Expect double-digit growth in FY15: Nectar Life

Stock price of Nectar Lifesciences has nearly doubled in one year and spiked 38 percent in 1 week post its performance in first quater. In an interview to CNBC-TV18, Dinesh Dua, CEO of Nectar Lifesciences details the Q1 performance of the company and says he is confident of achieving double-digit growth in FY15.

The company is hoping to get USFDA approval for its formulations plant in Baddi. Of late, Nectar is focussing on changing revenue mix to formulation instead of APIs.

 Below is the transcript of Dinesh Dua’s interview to CNBC-TV18’s Ekta Batra and Anuj SinghalEkta: I will start with your Q1 performance, your revenue growth was 10 percent but your EBITDA margins expanded to 17-18 percent versus 16 percent on a year-on-year basis and your profit growth was quite robust as well. Can you tell us what led to a subdued growth in revenue and what led to the EBITDA strength that we saw?A: The question is very relevant in Q1 in the sense that we are at an inflexion point in pharmaceuticals. As you see the mix of our business we have grown last fiscal year by 62 percent which is absolutely a record by any standards either global or local. In Q1 the story continues, we have grown significantly in the pharma space whereas the other verticals basically are not performing as well as they should have. So what you see in terms of the turnover, it is basically a pure growth of pharmaceuticals and also in formulations in particular. Obviously the result in EBITDA as well as the profits that we have reported are a direct consequence to higher sales in pharma. Ekta: Can you tell us what you did in terms of your API business, your formulation business, your menthol business and which one are you possibly seeing the maximum revenue growth from geographically?A: Broadly speaking 88 percent of our business in Q1 has come from pharma and in pharma also close to 80 percent has come out of the API, the bulk pharma which is where we are the biggest and majority of the molecules that we deal with globally. The phytochemicals has contributed only 12 percent so that is broadly the breakup of the business and therefore the EBITDA on an ongoing basis that we earn in the pharmaceutical business remains at a robust 20 percent. Anuj: In terms of your overall projection for this year do you think you can repeat the Q1 performance or even better it for the next three quarters as well and in terms of revenue an EBITDA growth can we see high double digit growth?A: Yes we will definitely go beyond what we have reported in Q1 because typically what happens from the domestic landscape as well as to some extent on a global landscape is that H2 is always a much better time for pharma. Therefore what we have reported now in Q1 would definitely be surpassed in Q3 and Q4 in particular. Q2 would just be a replication of Q1 and therefore one I certainly expect double digit growth in the whole fiscal. We should end up and it is just a guidance to about Rs 2000 crore out of which close to about Rs 1500 crore would come out of pharma and if you look at the EBITDA that we have been reporting 20 percent we should get about Rs 300 crore for the year.

Anuj: Which geography is looking the most promising to you for the next growth opportunity?A: We have been waiting for our US FDA approval particularly in formulations because API facility is already approved by practically every authority of the world including US FDA but the formulation facility which got inspected by US between January 12 to 21 is something that we are looking forward to. The general time for approval has gone from six months to a year. We have already crossed six months and our approval should come any moment. Once that approval comes in there is going to be a paradigm shift in terms of our geographical distribution of the business. We expect close to about 30-35 percent EBITDA in our US business in formulations as has been the case with all the big pharma who have their foot prints out there in US. So that is going to be our core market to concentrate on and that is one thing that is going to propel this company forward in terms of gaining an EBITDA margin of 25 years in the next foreseeable three-five years. Ekta: Can you tell us what sort of conversation you have had with the US FDA and when can we possibly hear something more concrete in terms of an approval for the Baddi facility? A: Good question but due to reasons of confidentiality I cannot comment on the communication we have been having, I will just end up saying that we have had very positive exchange of communication and everything that has been pointed out, small little points here and there which is in the normal course things which are pointed out here and there, we are done with that, we are over, we have complied and we are expecting our approval anytime. We have consulted our consultants as well as the best brains in the industry and the stock replies the same I have given already that it might take anything between six-nine months. So we have passed six months, anytime the approval should be coming forth and that would bring about a paradigm shift and change in the mix of our business from the current 80-20 percent of API versus formulations in the next five years I am looking at a very high value arbitrage and a business mix of 50-50 between API and formulations.