Morepen Laboratories LtdQ3 FY23Pharmaceuticals & Biotechnology

Morepen Laboratories Ltd

Q3 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

→Expectation of double-digit growth in sales/revenue over the next two quarters and next financial year (FY 24-25).
→FY 2023-24 expected to improve significantly from last year; FY 24-25 to show even better performance.
→Growth drivers include API business, medical devices (fast-growing), and finished dosage/formulations (steady growth with expansion efforts).
→API segment CAGR around 20%, current revenues INR415 crores with plans to add new products and expand capacity.
→Medical devices segment showing 41% revenue growth and expected to grow faster.
→Formulation business growing steadily, currently stable at INR100 crores, with plans to expand to INR200-300 crores before market listing.
→Overall CAGR target of 15%-20% in the medium term.
→Emphasis on slow and steady growth with EBITDA margins expected to reach double digits next financial year.

Category 1

→Company expects double-digit growth in revenue in the next one to two years, driven by improvements across all business segments including API, medical devices, and formulations.
→EBITDA margins targeted to reach double digits (around 10-12%) in the next financial year, improving gradually from current levels (~8%).
→Profit before tax and profit after tax have shown strong growth recently: PBT up 29% and PAT up 34% quarter-on-quarter; 61% and 67% respectively on half-year basis.
→Formulation business currently impacting margins but expected to stabilize and contribute positively to bottom line from next year onwards.
→Employee costs increasing but overall expenses under control, supporting margin improvement.
→Earnings per share (EPS) expected to improve as operational efficiencies and revenue growth stabilize; better bottom line expected in the next two years.
→Growth will be steady and sustainable, avoiding aggressive fast moves, with focus on capacity expansion and diversified revenue streams.

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Yes

→Morepen Laboratories plans a capex of INR 125 crores for the API business.
→To fund this capex, the company is considering raising funds either through debt or equity.
→The preference is to raise funds through debt since their equity is already very high.
→No new borrowing has been done in the past 25 years; capex so far was funded from internal cash flows.
→Future funding plans indicate funding capex through debt rather than equity to maintain capital structure.

→The company has a product pipeline valued at approximately $67 billion in the formulation market.
→Despite market discounts, the residual market size is expected to be around $6-7 billion.
→Morepen aims to capture about 10% market share in these products, which could translate to $500-$600 million in revenues in the coming years.
→Currently, 41 products are live; 7-8 are regularly sold, about 30 are new, with some 20 products in the pipeline.
→Market share for existing products is strong: e.g., Loratadine at 70% and Montelukast at 48%.
→Most products in the pipeline expire post-2025, aligning with business expansion plans.
→The company is working on expanding its frontend sales teams and capacity to support growth.
→Orders and sales volumes are expected to improve as capacity expands and market conditions stabilize.

Yes

→Morepen Laboratories has planned a capex of INR 125 crores specifically for the API business in the next 2-3 years, which they intend to fund primarily through debt due to already high equity levels.
→For the medical devices division, there is an additional capex requirement of INR 50 to INR 75 crores, funded through internal cash flows.
→The company is continuously expanding capacities in API and formulations, with recent capacity expansions done in the last quarter.
→A new R&D center has been developed, and a formulation export facility is expected to be operational within the next 18 months.
→The company is focused on slow and steady growth, investing in regulatory capabilities, capacity, machinery, and talent to sustain long-term growth.
→Plans include expanding the frontend sales team and growing the formulation business alongside API and medical devices.

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