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Turnaround continues

* RPG Lifesciences reported another record-setting quarter, with revenue growing by 16% yoy/4% qoq to Rs1.1bn. The domestic formulations business accounted for ~66% of revenue, while international formulations accounted for 17% and API ~18% of revenue.

* Profitability also improved meaningfully as EBITDA margin expanded by ~320bps yoy and ~168bps qoq to 22.9%. Reported EBITDA of Rs258mn grew 35% yoy/12% qoq. PAT rose 41% yoy/16% qoq to Rs158mn.

* Management also expects a continued strong topline performance through the second half as growth rejuvenation plays out. Profitability is also expected to improve further due to manufacturing cost efficiencies and operating leverage from topline growth.

* For the domestic business, RPG continues to focus on key therapies such as immunosuppressants, anti-diabetic and cardiology. It plans to increase the specialist doctor coverage in adjacent areas of immunosuppressant.

* All segments performed well: Domestic formulations revenue came in at Rs744mn, sequential growth of ~6%. International formulations revenue was flat sequentially at Rs195mn. The API business grew 4% sequentially to Rs199mn. Growth in all the geographies was driven by the execution of its tailored strategies for each market. EBITDA margin of 22.9% expanded by ~320bps yoy and ~168bps qoq. EBITDA margin improvement was driven by margin improvement in each of the segments. Gross margin also improved 130bps yoy and 175bps qoq, driven by manufacturing efficiencies.

* Upbeat outlook: Management expects strong growth in all business segments to continue. For the domestic business, the current 66%/34% split of specialty/chronic will change to ~55%/45% as the company continues to focus on chronic therapies such as anti-diabetic and cardiology. In specialty as well, RPG will look for adjacencies for its strong immunosuppressant portfolio. In terms of front-end sales force, management expects to expand the sales force from below 500 currently to ~700 in the medium term. In the international business, the company is focusing on launching complex generics products such as long-acting Sodium valproate, etc. Moreover, RPG is also figuring out a way to enter the US through the partnering route. The API business continues to perform well. On cost efficiencies, RPG will continue to focus on improving gross margins through process improvements. Apart from that, the company is looking at administrative costs very closely and expects some savings from there as well.

* Turnaround continues: We expect that, with renewed focus, the company will continue to post healthy growth with consistent improvement in profitability through cost reduction and opex leverage.

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