Hikal LtdQ2 FY23

Hikal Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 1

Fundraise

Yes

Order

N/A

Capex

Yes

3 of 4 growth signals are positive.

Revenue guidance

Category 3

→Revenue target of around ₹3,000 crore expected in a few years; not within the next two years but slightly beyond that (Sameer Hiremath).
→Existing gross block can achieve ₹2,400-2,500 crore with improved utilization and better product mix; new capacity to add ₹500-600 crore (Sameer Hiremath).
→Volumes declined in Q1 FY24 due to inventory destocking; volume uptick expected from Q3 FY24 onwards (Sameer Hiremath).
→Peak utilization of new capacity will take 3-4 years to achieve (Sameer Hiremath).
→Topline of ₹3,500 crore expected once optimal capacities are reached, which is 2-3 years post commissioning (Sameer Hiremath).
→Improvement expected in volumes and margins from H2 FY24 onwards; sequential quarter-on-quarter recovery anticipated (Sameer Hiremath).
→Medium to long-term growth outlook positive; demand recovery expected in pharma and crop protection segments (Sameer Hiremath, Manoj Mehrotra).

Category 1

→Hikal expects a medium to long-term sustainable growth outlook despite short-term volatility, with demand uptick anticipated from Q3/Q4 FY24 onwards.
→Operating margins are targeted to improve from current 13%-14% levels back to historical 18%-19% within a few years for existing assets; new projects aim for EBITDA margins around 22%-24%.
→The company’s aspirational revenue target is around Rs. 3,000 crore in a few years, with current assets contributing Rs. 2,400-2,500 crore and new capacity adding Rs. 500-600 crore.
→Longer-term targets are significantly higher, with confidence in exceeding revenue of Rs. 6,000 crore by 2030; failure to do so would cause disappointment.
→EBITDA margins for the new projects target approximately 24%-25%, with a blended margin expected around 20%-23%.
→Enhanced operational efficiencies, new product mix, and commissioned capacities underpin growth and margin improvements over the next 3-5 years.

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Yes

→Hikal Limited does not plan any fresh equity fundraising as per the latest call.
→For the current year, the company plans a CAPEX of approximately ₹200 crore.
→The funding for this CAPEX is expected to be 50% from internal accruals and 50% through borrowings (debt).
→The company already has outstanding term loans of ₹550 crore and working capital borrowings of ₹240 crore.
→Debt repayments have already commenced and will continue over the next few years.
→Kuldeep Jain (CFO) stated they are comfortable with current debt levels.
→Long-term total debt levels are expected to remain roughly stable by March 2024.
→Cost of funds for the long-term borrowings is approximately 8.5%.

→The transcript does not provide specific details or figures regarding the current or expected order book or pending orders for Hikal Limited.
→However, the company mentions a strong pipeline of products under evaluation and implementation for global multinational clients.
→There is also mention of onboarding several new customers due to increased marketing efforts.
→The company highlights ongoing positive discussions with global innovators and opportunities for setting up dedicated capacities for clients.
→Overall, while exact order book numbers are not disclosed, the company indicates healthy demand prospects, ongoing client engagements, and a favorable outlook for order inflow.

Yes

→Current capital work-in-progress (WIP) as of June 30, 2023 is about ₹400-460 crores, largely for recently completed projects.
→Additional CAPEX of ₹100-120 crores is expected over the next three quarters to fully commission new capacities.
→New multipurpose animal health plant at Panoli is built and undergoing commissioning with validation batches expected in the next few quarters.
→The new capacity ramp-up will add around ₹500-600 crores in revenue potential beyond the existing asset base.
→Company plans about ₹200 crore investment in the current year, funded roughly 50% by internal accruals and 50% by debt.
→Debt for CAPEX is manageable; no new long-term loans borrowed in recent quarter; debt-equity ratio is well within norms.
→Commissioning and revenue contribution from new assets expected mainly from Q3/Q4 FY24 onwards.
→Strategic focus on enhancing manufacturing, supply chain, and ESG integration through "Project Pinnacle" for sustainable growth.

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