Shilpa Medicare Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Eighth straight quarter of margin expansion: EBITDA margin reached 26%, up from 20% a year ago, while H1 FY25 PAT already exceeded the full FY24 total.
• Formulations are the growth engine: Formulation revenue jumped 40% YoY on emerging-market and licensing strength, while the API business contracted 13% YoY.
• The pipeline is converting from R&D to revenue: Multiple complex filings and approvals landed this quarter, and management expects the main market-share traction on key products to begin in Q4 or early next fiscal year.
• Biologics turned the corner: The biologics subsidiary reported its first-ever net profit, and recombinant human albumin cleared Phase I, with Phase III set to start early next year.
• What to watch next quarter: Whether the USFDA remediation completes on schedule by end-Q3, the pace of Pemetrexed volume uptake, and any revenue contribution from the newly approved Bortezomib RTU.

Formulations: The Growth Driver

• Broad-based surge: Formulation revenues grew 40% YoY and 15% sequentially to INR120 crores, driven by healthy growth in emerging markets and the licensing segment.
• US business doubled QoQ: US sales rose from INR10 crores to INR19 crores, primarily because Pemetrexed profit-share revenue began flowing in Q2 and is expected to grow in upcoming quarters.
• Pemetrexed reimbursement locked in: A K-code was granted in Q2, following the Q1 J-code, completing both insurance reimbursement and premium pricing setup.
• Traction timing: Management expects the main market-share traction to start from Q4 or Q1 of next financial year, with volumes already increasing slowly quarter-on-quarter.

Keshav Bhutada: "the main market share traction, we will see starting from Q4 or Q1 of next financial year."

API: A Tale of Two Halves

• Headline decline masks a split story: API revenue fell 13% YoY and 12% sequentially to INR193 crores, dragged by oncology customer disruption and a European regulatory gap.
• Oncology API slowly recovering: The largest customer, Intas, received an FDA warning letter last fiscal year and has been working on remediation over multiple quarters; a slow quarter-on-quarter uptake is now visible.
• Europe waiting on UDCA: The European business remained weak because the company was waiting for a CEP approval for Ursodeoxycholic Acid API, which has now been received, with sample feeding started for all customers.
• Recovery signal: Management expects a good increase in Europe API business in upcoming quarters following the UDCA CEP approval.
• Oncology outlook: Single-digit growth is expected, with management "very positive" about even double-digit growth in the upcoming financial year.

Pipeline Conversion: Filings, Approvals & Launches

• Nilotinib ready to launch: The first DMF with a captive, non-infringing formulation strategy received European DMF approval this quarter; launch is expected in Q3 FY25, partnered with the number-one generic company in Europe.
• Bortezomib RTU approved: NDA approval was received in Q2, making Shilpa the only company in the US to offer a ready-to-use subcutaneous injection; launches are expected in upcoming quarters with a US partner already in place.
• Axitinib approved in Europe: Approval received this quarter; launch is planned upon patent expiry, likely in the next financial year.
• Rotigotine patch filed in Europe: Filed with partners; approval is expected in the next financial year, with no generic approvals currently on file.
• Semaglutide advancing: Lab development completed this quarter; plant validation is planned for Q4 FY25.
• Tranexamic acid expansion on track: Validation batches planned from Q3, with commercial supplies starting from Q4.
• Two new oncology validations initiated: Planning to finish by Q4 FY25.

Biologics & Albumin: The Next Leg

• First profit at the biologics subsidiary: Shilpa Biologics turned positive at the net profit level for the first time during Q2 FY24.
• Recombinant human albumin cleared Phase I: Phase I human studies completed successfully; an application for Phase III clinical study has been submitted to DCGI in India, and a USDMF has already been filed.
• Therapeutic-grade timeline: Phase III is expected to start early next year, with a one-year study duration, followed by filing and subsequent launch.
• Excipient-grade ready now: A drug master file already exists; the company is in a position to start business immediately and is already working on inquiries, though no specific timeline was given for when revenue will materialize.
• Aflibercept in Phase III: Studies started this quarter; completion is expected sometime next year, with a subsequent filing planned in India.

Keshav Bhutada: "the market is expected to grow year-on-year, and multiple applications are getting discovered in this."

CDMO: Early-Stage Build-Out

• Three new API CDMO clients added: All are in the development phase, with new clients added every quarter as part of the typical cycle.
• Dedicated block for Unicycive: Creation of a dedicated manufacturing block has started for the current partner; commissioning is expected in the next financial year.
• Complex polymer order shipped: An initial development-quantity supply was finished this quarter for use in an ADC program by a large pharma customer.
• Biologics CDMO progressing: A Korean client completed all preclinical deliverables, with subsequent orders expected; a US client completed the first development phase and is expected to enter the second phase; a third US client is expected to complete its development phase in Q3 FY25.
• Two new CDMO projects signed: Signed this quarter; development activity begins in Q3 FY25.
• Management cautious on early-stage visibility: The company declined to provide color on the potential of the three new client projects, noting that a clear picture only emerges when programs reach advanced stages.

Financial Position & Capital Allocation

• H1 PAT already ahead of full FY24: PAT of INR32 crores in H1 FY25 is slightly higher than the entire profit for the whole of last fiscal year.
• QIP proceeds fully utilized: The entire QIP amount has been used for the purpose raised, with the monitoring agency confirming closure.
• Debt reduction underway: NCDs have been fully repaid, though the quarter included a one-time charge of INR8.3 crores for proportionate issue-related costs. No further NCD borrowing reduction is planned this fiscal year; additional operating cash flow is being used to reduce working-capital borrowing.
• Tax rate to normalize: The high effective tax rate stems from interest income in the parent entity from foreign subsidiaries and interest capitalization in a subsidiary where operations have not started; restructuring is expected to bring the rate to approximately 35% from the second half of FY26, "hopefully a little earlier."
• Promoter pledge clearance: Expected to clear in the next 6 to 9 months.

Alpesh Dalal: "the PAT at INR32 crores during first half is slightly higher than the entire profit for the whole of last fiscal year. So, what we have done the whole of last year, we have already achieved..."

Guidance & Commitments

Key Metrics