Ladies and gentlemen, good day, and welcome to the Vimta Labs Limited Q2 FY 2023 earnings conference call, hosted by Nirmal Bang Equities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mitesh Shah from Nirmal Bang Equities Private Limited. Thank you, and over to you, sir.
Thanks, Rihan. Good afternoon, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you to our Vimta Labs Q2 FY 2023 earnings conference call. I thank Vimta Labs management for giving us an opportunity to host this call. Today we have with us senior management of the company represented by Ms. Harita Vasireddi, Managing Director, Mr. Satya Sreenivas Neerukonda, Executive Director, Mr. Narahari Naidu, Chief Financial Officer, and Ms. Sujani Vasireddi, Company Secretary. I now hand over the call to the company's management for opening remarks, and then after we'll start the Q&A session. Over to you, ma'am.
Thank you, Mr. Shah. Good afternoon, everyone. Thank you for joining us for our Q2 and H1 FY23 results conference call. We are pleased to have this opportunity to update you on our business performance and answer your questions. We delivered yet another robust quarterly and half-yearly performance where we substantially grew in operating revenue and profits. The Q2 result is a reflection of our strong business performance. Before our CFO, Narahari, gets into the details on numbers, I wish to share with you a few highlights for the quarter ended September 2022. We achieved a consolidated total income of INR 806.2 million. This is a growth of 23.5% on a YOY basis, excluding the service concession revenue we booked last year with regard to set up of National Food Laboratory.
EBITDA for the quarter stands at INR 261.4 million for the quarter. This is again a growth, a substantial growth of 38.6% compared to corresponding quarter year-on-year. Again, this also excludes the service concession revenue which we booked in the last year. Coming to half year performance, we achieved a consolidated total income of INR 1,606.4 million. This is a growth of 25.4% YOY. During the year, we have been able to strengthen our relationships with existing partners and add new long-term partnerships as well across a few business verticals. On the operations side, majority of our service sectors continue to grow steadily. This of course lays a good path to meet our short and long-term growth objectives.
We continue to invest in technology to add more capacity. The National Food Laboratory that we operate in JNPT, Navi Mumbai, underwent a phase II NABL accreditation audit last in Q2. As of last week, we have now full accreditation for all the food categories under FSSAI. Accreditation for food categories, all food categories in under 12 months is not a normal feat, and probably no lab could have achieved this so far. The expansion project we shared with you in our last call is well underway. We did the groundbreaking ceremony and the construction activity has commenced. This expansion will add about 140,000 sq ft, and we are also keeping an option open to increase it to 200,000 sq ft.
This will practically double our existing capacities of our life sciences facility in Genome Valley. We think this expansion will hold us good till about year 2030. Our electronics and electrical testing facility, I'm happy to share with you, was inaugurated formally in a very grand manner by Sri K.T. Rama Rao, Honorable Minister for Industry, Commerce, IT, UD and MA, Telangana State. This was done on October eighteenth. We commenced operations last year itself. However, formal inauguration took time as we were waiting for Minister of State. We are focused on our efforts to achieve our short-term and long-term growth targets and are confident to achieve the set goals in the coming quarters as well. I will now conclude my opening comments, and with this request our CFO, Mr. Narahari Naidu, to please take over. Thank you.
Thank you, Ms. Harita. Good afternoon, everyone. Thank you Mitesh Shah for organizing the call. I thank everyone for joining us for our Q2 and half year results conference call. We are pleased to take you through the consolidated financial performance of the company for Q2, followed by the half year ended September 2022. Vimta once again delivered a very strong financial performance during the quarter and half year ended September 2022. Our consolidated revenue from operations for Q2 is at INR 797.6 million, as compared to INR 650.9 million in Q2 FY22, which translates to a growth of 22.5% compared to same quarter last year. This is considered excluding the revenue from service concession arrangement, which we recorded as part of revenue from operations in the same quarter last year.
