Hikal Ltd’s shares surge 11% on robust Q4 numbers

Hikal Ltd’s share price surged by nearly 11 percent in early trade on May 30, following the company’s announcement of robust financial figures for the quarter ended March 2023. The agrochemicals and pharmaceutical company reported a significant year-on-year (YoY) increase of 74 percent in net profit at Rs 36 crore for the March quarter of the financial year 2023.

Sequentially, the net profit grew by 37 percent in Q4 FY23, driven by a better product mix.

During the March quarter, total revenue reached Rs 545 crore, marking a 9 percent increase from Rs 502 crore in the corresponding period of the previous fiscal year. The growth in revenue was attributed to a change in the product mix and increased demand for select products, as stated in the regulatory filing.

At the operating level, EBITDA (earnings before interest, tax, depreciation, and amortization) saw a remarkable jump of 48 percent to Rs 90 crore, compared to Rs 61 crore during the same period a year ago. Sequentially, the recovery in margins was driven by the softening of raw material prices, various operational improvement initiatives, and enhanced efficiencies resulting from ongoing business excellence programs across the value chain.

In terms of segment-wise performance, the revenues for the pharmaceutical business remained flat at Rs 309 crore YoY, while the crop protection business witnessed a 22-percent YoY growth, amounting to Rs 236 crore in Q4 FY23. The EBIT margins showed a 21 percent YoY growth in the pharmaceutical business and a substantial 167 percent YoY growth in the crop protection segment.

At 10:14 am, the stock was trading 11 percent higher at Rs 314.40 on National Stock Exchange.

Key highlights of the quarter include:

– The construction of a new multipurpose plant for Animal Health in Panoli, Gujarat, is on track and expected to be completed in H1FY24.

– The Contract Development and Manufacturing Organisation (CDMO) business experienced increased traction from both existing and new customers.

– The sales network for the API Generics business segment has been strengthened in Latin America and the Middle East markets.

– Cost improvement initiatives are gaining necessary momentum.

Jai Hiremath, Executive Chairman of Hikal Ltd, commented on the company’s performance, stating that despite the challenges faced during FY23, they were able to sequentially expand operating margins through cost reduction efforts and enhanced operational effectiveness.

Looking ahead, Hiremath said that, “We anticipate a slowdown in the upcoming quarters due to the global economic downturn and increasing pricing pressure. However, we are focusing on operational excellence and capital efficiency to reduce costs and improve margins, enabling us to remain competitive in this challenging global environment. With our emphasis on innovation, commitment to sustainability, global presence, and strong financial foundation, we are well positioned for sustainable growth in the medium to long term.”

Hikal Ltd, has recently been in the spotlight due to a report from proxy advisory firm InGovern Research. The report recommends the separation of management and ownership within Hikal Limited. Titled “Shareholder Battle Impacting Corporate Governance,” it highlights how the involvement of sibling promoters is jeopardizing Hikal’s future.

Hikal’s shareholding is divided into three main blocks. The Hiremath family owns 34.84%, the Baba Kalyani group holds 34.01% (which the Hiremath family is staking claim to), and the remaining 31.15% is held by public shareholders. The Hiremath family, promoters of pharma firm Hikal, filed a case in March against Baba Kalyani and Kalyani Group companies, seeking the fulfillment of obligations outlined in a family arrangement.

The ongoing battle between the two promoter groups, with ownership stakes of 34.84% and 34.01%, poses a threat to the company, its corporate performance, and the wealth of minority stakeholders holding 31.15%. The InGovern report calls for the appointment of a new Managing Director or CEO to separate management and ownership and ensure the company’s day-to-day operations run smoothly.

The report also criticizes the current management, accusing them of neglecting corporate sales and profitability growth. Additionally, Hikal has faced scrutiny from the National Green Tribunal for illegal discharge of chemicals, resulting in fines and compensation orders exceeding Rs. 17 crores. Furthermore, the current Managing Director has faced multiple criminal cases in the past two years.

Hikal in reponse to the report said that the legal battle between the Hiremath Family and the Baba Kalyani Family is at a shareholder level and is not expected to cause any impact on the company and its performance, calling it a one-sided and ill-informed attempt to damage the company’s and its management’s credibility.

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