Natural Capsules LtdQ1 FY23Pharmaceuticals & Biotechnology

Natural Capsules Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 2

→Capsule business volumes are consistently growing; last year utilized 96% of installed capacity (18 billion capsules).
→HPMC capsule capacity to add 3 billion, with 50% utilization expected this year.
→Total capsule business revenue expected to be around 2 to 2.1 times the asset base (~100 crores), indicating approx. 200+ crores sales for FY24.
→API business to commence small commercial sales from Q2 FY24 and ramp up from Q3. First-year revenue for API business expected around 50-65 crores.
→API volume/utilization expected around 50% in the first year, reaching 60% in the second year.
→API margins expected to improve to ~20% when 30-35% revenue comes from regulated markets (year 3 or 4).
→Combined capsule and API revenues could reach 250-300+ crores in near term, with long-term API business potentially reaching 2.7 times asset turnover.
→Mexico contract to add approx. 1.8 billion capsules per annum starting Q2 FY24, improving margins.
→Overall growth trajectory is positive with ramp-up and capacity expansions underway.

Category 3

→Capsule business expected to maintain consistent volume growth with around 96% installed capacity utilization last year; HPMC capsules capacity to be added, utilizing about 50% in FY24.
→Overall asset turnover target around 2 to 2.1 times in FY24, with capsule business expected around 2.5 times in coming years.
→API business to ramp up from FY24, with first-year revenue approximately ₹50-65 crores and expected to improve margins by year 3-4 as exports to regulated markets increase.
→Margins for capsule business currently at ~18%, likely to improve; API business aiming for 20%+ margins by year 3 with about 30-35% revenue from regulated markets.
→Revenue forecast conservative for FY24 with stability in realizations and gradual volume increase; full ramp-up and better profitability expected post-FY25.
→Working capital for API business expected higher (90-120 days) but manageable.
→Expansion and entry into new markets (e.g., Mexico) to support top-line and bottom-line growth.

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Yes

→Natural Capsules has raised equity at the subsidiary level (Biogenex) to fund the API business, which included a planned total investment of ₹75 crores in two tranches (initially ₹50 crores, followed by ₹25 crores based on mutual agreement).
→No immediate plans for further dilution or fundraising beyond what is already public; the current minority stake in Biogenex is around 10%, potentially going up to about 35% by FY27 with private equity milestones, Natural Capsules expects to retain around 65.6%.
→The equity raise was primarily to manage increased project cost (from ₹96 crores to ₹130 crores), extended working capital needs, and to deleverage the overall group balance sheet.
→No additional fundraising planned beyond these tranches for the API business; the focus is on utilizing existing capacity and strengthening financials.
→There are no current firm commitments for new fundraising, though infusion beyond ₹50 crores depends on future opportunities and mutual consent.

Yes

→Biogenex subsidiary has some technical grade API commitments from foreign buyers that still stand (Page 20).
→Letters of intent and soft commitments are in place for steroidal APIs; the company is preparing for validation and launch of small volume kilo lab to fulfill these (Page 6).
→Mexico contract entails incremental business of approx. 1.8 billion capsules per annum (~4 containers), expected to start from Q2 FY24, providing a significant export boost (Page 8-9).
→No explicit consolidated order book value mentioned, but strong indications of ongoing and upcoming contracts with domestic and export clients.
→Some delays noted in API business scale-up but commitments remain intact; expected capacity utilization at 50% in year 1 and 60% in year 2 (Page 20).
→Export orderbook and sales expected to increase from 21-22% of revenue to about 35% with the Mexico order adding significantly (Page 10).

Yes

→The total CAPEX for the API business has increased from an original 96 crores to about 130 crores due to cost escalations and stretched working capital cycles.
→The current capital raise of 75 crores (in two tranches: 50 crores initially and 25 crores later) is aimed at funding this expanded CAPEX and strengthening the balance sheet.
→There are no further expansion plans beyond the current API project funding; the focus is on executing the existing plan and avoiding over-leveraging.
→Capacity utilization targets are projected at around 50% in FY24 and expected to be cash positive by FY25.
→The capsule business expansion phase is mostly completed, with capacity increased to 22 billion capsules per annum.
→Future strategic investments include exploring local manufacturing opportunities in untapped export markets for capsules, such as Latin America.

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