The profit before tax for the quarter stands at INR 177.6 million, with a margin expansion of 199 basis points compared to same quarter last year. This was achieved with a better cost management and operational efficiency across our business verticals. The employee benefit expense commensurate with the increase in revenue from operations, which also includes the ESOP amortization expense. A positive impact of operational efficiencies and better cost management during the quarter led to an extent offset by higher general expenses, largely due to increase in our business promotion and travel expenditure. There's an increase in depreciation expense for the quarter and half year. This was owing to the capitalization of our electrical and electronics business segment. Moving on to half year performance.
Revenue from operations for half year ended September 2022 is at INR 1589.9 million, as compared to INR 1264.5 million in H1 FY 2022. This translates to a healthy growth of 25.3%. Of course, in H1 FY 2022 we have excluded revenue from service concession arrangement. EBITDA for the half year stands at INR 509.3 million, recording a very healthy growth of 42.6%. As I mentioned, the depreciation and finance costs for the half year has increased compared to previous H1 FY 2022. This was mainly owing to the capitalization of our electrical and electronic testing operations, as well as our National Food Laboratory commenced in quarter four of FY 2022.
As on September 2022, the company had a positive cash balance of about INR 26 crores. Profit before tax for H1 FY 2023 is INR 343.6 million, recording a growth of 43.2% compared to H1 FY 2022. With this brief summary, I will hand it back to the operator, and would be happy to take the questions.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, please wait for a moment while the question queue assembles. The first question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Yeah. Thanks for the opportunity and congratulations for a good set of numbers. Ma'am, if you can briefly talk about how the key segments for us, pharma, food, GMP lab, diagnostics, environmental, electrical and environment testing, how our key segments are doing and, you know, how do you see the growth in the segment going forward?
Thank you. All the segments are doing well. Pharma especially is very encouraging. Food is also growing at a faster pace than earlier. Diagnostics, it can be better. It's a tough market out there, so sometimes it's two feet forward and two feet backward. We have made some interesting partnerships in new cities, so that's also fairly okay. E&E, the electrical and electronic testing division has had a very good opening response from the market. Our capacities are already full in one shift, so we are planning to expand into the second shift of operations as well. Coming to our environmental business, Q2 typically tends to be a low season because it's monsoon, but again, third and Q4s will be quite strong.
Sure. You know, we've reached a quarterly run rate of around INR 80 crore for the past few quarters, INR 79 crore, INR 80 crore. Normally we have seen that in Vimta H2 has always been a bit better than H1. Given our targets of, you know, INR 500 crore that we are targeting in FY 2025, we'll require a quarterly run rate of around INR 120- 125 crore. How do you see this, you know, gap of reaching from INR 80 crore to INR 120- 125 crore over the next two years? How confident are we of achieving INR 500 crore revenue in FY 2025?
We are pretty confident. That's one of the reasons why we have gone in for expansion of our facilities. It would have been ideal to have the expanded facility available for us immediately. Because of COVID, we had to slightly postpone our plans for expansion. We are still okay. I think the expanded capacities will come into good use after about 12 months. Things are going well. We don't anticipate any surprises. Of course, any growth would have steps. There could be an increase and then a quarter of landing stabilization and then an increase again.
Do you expect H2 to be better than H1 for us? Or that has been the trend in earlier years as well.
We are quite optimistic that it would be better.
Sure. If you can talk about how the JNPT lab is doing for us. Are we scaling up now? How has been the operations? You know, when do you expect to reach the optimal revenue that we were targeting for JNPT, like when do you expect to reach those revenues?
The JNPT, we were running with half accreditation, half scope accreditation until last week. As of last week, our accreditation is now full scope. There will be a joint steering committee that will be set up by FSSAI, in which we are also a member. In that committee there will be a decision on allotment of higher volume of samples to NFL. We expect that post-meeting our samples and therefore the revenues will be better.
Sure. If you can please share how has been the monthly ramp-up? Are you seeing monthly growth in revenues from JNPT, or it has been stagnant since the lab commenced operations?
