*Wanbury Ltd | Management Meet KTAs* *CMP INR 242 Market Cap INR 4.64Bn* *Anticipating sustainable margins of 17-18% for FY25, attributed to efficiency measures and capacity enhancements:* • Implemented plant-level initiatives like temperature reduction and improved methanol purification, resulting in a 4.2% increase in metformin yield. • Reduced raw material costs and improved yield through R&D interventions, enhancing the margin for the antidepressant citrulline. • Conducted training programs for medical representatives focusing on product knowledge, sales techniques, and competitive advantages to enhance doctor engagement and sales closing. • Implemented territory consolidation to address underperforming regions and optimize manpower, leading to improved productivity and performance. • Introduced incentive schemes to motivate and retain field force personnel, aiming to combat high attrition rates and sustain engagement. • Provided training to field force managers on monitoring, target setting, and performance interventions to drive productivity. • Appointed a new CEO, expected to bring strategic leadership and drive the turnaround of the branded formulation business. *Positive outlook is anticipated for the branded formulation business:* • Currently, employing around 300 field force personnel and 80 managers, the business is nearing breakeven after minor losses. Expectations are for a turnaround next year. • This will be driven by corrective actions like productivity improvement initiatives, manpower rationalization, extensive training, and attractive incentive schemes for the field force in the upcoming financial year. *Mixed Acquisition Results: Success with Small Companies, Failure with Large Ones* • The company embarked on a growth journey through acquisitions, including Pathavinga, Sandoz's branded formulation business, Wonder for branded formulation business, Doctor Organic Chemicals Limited, and Cantabria. • While most acquisitions were successful, Cantabria faced challenges post-Lehman Brothers collapse due to Spain's economic turmoil and government pricing regulations, leading to substantial losses. • The company then settled with banks, raised funds, and reduced debt from 600 crores to 100 crores, demonstrating resilience amidst adversity. *Key Highlights* • Company has 2 plants in Maharashtra at Pathoganga and in Andhra Pradesh at Tampu, both are US FDA approved. Plants also has approvals of Brazil, European Union, Korean FDA, Mexican FDA and Indian FDA. • Company’s major revenue comes from API, which is ~85-90% of total revenue and rest comes from branded formulation API. • Company export to almost 50-60 countries and hardly supply to domestic markets. • Metformin which is anti-diabetic company holds global market share of 11% and sertraline which is antidepressant tramadol, in this they have global market share of 30%. • Company services clients in Europe, the US, and India, Including Pfizer, Johnson & Johnson, PNGs, Sanofis, Peribos, IPTA, and Others. Additionally, collaborating with Prati Doctor Reddy in India. • Achieved 10% reduction in raw material costs and increased capacity for citrulline by 12 to 16 tons. Additionally, expanded metformin capacity by 150 tons, with a focus on niche segment metformin DC, increasing production from 56 to 70 tons. These efforts led to improved profitability and EBITDA. • Company is also launching new products like Montalica, Lukash, etc. these are in their advanced age and are now filing some DMFs in this regard. • Company's focuses on therapy segments including gynecology, orthopedics, pediatrics, and consultant physicians with wide range product portfolio diversification and market presence. • The company acknowledges the potential in the diabetic segment and possesses API metformin for diabetes treatment, prompting the initiation of a branded business in this sector. • The high coupon rate of 21% on the new NCD issuance of 95 crores was necessitated by immediate settlement needs, with plans to refinance with lower-cost debt after the lock-in period expires. • From last 3 months company is spending capex of INR 24-25cr, this was funded from internal accruals. • R&D cost for comes to around 3.5-4% oof revenue and have team of 42, 30 for API and 12 for formulation segment. • Current utilization for API capacity is almost 80-85% and this can be debottlenecked as and when require. For formulation company outsoure as their focus is on brand building. • Warrants have been partially converted into equity, with the remaining conversion expected to comply with SEBI norms within 18 months, resulting in a promoter shareholding of around 44%. • The current tax is nil due to past losses, with a possibility of a tax rate around 18% next year. Accumulated losses stand at ~10-12cr by the end of Q3, expected to fully offset Q4. Other avenues like investments subject to RBI regulations may further offset liabilities, pending approval and support orders. *Outlook: Company demonstrates a strong potential for growth and profitability driven by focus on efficiency enhancements, capacity expansions, and diversified product offerings. Furthermore, its approach towards addressing operational challenges, coupled with the impending turnaround in the branded formulation business and the prospects in diabetic segment, underscore the company's favorable outlook for the future. *Arihant Capital Markets Ltd*