☎️ Con-call Highlights  - #SolaraActive Pharma Sciences Ltd

**Solara Active Pharma Sciences Limited (Solara) Q3 FY25 Earnings Call Key Takeaways**

**Current Financial Performance (Q3 FY25):**

- **Revenue:** INR 3,018 million, reflecting a 21% increase year-on-year (YoY) but a 13% decrease quarter-on-quarter (QoQ). The decline is largely due to increased pricing competition in the Ibuprofen market and strategic focus on expanding margins.
- **Gross Margin:** Reached 55.4%, which is an increase of 490 basis points QoQ and 1,480 basis points YoY. This improvement is attributed to a higher proportion of regulated market revenues and an emphasis on profitable products.
- **EBITDA:** INR 591 million, achieving a 137% YoY increase, though slightly down by 4% QoQ. The EBITDA margin stands at 19.6%, with an 180 basis point QoQ enhancement supported by better gross margins and cost control efforts.
- **PAT:** INR 81 million.
- **Debt Reduction:** Gross debt has been significantly reduced from INR 9,994 million to INR 8,060 million during the first nine months of FY25, with an adjusted annualized net debt/EBITDA ratio of ~2.4x.

**Operational Performance (Q3 FY25):**

- **Regulated Market Revenue:** Constitutes 76% of the total revenues.
- **Operating Costs:** Stood at INR 1,082 million, a 44% decrease YoY, and a 5% decrease QoQ, facilitated by the mothballing of certain facilities and cost-reduction measures.
- **Approvals and Extensions:**  Six key product approvals and 11 market extensions have been received.
- **Capacity Utilization:** Currently operating at approximately 65% in the core catalog business.

**Future Outlook:**

- **FY25 Revenue Guidance:** Revised downward to INR 13-14 billion from INR 14-15 billion.
- **FY25 EBITDA Guidance:** Maintained between INR 2,300-2,600 million.
- **Q4 FY25 Revenue Guidance:** Revised downward to INR 3,400-3,600 million.
- **Q4 FY25 EBITDA Guidance:** Curtailed by INR 100 million.
- **EBITDA Margin Guidance:** Projected to exit Q4 FY25 at 20-22%.
- **Long-term Revenue Growth:** Anticipated to be in the low double digits.
- **Long-term EBITDA Margin:** Expected to reach 22-23% within the next three years.
- **Net Debt/EBITDA:** Likely to fall below 1.5x in the next 12-14 months post the CRAMS carve-out.

**Key Strategic Initiatives:**

- **CRAMS Carve-out:** Plans to carve out the CRAMS and Polymer business, together with the Vizag facility, into a separate independent entity, subject to approvals, within the next 9-12 months. This aims to enable a more focused strategy and resource allocation to the CRAMS business, with the Vizag facility solely supporting the CRAMS platform.
- **CRAMS Growth:** Aiming to triple or quadruple the CRAMS turnover from the current INR 1.2 billion over the next 3-4 years.
- **Debt Reduction:** A prioritized focus on further debt reduction through free cash flow generation, targeting a reduction in net debt to approximately INR 5.6 billion by the end of FY25 and ultimately becoming debt-free.

**Concerns:**

- **Pricing Pressure:** Growing competition in Ibuprofen pricing is affecting revenue growth.
- **Under-recoveries:** Continual challenges with under-recoveries in the API business.
- **CRAMS Scalability:** The CRAMS business remains scale-challenged and requires substantial investment to meet growth objectives.

**Other Important Points:**

- Emphasis on profitable growth and margin expansion over mere revenue growth.
- Continued focus on regulated markets.
- Ongoing programs for cost improvement and operational cost optimization.
- Investments in R&D and enhancement of technical capabilities for the CRAMS business.
- Currently, there are no plans for international acquisitions in the API space due to high valuations.

* Machine generated highlights, exercise diligence

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