The samples are quite in line with the imports that happen through that port. You will not find too many peaks and troughs. Of course, there are seasonalities of some imports, but it's quite a stable number of sample inflow into the lab. Now since we are expanding, now we have full scope for all the FSSAI food categories. The number of samples that NFL will get will increase.
Sure. Because earlier you were also facing competition from the labs which are around JNPT, and there were a share of samples which were going to them, and, you know, it was slowly increasing towards us. You know, how has been the, you know, sample diverting towards us compared to the other competitors in and around the vicinity of JNPT?
The owner of the sample is FSSAI, so it is FSSAI's discretion as to how they distribute the samples. Before NFL, there was an ecosystem of several labs catering to this requirement of, you know, import sample testing. I think FSSAI is trying to take a balanced walk and slowly, you know, adjust the sample flows, duly and justly for the labs that were testing samples earlier and to its own lab now. I think it will be a gradual process, but slowly and steadily the NFL share has to increase.
Sure. So what kind of capacity utilization do you expect to reach by, let's say, end of this year, since you know you have got both the accreditations now?
We are probably at around 50%-60% capacity utilization. There's plenty of scope to, you know, increase the utilization.
50%-60% is on three-shift basis or we have just started. I think last time you said we have started more second shift as well.
Yes. The shifts are there. It's just that we'll be adding more number of human resources when we have more samples.
Sure. Okay. Thank you, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Pratik Kothari from Unique PMS. Please go ahead.
Hi, good afternoon and thank you. Ma'am, my first question is regarding the capital intensity of our business. We have always mentioned that our CapEx would be in line with our depreciation. Just to understand, this CapEx is usually to update and upgrade the equipment that we already have in place, or this is usually to add more capacity as we go forward.
For us, CapEx is both building and then also the instrumentation. With the new project expansion that we are taking up, it's more about expanding our footprint. We are creating a new building for this. This happens not very frequently. Like, for example, the last time we took up such a huge expansion was in 2005 and 2006. We are doing this now again only in 2022. Since our growth ramp has been good, we expect that the new capacities that we are building will help us sustain for another at least 6-7 years. The instrument CapEx, yes, typically the depreciation amount is used up in going in for replacements or upgrading the technology. That's typically our trend.
This is because the testing standards should keep evolving, right? Earlier, if you were testing say parts per million, things change over a period of time. Maybe you are testing, you need to test parts per billion now or maybe something, more in, more number of tests, et cetera. Hence the upgradation, the constant upgradation that we need to keep making, right?
Yes. There are multiple reasons why we would buy, keep on buying instruments. One is definitely to increase our capabilities, scientific capabilities. The other one is just, you know, replacements. Third one is to also add more capacity.
Fair enough. Ma'am, to achieve our target of INR 500 odd crore, what would be CapEx that you would require over next two, three years?
We haven't put all those numbers together. That is usually our plans are on an annual basis. The only forward planning that we do is with respect to building and space. Because the business plans are quite dynamic in nature, and if we have to prioritize among the various options that are available, we go ahead and do that. The equipment, CapEx, you can take depreciation as the minimum amount that we would spend in the next couple of years as well.
Fair enough. Ma'am, just one question on an industry such as this. In the past calls you have talked about what the addressable market size is. If you sum it all up from food, electronics and pharma, the number is massive. It's between INR 15,000-25,000 crores or maybe more. We are the largest players in a couple of segments. If you look at our size itself, it's INR 300 odd crores in a market which is INR 25,000 crores. The market seems extremely fragmented, and we or the other NNPs have been present in this industry for many, many years and decades. What do you think the industry in general faces? What challenges do we face as an industry, that no one has been able to scale up until now?
You have rightly said that the opportunities are very good in each of the segments that we operate. The biggest challenge that we have always faced is the right kind of human resources, the right kind of technological and scientific leadership that is required for a knowledge industry like ours.
Fair enough. In one of our notes, Suparn, we have mentioned INR 0.97 million as some revenue and cost. This is ideally for the JNPT part where you would have added some capacity to the lab, the one which gets used for us, right?
