Fermenta Biotech Ltd Q2 FY21 Earnings Call Analysis
Revenue, margin, capex, fundraise and order book outlook from management commentary.
Management growth scorecard
Revenue
Category 3
Margin
Category 1
Fundraise
Yes
Order
N/A
Capex
Yes
3 of 4 growth signals are positive.
Full analysisRevenue guidance
Category 3- Animal feed volumes are expected to maintain or increase, with potential for 60-70% volume growth once new products get approved by customers.
- Animal feed prices remain volatile; growth depends on market prices recovering from current lows ($18-$20/kg).
- Human Vitamin D3 sales are near full capacity; new expansion expected to add 25-30% capacity by end of Q4 FY21.
- Backward integration to start benefiting margins from Q3 FY21 onwards, expected to improve EBITDA margins by 100-200 bps.
- New products like vitamin K1 manufacturing to start by Q1 next year, targeting existing customers.
- Greenfield expansion at Saykha expected to commence by Q4 FY22 or Q1 FY23, diversifying product portfolio.
- The company aims to maintain 20-25% EBITDA margins with balanced revenue streams from existing and new businesses over next 4-5 years.
See what Fermenta Biotech Ltd management said on margin guidance — free account, 30 seconds.
Fundraise plans
Yes- The company plans a greenfield expansion with a CAPEX of Rs. 150-200 crores over the next 2-3 years, mainly for diversification into new nutrition areas.
- Funding will be through a combination of internal accruals and some amount of debt.
- There is a possibility of reducing or avoiding external debt if real estate monetization works out.
- They are actively engaging with potential real estate buyers to monetize non-core land assets, which would help pay down existing debt and fund future expansion.
- No concrete deal or due diligence process has started yet for the monetization but the intent is clear.
- No mention of immediate equity fundraising; focus seems on financing via internal and debt sources combined with asset monetization.
See what Fermenta Biotech Ltd management said on order book — free account, 30 seconds.
Capex plans
Yes- Fermenta Biotech plans a greenfield expansion with a CAPEX of approximately ₹150-200 crores over the next 2-3 years.
- The expansion includes setting up new plants in Saykha, Gujarat (near Dahej), focusing on nutrition portfolio diversification.
- New products targeted include minerals such as iron (ferrous salts) and calcium salts, with significant market opportunity bolstered by government fortification programs.
- Premixing plants for fortified foods like milk and rice are part of this strategy, aiming to capture a substantial emerging market.
- The Dahej plant has completed backward integration for manufacturing cholesterol, a key raw material, improving cost efficiency.
- Funding for the CAPEX will be a combination of internal accruals and some external debt, potentially offset by real estate monetization.
- New production facilities (e.g., for Vitamin K1) are expected to be operational by end of the current financial year or early next year.
- An American subsidiary has been set up to expand US market footprint.
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Margin guidance
Category 1- Expectation to maintain EBITDA margins in the range of 20-25% over the next 4-5 years with new and existing business contributing about 50:50 to revenue.
- Backward integration (manufacturing cholesterol in-house) expected to provide 20-25% savings on cholesterol raw material costs, potentially improving EBITDA margins by 100-200 basis points starting Q3 FY21.
- Capacity expansion in human healthcare segment expected to increase overall capacity by 25-30%, with commissioning targeted by end of Q4 FY21. Utilization of expanded capacity expected to be immediate.
- Animal feed business volumes expected to grow by 60-70% from current levels once new products gain approvals, though prices remain volatile and demand is currently subdued due to COVID-19 impacts.
- Long-term revenue growth driven by growing demand for human Vitamin D3 and recovery in animal feed sector post-pandemic.
- New greenfield projects with investments of Rs. 150-200 crores planned over 2-3 years for further diversification and growth.
Order book
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