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Hester Biosciences Ltd

| Q3 and 9M FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤2nd Feb 26

Summary : Hester Biosciences showed strong Q3 poultry growth and profitability, secured H9N2 license, but faces delays in animal health and lacks specific market size data for new ventures.

Management Perspective positive : Management is happy to interact, indicating confidence in results.Noted improved execution and capacity strengthening in Poultry Healthcare.Profitability improved sharply with PAT up 140% year-on-year.H9N2 vaccine positions the company well for domestic and export opportunities.EBITDA numbers are expected to be on a higher trajectory year-on-year.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 revenue grew 12% with PAT up 140% year-on-year due to product mix and cost discipline.
  2. 9M FY26 revenue was down 5%, but profits increased 16% reflecting operational discipline.
  3. Poultry Healthcare division grew 32% in Q3 and 17% over 9 months, driven by market penetration.
  4. Animal Health division declined 38% in Q3 and 40% over 9 months due to institutional delays.
  5. Received marketing and manufacturing licenses for H9N2 Avian Influenza vaccine.

Future Growth Prospects

  1. H9N2 vaccine strengthens poultry portfolio for domestic and export markets.
  2. Integrated Avian Influenza Management approach launched for holistic farm solutions.
  3. Evaluating new poultry pathogens and recombinant AI platforms.
  4. Petcare segment is a strategic focus, exploring pet vaccine opportunities.
  5. Expanded manufacturing capacity to support future growth and market penetration.

Management Insights

  1. Management focused on science, operational discipline, and sustained value creation.
  2. Q3 FY26 showed improved execution and capacity strengthening in Poultry Healthcare.
  3. Institutional delays in Animal Health are timing-related, with Q4 recovery expected.
  4. Hester is a key animal health company in Africa with diverse vaccine capabilities.
  5. Strategic priorities include reducing tender dependence and leveraging expanded capacity for growth.

Signs of Skepticism

  1. Management found it difficult to provide specific market size numbers for H9N2 opportunity.
  2. Specific market size for Petcare business was not provided, only stated as 'under 5%'.
  3. Management did not give specific numbers for future EBITDA, only 'higher trajectory'.
  4. Sustainability of improved margins is not guaranteed quarter-on-quarter due to seasonal changes.

Risk Factors

  1. Animal Health division impacted by timing-related institutional delays in government programs.
  2. Ruminant business affected by seasonal factors, lower clinical cases, and reduced milk prices.
  3. Africa operations impacted by institutional order execution delays and higher operating costs.
  4. Political disturbances and elections in Tanzania affected regional operations.
  5. Nepal operations are in a challenging phase, requiring careful evaluation.

Good To Know

  1. Other operating income includes brand income linked to development milestones for a combined PPR goat pox vaccine.
  2. GALVmed-supported program aims to advance science and enable access, not near-term commercialization.
  3. INR182 crores capital work in progress is expected to be capitalized over coming months.
  4. Africa strategy is evolving to structured execution with focus on working capital and selective geographic exposure.
  5. BSL-3 facility, originally for COVID vaccine, is being evaluated for repurposing into an animal vaccine facility.

Key Drivers

  1. H9N2 vaccine launch for poultry.
  2. Doubled drug product capacity utilization.
  3. Petcare segment expansion in India.
  4. Reduced dependence on tender business.

Key Analyst Discussions

Market Trends & Consumer Behavior

  1. Bird flu in Kerala did not impact Q3 poultry segment revenue or profitability.
  2. Indian market is shifting from tender-dependent to independent private purchases.
  3. Animal Health and Poultry businesses are cyclical and seasonal.

Financial Highlights

  1. Analyst questioned the sustainability of INR20 crores quarterly EBITDA.
  2. Management expects a higher EBITDA trajectory year-on-year, not quarter-on-quarter.
  3. Depreciation impact from capitalized fill/finish facility will be seen in Q4.
  4. Africa revenue for 9 months was INR27.5 crores.

Product Composition

  1. Poultry margins are driven by product mix and profitability choices.
  2. Increased capacity will cater to existing products and potentially more export markets.
  3. Petcare segment is in a nascent stage, focusing on technical and therapeutic products.

Strategic Considerations

  1. Company aims to reduce dependence on tender-based revenues over time.
  2. Scaling new facility involves existing products and developmental programs.
  3. BSL-3 facility is being evaluated for repurposing into an animal vaccine facility.