Can you please come again?
In the notes to account, we have INR 0.97 million for this quarter and INR 3.3 million, I believe, for the last quarter, which is revenue from operations and lab set up expenses include this, representing the revenues will be relating to lab set up services provided under SCA.
Yes. This is nothing but the revenue what we had included as part of revenue from operations by setting up a National Food Laboratory. This is an accounting treatment in line with Ind AS. If you are seeing our results in corresponding quarter, we have included a revenue of INR 104 million in the top line, which is again a part of cost of lab set up. There's a debit and credit. We are excluding that and seeing the improvement in the business performance.
Yes. This does not include the revenue that you would have generated from that lab, right? This is just to set up that lab.
Absolutely.
Okay, thank you. Thank you so much, and all the best.
Thank you.
Thank you.
The next question is from the line of Dikshit Doshi from Whitestone Financial Advisors Private Limited. Please go ahead.
Yeah, thanks for the opportunity. The first question is regarding the JNPT lab. Can you give us the revenue number for that?
We are not authorized to share that information.
Okay. Can you just mention that, let's say in Q2 or H1, that business independently would be profit-making or still we have not reached that stage and, maybe making some loss?
It is profit-making.
It is profit-making. Ok. After all the expenses and revenue share to the JNPT.
Right.
Okay. Ma'am, my second question is, regarding this ESOP cost, which is coming in the employee expenses, how much more it will come, let's say in H2 and going forward in FY 2024?
This ESOP expense is an ongoing activity because we have launched a five-year scheme. We have taken a pool of 2% of the overall share capital. We haven't exhausted fully in terms of our ability to issue options. As and when we issue fresh options, there will be fresh expense which is coming in. Having said that, the majority of the expenses would get absorbed in year one and year two.
Okay. FY 2024, the expenses would be much lower.
Yeah. We can expect it to be lower than FY 2023.
Okay. Can you just briefly touch upon the diagnostic business, how it is doing? Because last year you were mentioning that you know since it's first year of expansion we would be going slow in adding the centers and once we see how it is performing we will expand rapidly. If you can just broadly touch upon diagnostic business.
Sure. In diagnostics, we have opened up a regional reference lab in Delhi and Kolkata. Delhi is getting to a state where it's slowly ramping up. Kolkata, we have difficulty in generating a decent amount of business there, but our efforts are, you know, still continuing. Having said this, a silver lining on the cloud is that we are focusing more on B2C strategy, wherein we are tying up with strong players locally who have complementary services or who want to outsource their lab management activity to companies like ours. There we have had good success.
Okay, thanks. When we say, let's say we are confident of INR 500 crore by FY 2025, let's say if one of the segment don't do well, let's say just like diagnostics where the competition is very high, and every player is finding a difficulty in growing. Even if one of the segment don't perform, we are confident that we will be doing such growth.
Diagnostics also plays a key role in our 2025, 2026 target. We do have a plan B. If this is not gearing up, then we have five other verticals that we can which we will push and take it towards the INR 500 crore mark.
Okay. Last question from my side. On the EBITDA margins, we are seeing it is consistently improving. The major one of the reason would be that, our gross margin is almost 75%-80%, and the other expenses and employee costs don't go up in line with the revenue growth. Is it fair to assume that by whenever we'll reach INR 500 crore, the EBITDA margin would be much higher than the current level?
It should be definitely better than what we have now.
Okay, that's it from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Dinesh Kumar Jain from Karvy Investments. Please go ahead.
Can you hear me?
Dinesh Kumar, we are unable to hear you clearly.
Hello. Yeah. Can you hear?
No, sir, we're not able to hear you.
You're not able to hear me. Can you start, ma'am?
Sir, your audio is sounding very feeble.
Can you hear me now, ma'am?
Sir, can you use the handset more while speaking and not the speakerphone?
Yeah, I've taken off the speaker phone. Ma'am, can you hear me, ma'am? I think it's clear.
Sir, please proceed.
