Solara Active Pharma Sciences Ltd (SOLARA) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Solara Active Pharma Sciences Limited Q2 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference call over to Mr. Abhishek Singhal. Thank you and over to you, sir.
Abhishek Singhal (Solara Active Pharma Sciences Ltd): Thank you, Iqra. Good evening, and thank you all for joining us today for Solara's earnings call for the second quarter and half year ended September 30, 2026. Today, we have with us Sandeep, MD and CEO, and Sharath, CFO of the company, to share the highlights of the business and financials for the quarter and H1 FY '27. I hope you have gone through our results release and quarterly investor presentation that have been uploaded on our website as well as stock exchange website. The transcript for this call will be available in a week's time on the company's website. Please note today's discussion may be forward-looking in nature and must be viewed in relation to the risk pertaining to our business. After the call, in case you have any further questions, please feel free to reach out to the investor relations team. I now hand over the call to Sandeep to make his opening comments.
Sandeep (Solara Active Pharma Sciences Ltd): Thank you, Abhishek. Good morning, good afternoon, good evening, and thank you all for joining us today for our Q2 FY '27 earnings call. I sincerely appreciate your time and presence on this call. To start with, Q2 FY '27 has been our best quarter in about five years, and surprisingly, it's been on all the profitability metrics, gross margin, EBITDA, and PAT. Overall, revenue grew 33% year-on-year to 418 crores, EBITDA more than doubled to 77 crores, up 118%, and PAT was at 28.5 crores against a loss of around 10 crores in the same quarter last year. And the good part is we delivered this quarter as the West Asia crisis continued. We continue to face pricing pressures and raw material availability challenges, which led to intermittent production stoppages. But despite that, I think we recorded a good set of numbers. Some commentary on our base business. Our base business continues to lead our growth. Revenue grew 37% year-on-year to 327 crores, staying above the 300 crore
Sandeep (Solara Active Pharma Sciences Ltd): number for the third quarter in a row. EBITDA grew 68% to 77 crores with the margin up about 440 basis points to 23.6%. Regulatory regulated markets continue to contribute about 78% of revenues which reflects a very healthy product mix. Some commentary on the ibuprofen business. Ibuprofen this quarter has performed better than expectations driven primarily by market dynamics. Revenue grew 21% year-on-year and 18% quarter-on-quarter to 91 crores supported by better price realisations as also higher volumes. The EBITDA loss has narrowed. You can see we are almost break even compared to the roughly 9 crore loss that we had in Q1. The business is now close to break even from a loss margin of around 21% just two quarters ago. Having said this, I will reiterate that the overall environment around ibuprofen still remains challenging and we haven't lost our focus on servicing large brands and marquee customers with whom traditionally we've had long-term associations. Other highlights outside of the base business, an ibuprofen business, other highlights on the regulatory front, we filed our second DMF for the year. If you if you remember, I had mentioned that we should be filing five DMFs in this financial year. So, we've we filed one in quarter one, one now, and we're hoping to file three more before the end of this financial year. Our Mangalore facility successfully completed an ANVISA audit in August. If you recollect, we had a successful ANVISA audit of our Cuddalore facility in May. I am also pleased to share that CRISIL has upgraded our ESG rating from adequate to strong. That just shows about the improving health of our business. On a on a very important point, I'm sure a lot of you are expecting us to talk about the strategic review of the ibuprofen business, so I will address it up front. This process is taking us time. We estimate that we will be able to close this in 12 weeks. So, we will come back to you with an update on the outcome of the review and the next steps as I said, in a period of 12 weeks. I personally, sincerely appreciate your patience. You really supported us us and been patient with us as we built our base business. And I would request a similar patience as we close out on the ibuprofen strategic review. Our balance sheet has strengthened meaningfully during the first half of FY27 and Sarat will take you through the financial details. As always, I would like to thank our shareholders for your continued support and trust and I would also like to thank the Solara teammates for all the effort that has been put in. Before I hand over to Sarat for his opening remarks, a happy festive season to all. Over to you, Sarat.
Sharath (Solara Active Pharma Sciences Ltd): Thank you, Sandeep. Good morning, good afternoon, and a very good evening to everyone and thank you for joining our Q2 FY27 earnings call. Sandeep has already covered the headline headline results and the highlights of the business, so I will actually focus on the broad level financial metrics. For this quarter, for Q2 FY27, the four-wall business has clocked a gross margin of 197 crores odd which is roughly 28% increase over YoY as well as 9% improvement on a QoQ basis. And and this gross margin came at a 47.2% of of gross margin profile, which is slightly higher than Q1 but albeit, it is slightly lower by roughly 200 basis points as compared to last year, which was predominantly driven by incremental raw material costs as well as input costs driven due to the West Asia crisis. Having said that, our base business has clocked gross margin of 50% plus.
