Nectar Lifesciences hopeful of Rs 2,000 crore in FY17

Nectar Lifesciences posted a 31 percent jump in net profit at Rs 16.11 crore for the quarter ended September against Rs 12.30 crore in the second quarter of FY16. Total income during Q2FY17 rose to Rs 414.7 crore from Rs 396.7 crore in the year-ago period.

Commenting on the earnings, Dinesh Dua, Director of Nectar Lifesciences said that company has seen a robust performance in both topline and bottomline. Dua, however, said the embargo on fixed dose combination drugs impacted revenues in previous quarters.

A recent high court order lifting the embargo will give the company dual advantage in the coming quarters, Dua said, adding that Nectar stands to gain from pharmacies destocking due to demonetisation. He expects a good Q4 show as chemists will restock supplies.

The company is hopeful of raking in Rs 2,000 crore in revenue in FY17, Dua said.Below is the verbatim transcript of Dinesh Dua’s interview to Surabhi Upadhyay and Prashant Nair on CNBC-TV18.Surabhi: Let me start by getting some colour on your earnings which were out just the other day. The revenue was up 4.5 percent, a bit of a pressure on the earnings before interest, taxes, depreciation and amortisation (EBITDA), margin decline of about 100 bps year-on-year (Y-o-Y). If you could just tell us how different segments have done for you and if you could break it down in terms of exports as well as domestic sales?A: We have had a very robust performance both on the top and the bottom-line and whatever you see in terms of EBITDA what you said just now is a net result of a little bit of a drag on our pharmaceutical operations.Our pharmaceutical operations have typically given us an EBITDA in excess of 15 percent quarter-on-quarter (Q-o-Q) and if you look at the overall EBITDA it is in the range of about 15.7 percent. The drag which has come about is primarily because of the second vertical phytochemicals and Guar Gum not operating up to expectations. We know the external reasons for that very well which are global in nature. So, having said that if you look at standalone pharmaceutical operations we disclosed to about 19 percent of our topline we have done reasonably well.Coming to exports we export to predominantly 65 odd countries including the regulated markets including active pharmaceutical ingredients (APIs) into United States and that continues to be the case. It constitutes roughly about 45-46 percent of our total turnover.Prashant: Could you tell us what the outlook is for your API business this quarter, the next quarter, the next six months essentially?A: It is a very relevant question in the present context. We have had set backs earlier when there was an embargo on the fixed dose combination and mind you fixed dose combination in the Indian pharmaceutical landscape was a very significant and substantial portion, close to about USD 3 billion out of an industry which is about USD 15-16 billion. So, that created a bit of a setback for us in the last quarter. We then changed and refocused our strategy on single ingredient drugs which means whatever molecules we make we sat strategically with our formulators, our customers and we convinced them to go immediately into single ingredient rather than fixed dose combination and now that the Delhi High Court just a couple of weeks ago has lifted the embargo of Drug Controller General of India (DCGI) of fixed dose combinations. So, we have dual advantage currently wherein the single ingredient formulation stay where they are and we have been able to get the growth in the quarter under review which is Q2.In Q3 we will have double advantage of the fixed dose combination coming back into the fray. Having said that the downside to some extent as is universally known as demonetisation because of which the chemists and druggists have destocked their inventory and that augurs very well for us not for Q3 but for Q4 wherein the restocking will take place because all the inventory that the chemists and the druggists and retailers were sitting on is now under destocking and obviously when the stocks get over they will start restocking in Q4 for us. So, I expect Q3 to be reasonably alright on similar lines that of Q2. Q4 should be another very excellent quarter for us. Overall for the year we should be able to register growth in the pharmaceutical vertical. We are currently about 8 percent volumes up and level pegging at last year because we had a great last year. But we will go beyond that as we get closer to Q4.Surabhi: That is in terms of volumes, overall can you give us a sense in terms of revenue as well either for second half or if that is a little too dicey right now to predict then the entire year FY17 as we close that out?A: Overall at the company level we should be at about closer to Rs 2,000 crore which should be a growth of approximately about 12 percent. That is assuming that Q4 should do well. It is just a guidance. Anything can happen depending on how the economy shapes up post the demonetisation phase and I hope and pray that everything fans out pretty well and if that happens then we should be closer to Rs 2,000 crore. Having said that I must qualify that pharmaceuticals will definitely register a 10 percent growth minimum irrespective of the effects of demonetisation.Surabhi: Very quickly an update on your Baddi plant, if you could tell us what is happening with respect to the pending approval there from the US Food and Drug Administration (FDA)?A: Very happy to inform you that we have yet again got our European approval through INFARMED which is the ministry of health Portugal. So, our contract manufacturing initiative is getting far more strengthened than in the past with this new approval. All the molecules both in the injectables space as well as in the old space stand approved. We also have a very big upside in the Latin American market where the results will get reflected in the 2017-18 and 2018-19.Coming to the US which is the most critical piece of this formulation facility in Baddi we were inspected if you remember in 2014 for eight Abbreviated New Drug Applications (ANDAs) out of which two oral molecules tablets where they were absolutely no observations. But on the injectable front we had five observations, two major and three minor. We submitted our response to the US FDA authorities. They took their own time of about a year to come back to us and during the Concall which is a very comprehensive Concall they suggested to us that we deploy the services of a US FDA accredited third party to audit the facility from sterile injectable perspective because there has been a bit of a change in the guidelines, the bar has been upped significantly.They want a revalidation from accredited third party auditor from the US to ensure that we are in a position to cater to the requirements of injectables in the US which is very sensitive part and we are currently going through that phase. Hopefully the report would be submitted by March and hopefully if all goes well we should be through in the market.