Okay. Yes. Congratulations on the good results. You have been consistent to your mark. Also congratulations on getting all categories of FSSAI testing agencies. I have two questions, ma'am. Majorly, has there any been any major write-off during the quarter two. Has there any been any major write-offs in the books of accounts?
Write-offs is a routine business. Typically our write-offs tend to be around one and odd percent, so nothing atypical this time.
Okay. Okay, ma'am. Also what additional revenues are we expecting from all the categories? I think before you used to do only how many, 30% or so, ma'am, of all the food categories and you are now 50%-100% or more?
I'm sorry, your question is not clear. Can you repeat?
No. Yes, ma'am. What additional revenue are you expecting from testing samples for all food categories which FSSAI is going to provide us? What additional revenue are you expecting in the coming quarters?
I don't think I'll be able to comment on that. Like I said, this is a decision that will be taken by FSSAI. Meeting is expected in-
Do you think we'll be able to maintain the same EBITDA margin on the same additional revenue?
Yes, we'll be able to.
Okay. Okay, one final question, ma'am. Are we seeing any CapEx for the coming quarter? Any immediate CapEx or anything, sir?
Yes, CapEx is continuous for us. We have a budget that is spread across all four quarters.
Okay. Are we expecting any CapEx in the coming year for achieving the revenues of more than INR 500+ crores to maintain the records?
Yes, there will be a CapEx requirement every year.
If possible, can you quantify the CapEx?
Like I said, our plans are not yet made for next year, so I don't have those numbers with me right now.
Ma'am, which segment do you think is doing exceptionally well as we have all the three segments, diagnostic, pharmaceutical, food, electrical and electronic, which is recently we have started? What segment do you think should we concentrate more on?
Good question. Pharma is doing very well for us. Food, environment is also doing very well for us. Electrical has picked up nicely. Hopefully, that trend will continue in the coming years. Diagnostics, like I said, it can do way better, but the market is quite tight. Our efforts are fully there. We are patiently waiting for the results.
Okay. That's what we are expecting from. Are we venturing into all the four verticals gradually or are we seeing any particular vertical to be expanded in the coming next year or two years so on?
This is all opportunity dependent. We will be pushing all our services across all segments.
Okay, sure. Thank you, ma'am. That's all from my side. Thank you.
Welcome.
Thank you. The next question is from the line of Anurag Patil from Roha Asset Managers. Please go ahead.
Thank you for the opportunity. Ma'am, on the employee cost side, excluding the ESOP expenses, this INR 22 crore run rate for the quarter, is it sustainable, or are we expecting any increase in the coming quarters?
On the employee cost, in percentage terms, we can expect it to continue the same way as it is now. In absolute number, it may go in proportion to our revenue from operations growth.
Okay. Same will persist in FY 2024 onwards also. Can I assume that?
We can assume costs to range in between 28%-30%. That has been our past trend. We can expect that to continue in future as well.
Okay. That's it from my side. Thank you very much.
Thank you. The next question is from the line of Pooja Doshi, an individual investor. Please go ahead.
Yeah. Hi, ma'am. My question is related to clinical research arm of the business. Within that, I assume that that's the only business which is large enough to accommodate, like, these additional revenues. I suppose that tie-up part you had reduced your interest in clinical research side. I just wanted to know if, you know, you're planning to get into that again.
Clinical research is an existing service for us, so there's nothing like entering it, into it again. We are expanding our capabilities in that service segment. We are also now targeting large population studies and studies that are for large molecules.
Could you give us some idea on the order book that you have in that particular segment?
Order book specifics is competitor sensitive, so I will refrain from sharing that.
Okay. All right. Thank you. That's it from my side.
Welcome.
Thank you. The next question is from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.
Yeah. Hi. Thanks for the opportunity, and congratulations on this set of numbers. Just on the target for fiscal year 2025 of INR 500 crores, if we assume that the diagnostic business will continue to have the kind of market challenges that everyone is facing, do you still think that you will hit INR 500 crores target by fiscal 2025? Just wanted to clarify that.