Sharath (Solara Active Pharma Sciences Ltd): incremental input cost which I spoke about because of the West Asia crisis. On the other hand Ibuprofen gross margins have actually recovered to a 36% level during the quarter driven by changing market dynamics which saw a spike in demand as well as slightly better pricing as compared to the previous quarters. But as Sandeep mentioned, this is something commodity pricing market and this is something which we have to watch for the next quarter as well. On the operating cost front, we have been able to sustain our cost base roughly around 120 odd crores which is predominantly flat over the previous few quarters. Hence, enabling the incremental gross margin flow through to the EBITDA. Our overall EBITDA margin expanded to 18.4% from 11% around last year. And it is a significant improvement of of roughly 720 basis points as compared to YoY. And also up by close to 200 basis points as compared to Q1 of FY '27. On on the depreciation front for the quarter, depreciation was close to 266 million, which was in line with the previous quarters. However, our net finance costs have actually dropped by close to 30 27 million odd 27 million odd as compared to previous quarters, and that's a reduction of roughly 17%. And that has resulted because of reduction of debt by close to 114 odd crores during H1. We have recorded an exceptional loss item of 45 million, which was predominantly because of unutilized equipment lying at our Vizag facility which we have sold. And that is something which we wanted to recover cash. And because of this, our PAT, although it has been the highest in the last 5 years, we have we have recorded a a PAT which is roughly 75% higher on a QoQ basis. Resulting in an earnings per share of 5.92 per share. Adjusted for this exceptional item, EPS would have been further better by close to 1 rupee per share. For the first half of FY '27, EBITDA was consolidated at close to 140 odd crores at 51% at an EBITDA profile of 17.5% as compared to close to 15% last year. PAT is something which we have recorded close to 45 odd crores in H1 and this was something as compared to H1, H1 was almost at a breakeven level. Net debt is something which we have focused focus on as a company and we have been able to reduce net debt to close to 500 odd crores from 614 odd crores which was there as on March '26. Of this reduction, 1 100 odd crores came from the rights issue money, balance 14 crores was from the operational cash flows. Given this, fact, net debt has, net debt to EBITDA ratio multiple has actually improved to close to 1.8x as compared to 3.2x what we had last year. And this is something which should be able to be in the similar range over the next medium term. However, on a sequential basis, the net debt has moved up by close to 20 odd crores as compared to June '26. Since we have invested in additional working capital to to actually sustain the sustain growth in the business as well as some sort of maintenance CapEx. Going forward, we will continue to focus on operating cost leverage and margin expansion and on our working capital discipline and and we'll try to fund our growth CapEx while keeping our balance sheet strong. As always, we actually thank you for your support and patience as we continue to work towards turning around the company. And now we'll be happy to take your questions, if any.
Moderator: Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Sajal Kapoor (Antifragile Thinking): Yeah, hi. Thanks for the opportunity. Hi, Sandeep and Sharath. Congratulations on a very strong quarter, especially given the challenges the company has been navi- navigating. I have got few questions, please. First is regarding this review, Sandeep. I mean, you said the Q2 results would set out the clear path last time around in July. What is still unresolved, and has this quarter's improvement change the options you are considering? And is the 45 million Vizag loss a one-off cleanup or the start of a wider reassessment of the 182 crore Vizag project, according to the annual report? That's my first question. Thank you.
Sandeep (Solara Active Pharma Sciences Ltd): Can you hear clearly over there? Okay. Good afternoon by, good afternoon, Sujal. Nice speaking to you again and thanks for staying invested with us. Regarding the Ibuprofen review, I know we did make a mention in earlier calls that you would hear back from us in Q2. And, as I said, we need to, we need many of you to have patience with us, because this is not an easy decision. Nothing has changed in that option, Sujal. I mean, the options staring at us are the couple of options that we talked about. One is repurposing the plant from being a single product dedicated facility to a multi-product facility. And in that multi-product facility, among others, we can do intermediates as well. The intermediates that we use for captive consumption. And of course the other option is the external option of finding an appropriate buyer who can take this facility. I think nothing has changed in the options we have, but we just need a little more time to make a decision that is good for all our stakeholders. So I'm hoping that while there will be a lot of questions around it, I'm requesting everybody's patience for that additional 12 weeks to sort of come out with that final analysis. I'm sure that that whatever we decide on will be extremely good for Solara as well as all these stakeholders.
Sajal Kapoor (Antifragile Thinking): Sure, sure. Thank you. And that Vizag a one-off cleanup, Sharath, is that, is that a one-off or a
Sharath (Solara Active Pharma Sciences Ltd): So, Sujal, currently that's that is something which is a purely one-off and hence we have actually categorized that as an exceptional item. Having said that, once we complete this entire review around the Ibuprofen piece of the business, that is something at that point of time, we will be having much more information in terms of if we have certain wider spread as well. Otherwise at this point of time from Vizag standpoint, we don't foresee anything further coming at this point.
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