Parabolic Drugs Ltd., incorporated in 1996, is promoted by professionally qualified first generation entrepreneurs. It is engaged in manufacturing, including contract manufacturing, of APIs and API intermediates for domestic and international markets, including regulated markets. It manufactures Semi Synthetic Penicillin (SSP) and Cephalosporin range of antibiotics, whereby the product portfolio comprises 44 APIs and 7 API intermediates. The Company has two manufacturing facilities located at Derabassi, Punjab and Panchkula, Haryana. It also has a custom synthesis and R&D centre at Barwala, Haryana which started operations in January 2010.
Speaking exclusively to Hemant P. Maradia of IIFL, Mr. Gupta says, “We see the full effect from the ongoing capacity expansion coming forth in the next financial year.”
Do you see the current momentum continuing?
Yes, we do. We have gone in for significant capacity addition in Cephalosporin Oral range of drugs. We have augmented Cephalosporin Oral capacity by almost 40%. Full scale commercial production has already started.
We intend to capture some of the topline from the current expansion in the current quarter itself. We see the full effect from the ongoing capacity expansion coming forth in the next financial year.
There are other expansions coming up as well, and the same will commence in April and June this year. One is the expansion that we are doing in the Non-Beta Lactam space. That should come up by April.
We also have the Cephalosporin Sterile facility coming up by June.
All these expansions should eventually add capacity to the tune of Rs 12bn. How much of that we are able to capture in the next fiscal year is difficult to tell now; because it takes time for the plant to start producing at full capacity.
What will be the topline at the end of FY11?
We should be reaching around Rs 7bn at the end of FY11, give or take 5%. In FY12, we have a topline guidance of around Rs 9bn, but we will be coming up with another update in May.
When do you expect the USFDA inspection to be triggered?
We cannot say anything. It depends on the USFDA. We expect the inspection from the US drug regulator to happen sometime in Q1 or Q2 of FY12. But, we would not like to hazard a guess.
The DMFs have been filed and we are in the queue.
We have a USFDA approval for our molecule 6ATA, which we make at our Semi Synthetic Penicillin manufacturing plant at Panchkula, Punjab.
The USFDA first looks at the Drug Master Files (DMFs); if they are okay then they come for the inspection of the plant. Once the inspection is done it means you have crossed the last hurdle.
The DMF is also triggered by a customer; it’s not that after the USFDA inspection one has to go in search of a customer. So, the USFDA inspection is really the last part in the whole chain.
What about the European markets?
We already have the approval from the European regulator. We were audited by Germany for our APIs. The UKMHRA comes in if one is manufacturing formulations.
The European approval is pretty much valid for the whole of Europe. Some companies in Canada and Australia also recognise the European approval.
We are exporting to nearly 60 countries. So, the customers will be a mix of new and existing customers.
For one of the molecules – Cephaclor – we have an agreement with Ranbaxy. We had signed this agreement in February 2010. For all the other drugs it’s pretty much an open market.
Do you see interest costs coming further down?
This year definitely the interest costs are lower compared to the previous fiscal year. In FY12, since we won’t be taking on any more debt for working capital, we do not see interest costs going up, though they may not come down either.
However, the higher interest costs are definitely a worry. One has to see how the situation on interest rates plays out going forward because banks have increased their lending rates.
What is the absolute level of debt? What is the debt-equity ratio?
The debt-equity ratio is 1.4 and the absolute level of debt is around Rs 3.8bn. Out of this, we will be repaying Rs 400mn. So, that is in the process as part of the IPO objectives. We are awaiting the approval from the banks.
Give us an update on the utilisation of IPO funds?
In the IPO, we had raised about Rs 1.25bn for capex. Out of that, we have already deployed about Rs 700mn-odd in capex. The balance capex should be done in the next six months. All the capex plans are on track.
How do you see the margin picture in the coming quarters and in FY12?
Margins should get better as our sales to Europe have been increasing. In the previous fiscal year, sales to the regulated markets were fairly insignificant. As the regulated sales grow, the margins should improve going ahead.
Margins should also gain as we enter 4th and 5th generation of Cephalosporin Sterile. Sales of these molecules are going up.
Then, we are confident that once the non-beta Lactum facility goes on stream, our margins should increase.
What is the share of exports in total revenues? How do you see the domestic-international mix in the next 2-3 years?
Out of the Rs 4.66bn total sales done in Q3 FY11, exports constituted Rs 1.82bn. Out of that, 32% or about Rs 500-550mn sales came from the regulated markets. The balance came from the emerging markets. If we take the total sales, then 60% comes from Indian operations, 10% from regulated markets and the rest from the emerging markets.
We are looking at Japan very closely. We are validating our products in Japan very aggressively. The validations are underway with a few buyers. Japan is a long-term bet.
In China, we are working with one local company right now.
We expect the mix to increase gradually. I believe in three years, we are looking at 60% coming from the overseas business and the balance from the domestic operations. Exports will gain traction as and when we get regulatory approvals for our drugs.
What are your capex plans for the next 2-3 years?
We are firming up further capex plans for manufacturing of dosages. We will build the proposed dosage facility for Cephalosporin. We will start construction of the facility sometime in the middle of this year and will complete the same by the end of next year. This will be part of our existing Cephalosporin complex at Derabassi. This will be part of our forward integration initiatives.
Would you need to tap the markets again?
I do not think we will need to tap the markets for this capex. We will fund the same through our internal accruals. We might just take recourse to small term loans.
Tell us about your plans for the CRAMS business?
The CRAMS business has been a little slow starter. The customer acquisition has been slow although there are 15 projects underway right now. But recently we put in place a team in the US for business development. The team will be headed by a US national who has vast experience of CRAMS. He will drive CRAMs business from the US.
How much of your topline will come from CRAMS in 2-3 years?
Next year, we are looking at revenues of Rs 150-200mn from CRAMs business. Beyond that it would be difficult for us to say anything as this is a new business venture for us.
Right now we are in Pencillins and Cephalosporins. Going forward, we will be in the Non-Beta Lactam space as well.
Tell us about your R&D initiatives?
About 5% of our topline goes into R&D annually. We are constantly working on new molecules and new products.
We are also working on process improvements for our foray into the regulated markets. We also plan to leverage our R&D strengths for the CRAMS business going ahead.
What is the product pipeline under development and ready for launch?
Non-beta Lactam feasibility will come up in April. We have identified two products in this space. So, two products are ready for launch and final trials are taking place on another six drugs.
These six products would be launched over the next one year in the hypertension, diabetes and osteoporosis areas.
We are focusing on niche products. We are definitely looking at high margin products. Non-beta Lactam will be an integrated part of our strategy.