This question I think is similar to one asked earlier. Diagnostics
Yeah.
is a part of our entire pie. When we are targeting INR 500, this is definitely a part of that, you know, target pie. But if this is going to not ramp up as per our expectation, we will have to push harder other services where there are good opportunities.
Okay. With respect to JNPT business, will it become, you know, more than 10% of our revenue by fiscal year 2024 or fiscal year 2025? Just if you can give us some directionally, some idea as to how big that business can be for us.
No, that is information that is proprietary to FSSAI because that's their lab. So I will not be able to share that information. I'm sorry.
Okay. Lastly, on the EBITDA margin, do you think there is more room for moving up higher on the margin side from where we are currently as our revenue ramps up from, you know, almost getting double over the next couple of years?
To answer your question, we have been improving on margins quarter-on-quarter sequentially so far.
Right.
Now we can expect it to be maintained for the future quarters.
Majority of the growth in your earnings will come from the revenue growth, not necessarily from the margin expansion is what I should take away.
Sorry, can you please come again?
What I'm saying is that, see, you are growing very fast. Majority of the earnings growth, the EPS growth that one will see in the business will come from the revenue growth and not necessarily from any operating leverage that generally one would expect given how quickly the business is going to grow.
Yeah. It can be a combination of both, but you know, the margins is dependent on the kind of projects we choose, the kind of operational efficiencies which we bring in for a specific project. We'll not be able to comment on exact margin estimates at this point of time. What we are trying to say is that we'll be able to maintain the margins what we have achieved so far.
Understood. Okay. Thank you, and all the best.
Thank you. The next question is from the line of Pratik Kothari from Unique PMS. Please go ahead.
Thank you again. Ma'am, when a pharma company or an electronics manufacturer or a trader has to get their products, et cetera, tested, I mean, usually what is the thought process on there, and how do they decide whether we should get these things tested internally or we should outsource it? Once they decide to outsource it, then there are hundred players available. If you can just help us to run through this thought process of one, how has this changed over the last few years? Has there been more outsourcing now, or is the focus still more on doing things internally? Where do we fit into the picture?
Globally, the outsourcing trends are increasing. The key reasons for outsourcing typically are because they want to have or use the technology or bring in a knowledge that they would not typically have. The other reason is testing a product requires various technologies.
Mm-hmm.
Larger companies may be able to afford having all those technologies in-house. If there are smaller or medium-sized companies, it probably makes better sense for them to outsource rather than put all that capital themselves. Third thing is compliance. Some testing you've got to do it by a third party. You have to show compliance to the specifications of the product or the regulatory requirements that govern that product. That's also one reason why they will have to use a third party lab for testing their product. Testing happens typically at, you know, a product development stage. They're continuously trying to understand the kind of product they're building, the quality of the product that they're discovering. It also happens during the product lifecycle maintenance. These are typically the reasons why it is outsourced.
Food is typically outsourced. Globally also, the food testing is increasing. Pharmaceuticals, the increase is more on the large molecules. Preclinical testing and clinical research is also typically outsourced by all pharma companies.
Mm-hmm. Right. Thank you. Really as a business that you do, I mean, what share of it would be because it's mandatory and they have to do it from a third party?
Like food, in our country, every food business operator, whether he's a manufacturer or a trader or a retailer, they have to test the food products, including the water that they use, at least once in six months with a third party lab.
Okay.
That's the requirement on the food side. Pharmaceutical side, you know, like I said, there are various components of pharmaceutical outsourcing. One is your analytical, the other one is preclinical, third one is clinical research. Clinical research and preclinical, typically these capabilities are not available within the pharma company, but large companies could be an exception. These are also given out to third parties. Analytical testing depends. Development requirements can be wide and varied depending on the product that they're getting into, so they are also outsourced. I will not be able to comment on the percentage of, you know, these two ends of testing. It will be different for each company because their strategies are different.
