Neuland Labs - Company Snapshot

Neuland Laboratories Limited -  Company Overview 

Shuchi.P.Nahar - @shuchi_nahar

Neuland is a leading manufacturer of active pharmaceutical ingredients (APIs) and an end-to-end solution provider for the pharmaceutical industry’s chemistry needs. The Company operates in the market using two main business models - Generic Drug Substances (GDS) where they cater to the needs of the Generic players and Custom Manufacturing Solutions (CMS) where they primarily work with innovators by helping them bring critical products to the market. CDMO is the emerging growth segment of the company with 13 to 17 Molecules in development phase.

1.     Business Performance

Neuland lab (NLL) has posted revenue of INR 2,054mn with 13.5% YoY increase, which was 4% below. The revenue growth was mainly driven by the CMS segment, led by 32 molecules (Development + Commercialize) with speciality API segment, which grew by 33.2% in Q1FY21. EBITDA margin expanded by 622bps to 16.5% level, which was 219bps higher than our estimate driven by 580bps improvement in gross margin led by improved product mix.

Management is confident to improve margin profile from current level on the back of strong order book in CMS business, better traction in GDS business and cost optimization measures. In terms of emerging CDMO player Company has couple of molecules go up from 13 to about 17 in the development Phase-and from 14 to about 15 in our commercialization phase. Some of these molecules are generating part of the growth & some of the revenue growth is also coming from the increase in the number of projects itself. Most of the molecules are in their last phase of approval, that means there are more chances of approvals coming in years. API & CMS both have healthy pipeline for future growth. 

2.      Revenue Growth 2019 v/s 2020 

Revenue in the year 2019 was Rs. 670 Cr. Of which 54% was contributed from Prime Segment, 25% from Niche/Speciality Segment, 14% from CMS Segment and rest 7% from others Revenue in the year 2020 was Rs. 766 Cr. Of which 46% was contributed from Prime Segment, 27% from Niche/Speciality Segment, 21% from CMS Segment and rest 6% from others.

3.     Key Operating Metric – CMS Revenue Split

4.     R&D Expenditure

In terms of expense 2% R&D as a proportion to revenue. The R&D team has been a crucial partner in the growth of the CMS business managing the spike in number of projects while also making significant contribution in terms of Process Improvement & Development (PID) work for the GDS business.

A pilot plant has been commissioned at Unit III, which enables our team to further accelerate the process of development of new products.

Unit III is being operationalized which will add to the capacity and revenues from FY21. Company commissioned a pilot plant at Unit III for use by the R&D team. It will primarily be used to manufacture engineering/ development batches.

5.     Regulatory Filings by the Company till Date in various Countries 

•          880+ DMFs filed.

•       300+ API processes developed.

•       204+ patents filed.

•       Received USPTO patent for improved process synthesis of Paliperidone Palmitate.

6.     Investment

Capital investment during the year stood at 347.18 lacs. The Company enriched its assets pool with new XRPDs, HPLCs, ICP MS, LCMS, and PSD equipment. This would help increase project management and document filing capability.

It’s expected the contribution from the high-volume segment to be gradually replaced with the CMS segment and to register healthy revenue growth of 26.6% over FY20-22, fuelled by the ramp-up in supplies of existing products and possible commercialization of products in clinical trials.

7.     No of CMS Active Projects Increasing

8.     Management Guidance

•      Capex for FY21: INR700-INR 800mn.

•      Unit 3: To fully commercialize from Aug 20, existing capacity sufficient to cater 2-3 years revenue. growth Awaiting more clarification from government on incentive scheme for API manufacturing.

•     NLL has 4 APIs out of 53 critical APIs where India has a large dependence on China.

•      Remain optimistic about the growth of CMS business.

9.     Future Outlook

There is a lot of traction on the CMS new projects as well as good growth in the baseline of the CMS business which is the traditional whole CMS company had for several years.

The outlook remains positive especially because the two markets that Neuland is focusing on Japan and North America and their pipeline of opportunity looks quite strong the pipeline of projects that have entered the system in the last 3 to 6 months are quite advanced in nature, like say 3 molecules are about to get into commercial.

These are opportunities which have a shorter cycle for commercialization. So, unlike say 4-5 years ago, where the company was mostly engaged in phase I, phase II projects now they are all in the last phase and they would go through a natural attrition and a long cycle.

 

References: Neuland Annual Report 2019-20 & 2018-19

                     Neuland Investor Presentation & Conference Call Transcripts

 

 

 

 

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