Hester Biosciences Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Profit up 85% in 9M despite Q3 product sales dip: Consolidated PAT surged on operational efficiencies and an unrealised forex gain in the African subsidiary, even as Animal Health System sales fell 24% in the quarter.
• Animal Health hit by a triple external shock: An early monsoon exit, low milk prices in key states, and a regulatory ban on Nimesulide combined to drive the Q3 decline; management expects a recovery.
• Poultry and Petcare are the growth engines: Poultry vaccine sales grew 20% in Q3, while Petcare revenue jumped 105%, driven by a new pet food range and deeper vet engagement.
• Africa is the swing factor: Losses in the African subsidiary halved, and a newly awarded tender in Tanzania is expected to give the business a "very big leap" starting next quarter.
• What to watch next quarter: Whether the Tanzania tender supplies begin on schedule, the launch and uptake of the Nimesulide replacement product, and any recovery in Animal Health System sales.

Q3 Performance: The Headline Miss and Its Causes

• Animal Health System sales fell 24% in Q3, the primary drag on divisional product sales, which declined 6% overall.
• Three external factors caused the drop: an earlier-than-expected end to the monsoon season in some regions, lower milk prices in Hester's stronghold states that pushed farmers to prioritise only essential healthcare, and a government ban on Nimesulide that forced a brand recall.
• The Nimesulide ban alone carried a financial impact of ₹5-6 crores in Q3; the company was prepared and is already working on a replacement product.
• Poultry Healthcare provided a strong offset: vaccine sales grew 20% in Q3 and 27% in 9M, driven by rising awareness of Newcastle Disease and Marek's Disease prevention, where Hester is a market leader.
• Petcare revenue grew 105% in Q3, driven by a strategic focus on key brands, seasonal product demands, and the newly launched pet food range that debuted in Q2.
• Standalone margins were mixed: gross margins were stable in Q3 and improved 4% in 9M on a favourable product mix, but EBITDA declined 18% in Q3 while growing 8% in 9M due to better fixed-cost absorption.
• Consolidated PAT saw significant growth in Q3 and 9M, mainly from improved operational efficiency and an unrealised foreign exchange gain in the African subsidiary.
• Capacity utilisation remains low: India at ~70%, Nepal at ~20%, and Africa at only 10%; management states current capacity is sufficient for the next two years.

Priya Gandhi: "We take full responsibility and are mindful of the fact that the numbers this quarter has not been very encouraging... our commitment to not make this disappointing last remains as strong with many quantitative as well as qualitative efforts that we are trying to make."

Africa: The Turnaround Bet

• Hester Africa losses halved: the subsidiary reported a loss of Rs. 0.57 crores in nine months, down from Rs. 13.5 crores in FY24, helped by an unrealised exchange gain on borrowings as the Tanzanian shilling appreciated against the US dollar.
• A Tanzania tender has been awarded: the company confirmed participation last week, closed with the Ministry, and expects to begin supplies; some impact was seen this quarter, but aggressive tender participation is promised from Q1 next financial year.
• Management sees a step-change coming: the African business is expected to give a "very big leap" in the next two quarters, which will "change the complete picture."
• Ethiopia is also in the pipeline: management expressed high confidence that Hester will be pushing things forward there.
• The international market has been difficult: Africa has been "riddled with each of the countries with some political issue with some financial situation in each country," but management says it has "tackled and withered" these challenges over the last two years.

Rajiv Gandhi: "We see the brighter side now. Tanzania, as Priya mentioned, tenders have already been published, we have already been awarded tender. We are moving forward now to begin the supplies in the African continent."

Product Pipeline and New Launches

• A Nimesulide replacement is in development: the company is working on a new formulation to replace the recalled brand; details on pricing and competitive positioning are not yet finalised, but impact is expected in coming quarters.
• An Avian Influenza vaccine is targeted for launch in the coming financial year; it will focus on the domestic market initially, with export inquiries already coming from the Middle East and Africa.
• New feed supplements and disinfectants were introduced in the Poultry Healthcare division and are expected to contribute significantly in coming years.
• Health products are a strategic priority: management wants health products turnover to eventually exceed vaccine sales in the next few years, with vaccines remaining the flagship banner.

Rajiv Gandhi: "Vaccines remain flagship, but under the banner of vaccines, we would want to increase our health products turnover substantially. And it should even exceed the vaccine sales in the next few years' time."

Competitive Position and Regulatory Context

• Hester claims a unique full-range position: it is the only company in India offering the full range of animal vaccines across poultry, cattle, sheep, goat, and swine, while competitors are either in poultry or large animal only.
• On regulatory processes, management pushed back against the idea that they are a hurdle, stating they are well-defined and followed, though it did not directly answer a question about how much government intervention bothers the company.
• On vaccine efficiency rates, management described pharmacopoeial standards and government testing for tendered vaccines but did not provide a specific efficiency rate or name a monitoring agency when asked.
• Poultry vaccine pricing power appears intact: after initially declining to discuss pricing, management later confirmed that passing through inflation is "not an issue at all."
• Government tender volumes for PPR and goat pox are expected to remain roughly the same or increase by ~10% as the species population grows.

Rajiv Gandhi: "We are the only company in India that is into the full range of animal vaccines. If you take all other companies, they are either in poultry or they are in large animal. We are into full range whether it is poultry, cattle, sheep, goat, swine."

Subsidiary Health and Financial Position

• Hester Nepal reported a net profit of Rs. 1.87 crores in nine months, fulfilling both export and domestic orders, and remains debt-free.
• Hester Africa is still loss-making but improving: the nine-month loss of Rs. 0.57 crores compares favourably to Rs. 13.5 crores for all of FY24.
• Consolidated EBITDA grew 12% in Q3 and 15% in 9M, while PAT saw significant growth in 9M on operational efficiency and the African forex gain.
• Management declined to provide guidance on revenue, growth, or CAPEX for FY26 or FY27, calling it something they "would want to refrain from."
• Seasonality is a known pattern: on the animal side, there are always dips in the second and third quarters in terms of size.

Guidance & Commitments

Key Metrics