No. That is fine. This trend seems to be in place that as new smaller or medium-sized companies come into the picture and their focus might be on maybe designing R&Ds, manufacturing, whatever, some part of it that on the quality side or maintenance or testing, whatever, there'll be more outsourcing which comes out. The pie of outsourcing is increasing or that side anyway at least.
In India, yes, the pie is increasing, but there is potential for much more. Overseas, the concept of outsourcing, the concept of having strategic partners, strategic laboratory partners, strategic contract research partners is quite a mature model than in India.
Very well. The fact that it's a INR 20,000 crore market, but we being the largest player are only at INR 300, I mean, that kind of also signifies that a lot of it still happens internally and there's a lot of scope to outsource for them.
Yes, I agree.
Very well. Thank you, madam.
Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Yeah. Thanks for the opportunity again. Ma'am, on the pharma side, if you can, you know, talk about which segments are doing well for us, you know, analytical, clinical, preclinical. Which segments are growth driver for us, in this current financial year and then last year as well?
Hi. Good afternoon. This is Sreenivas.
Good afternoon, sir.
Coming to pharma, if you look at our mix of business, we are more inclined towards the Indian market, and we have around 25%-30% that is of the global markets. Now the mix changes with each of this market because the market which is there in Europe and U.S. is more towards the innovation pharma or innovator pharma companies, and India is more towards generic pharma companies.
Right.
When it comes to the Indian market space, on the generic space, it is the support which we provide is mainly on the R&D work for their new product development. Then, at a later stage when they want to get into the markets, there is wherein we help them with clinical studies, some pre-clinical studies to help them get their products to the market. That's the service mix, which is growing in India because the number of pharma companies getting into formulation development, the various small companies, midsize companies entering into formulations is increasing because of which the outsourcing market is also increasing, and that's a good sign for us. Externally, for us, the service mix is more towards serving the innovator companies on the pre-clinical side.
Clinical, we are gearing up to serve them, mainly the biopharma companies, but essentially it is, more on the preclinical service for the international.
Sure. You know, ma'am has been talking about, you know, large molecules being a growth driver for us. If you can talk about the opportunity there and which segments will we be focusing on large molecules?
If you look at, I mean, large molecules has been there, and, well, I mean, a well-growing therapeutics segment globally. It's been around now for more than 15 years that the U.S. and Europe have been approving a lot of biologic products for large molecules, and they've been very successfully used to help with a lot of unmet medical needs and also more towards oncology and orphan diseases. Right? With the COVID last two years, this development has taken a fast track with a lot of venture capital funds and even the investor funds coming to small and midsize companies which are abundant in Europe and U.S.
The opportunities, which arise, because of this growth in the biotech segment or the large molecule segment is the small and midsize companies still need a lot of support to help them with product development. They are good at their R&D areas, but they need support in their product development areas. The market is exciting for large molecules, both, domestic market as well as global markets. The areas for us to associate with these companies would be mainly in our preclinical, in our analytical sciences and our clinical research capabilities.
Sure, sure. We already have significant revenues coming from large molecules in our pharma division currently, or we expect this to increase going forward?
We have just started this journey five years back. I won't say significant, but we have good revenues flowing in. This is an area of focus for us, and has a potential to grow exponentially in the coming years.
Sure. On the, you know, electrical and electronic division, if you can talk about, you know, how has been the ramp up for us now, how many customers, you know, have approved us and how are you seeing the ramp up in this division?
As Harita just mentioned to you, our response from the market, early response from the market is very good. We have our order books bringing in new customers. I think currently the customer base is around 60 for us. We are also planning on increasing the capacities by adding additional shifts. Lot of, again, money or investor money is coming, helping a lot of startups which are coming in these areas, mainly in the IT hubs of India. This is a good area to be in, and I think it's going to grow further.
Sure. We invested on almost INR 20-25 crore CapEx for this segment. You know, we were expecting the asset turns for this business can be, you know, 1-1.2 times. When do you expect that we might have to go in for another round of CapEx in this?
