self-sustaining: The Nepal subsidiary executed export orders against government tenders, met domestic poultry vaccine needs, generated positive cash flows, and fully paid all bank term loans.

Rajiv Gandhi: "All that I can say that we will be only going up in a geometric progression from where we are at this point of time, you could be rest assured of that and the African market, it is a tough market entry barriers, but once in it, we are there because there is very less competition."

Capacity & Capex: The Heavy Lifting Is Already Paid For

• Freeze-drying capacity more than doubles in Q3: The new capacity comes online in Q3 FY25, and the associated capex has already been incurred.
• India is near full utilization: Current capacity utilization at Hester India is near full, while spare capacity exists in Nepal and Africa.
• No additional capex planned for Africa or Nepal: Management confirmed no further capacity investment is being made in those geographies.
• BSL-3 facility repurposing is a low-cost option: An application has been made to the government to repurpose the BSL-3 facility, originally built for COVID vaccine bulk antigen, for other animal vaccines already in the pipeline or licensed; only minor modifications are needed, with little capex.
• Revenue potential is product-mix dependent: Per an analyst's math, full-capacity revenue could approach ₹800-₹900 crores, but management pushed back, saying the total will not reach ₹900 crores and that equating capacity to revenue is very difficult given product-mix variability.

Pipeline: Four Vaccines, All With Regulatory Uncertainty

• Low Pathogenic Avian Influenza (H9N2) vaccine: Planned launch in Q4 this year or Q1 next year; management sees reasonably good domestic potential and even larger export potential because few countries manufacture it.
• Lumpy Skin Disease vaccine (India): Uses a strain isolated within India by IVRI; management hopes to introduce it sometime in the latter part of calendar year 2025.
• Lumpy Skin Disease vaccine (Africa): Already commercially launched in Hester Africa using the Neethling Strain; supplying a few African countries and made one supply to a Central Asian country.
• Brucella vaccine: A recombinant modified vaccine that is very safe for humans vaccinating cattle and does not reduce efficacy versus the current S19 vaccine; no launch timeline was given, and management refrained from sharing details until something concrete emerges.
• PPR vaccine outlook: FAO and other NGOs are reminding manufacturers to enhance capacity, as PPR will be required in a very big manner; some countries have started budgeting for it, though overall PPR sales have been much lower to date.
• All timelines carry a regulatory caveat: Regulatory standards in India are getting very stringent, even in veterinary healthcare; timelines are sometimes not in management's control.

Priya Gandhi: "Whenever we give a tentative timeline of launch, whether it is to do with the lumpy skin, or the Avian Influenza, or Brucella, these are all based on a set of assumptions and where we are at today. Regulatory standards in India are getting very stringent, even in the veterinary healthcare sphere. These timelines sometimes are not even in our control, but we are working towards the development and the launch."

Divisional Dynamics & Working Capital

• Poultry is on an upward cycle: The poultry industry is on an upward curve that has recently begun and is expected to remain for a good period; the industry is in a reasonably good situation compared to the last two years.
• Dependency on any single division has fallen: Hester is no longer dependent solely on poultry; with three divisions (Poultry, Animal Health, Pet), relative dependency on any one has become reasonably less, and Pet is the fastest growing off a small base.
• Petcare is prescription-led, not lifestyle: Future introductions will focus on prescription-based healthcare solutions, not grooming or accessories; a couple of additions are planned in coming quarters with no investment plan.
• Working capital cycle runs 4-5 months: Channel inventories and debtors together require around 4 to 5 months of working capital; inventories are primarily raw materials and work-in-progress for vaccines, plus traded goods for health products, with roughly two months of inventory and a similar debtor cycle due to market credit.
• Management declined to disclose segment-level revenue splits: Requests for the breakup between vaccine and health products, and between tender and private business, were declined as "a difficult proposition."

Guidance & Commitments

Key Metrics