As on end of phase one, we have invested around INR 30 crore. That is the business which has now started. Overall plan is there to invest more. As the time comes in and we exhaust these capacities, I think that's when we'll start thinking on increasing this or investing more into one or two more centers.
Given the current trend rate, when do you expect that you do this exhaust this capacity, now this year?
I think the current capacities would still help us for at least a year and a half, and that's when we'll
Okay. Sure, sure.
We'll add one more chamber, so to increase capacities.
Chamber cost will not be that much. If I think, if I understand correctly from your earlier calls, it will not be as big as what, you know, it will not be a substantial cost for us, that, chamber addition.
You are right.
Yeah. Okay. Thank you. This is all then.
Thank you.
Thank you. The next question is from the line of Nitisha, an individual investor. Please go ahead.
Hello. Yeah, congratulations to the team and thanks for the opportunity. The last conference call, you had given a number for the capacity utilization of the Kolkata and the Delhi labs, which was around 30%-40%. Ma'am, as ma'am already said, Delhi has seen some good business. Kolkata has not. Can I get a number roughly for the capacity utilization for both the labs?
Delhi would have gone up slightly, maybe by a few percentage points. Kolkata we don't have much capacity utilization.
Can you please comment if it's gone up for Kolkata or it's gone down?
Business has not gone down, but it could not ramp up from the initial seeding business that we could generate when we put the lab up.
Okay. Thank you.
Thank you. The next question is from the line of Dinesh Kumar Jain from Karvy Investments. Please go ahead.
Good afternoon, madam. I wanted to know any new discovery from our side or if we are working on some new discoveries or molecule or something like that, which will have a very good impact in future, so the growth of the company will be exponential. Any idea is there or we are working on the, that idea or in future we are going to work on that idea. I want to know present, future and all those things. Let me know, madam. Thank you.
We are not in the line of discovering anything. We support companies that are in discovery activities.
Right now we are not into the discovery side.
True.
Any effort or any future you have a vision that may work out on that angle, madam? That will be a bigger growth and a very big impact on the company.
We don't intend to come out with our own product. That's not our business model. We are basically a contract research and testing laboratory where we support our customers in their discovery and development programs.
Okay. Okay, thank you.
Thank you. The next question is from the line of Kapil Jain, an individual investor. Please go ahead.
Good afternoon, and thanks for the opportunity. I think you have touched upon electronic testing business, so I have a follow-up question on that. With Make in India push in electronics and electronics manufacturing and defense, is Vimta already seeing revenue growth and the business coming up from defense as well? That's question number one. Number two is, are you planning to expand this electronic testing business in other cities as well, apart from Hyderabad to, say, Bangalore or Delhi, where some of the manufacturing is happening for laptop or other telecom equipment? Third is, can electronic testing business be significant percentage of your revenue target of INR 500 crore in FY 2025? What is your thought on that?
Good questions. Hyderabad is a defense hub. There are a lot of defense component manufacturers here, so a good number of business comes to us from these companies. We do have plans to go into other cities. First, I think in our current expansion itself, we have created space to add another chamber here in Hyderabad itself. That's when we would get better ROI on the CapEx that we have invested for E&E testing. We'll first expand here only in Hyderabad with an additional chamber and then venture into other cities. Pune and Bangalore are definitely attractive options, and that could be the next phase of divisional growth for us. Would E&E be a significant part of our INR 500 crores?
We very much want it to be, but I wouldn't be able to put a number around that. It all depends on again, the speed at which we are able to move in the market, speed at which we are able to ramp up our manpower resources and things like that.
Okay. Just a follow-up question. Do you see any testing or any business coming up from electric battery manufacturer as well, as that is also a big business in electronics, going on these days?
Currently, we do not have a battery testing facility, but we do test components of electric vehicles.
Okay. Thanks for letting me take the question.
Welcome.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Thank you, everybody for joining us on this call. We appreciate all the questions that were asked. We look forward to connecting with you again after six months. I thank Nirmal Bang also for hosting this conference call. Thank you and good day.
Thank you. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.