Good evening, everyone. To take us through the results and to answer your questions, we have with us the top management represented by Mr. Saharsh Davuluri, CEO and Managing Director, Mr. G.V. Bhardwaj, EVP Finance, and Mr. Sajeev Medikonda, Head of Corporate Planning and Strategy. Mr. Abhijit Majumdar, CFO of the company, couldn't join us today due to some personal exigencies. We will start the call with a brief overview of the financials by Mr. Bhardwaj, and then Saharsh will give you the broad highlights of the business trends and what he is seeing in the market. Post that, we will open the call for Q&A session. The standard safe harbor clause applies as we start the call. With that said, I now hand over the floor to Mr. Bhardwaj. Over to you, sir.
Thank you very much, Runjhun, and good evening to everyone joining our call. I'll quickly run through the financials before Saharsh shares his thoughts on the performance and the business. The total income for the quarter stood at INR 457.2 crores compared to INR 516.1 crores in the corresponding previous last year. For the first half of FY 2027, the total income stood at INR 1,107.2 crores compared to INR 816.7 crores in H1 of FY 2026. Commercial CMS molecules continued to make meaningful contribution to revenues during this quarter, while GDS business saw contributions from our Prime as well as Specialty portfolio. As we have consistently indicated earlier, the timing and product mix of our business can result in variability between individual quarters. We therefore continue to believe that the progression of the business is better evaluated over longer periods of time.
Gross margin for the quarter stood at 59.4% compared to 60.1% in Q2 FY 2026. As always, gross margin includes manufacturing expenses and other costs directly attributable to the product. EBITDA for the quarter stood at INR 104.6 crores, representing a margin of 22.9% compared to INR 156.9 crores and a margin of 30.4% during the corresponding period last year. Profit after tax for the quarter was INR 51.1 crores compared to INR 96.5 crores in Q2 FY 2026. EPS for the quarter stood at INR 39.85 per share. During the first half of the financial year, we also experienced increase in input costs. The geopolitical environment and the ongoing conflicts in different parts of the world have led to volatility in certain raw material prices and escalation in freight and logistics costs. Working capital for the quarter stood at 104 days of sale compared to 84 days in the previous quarter.
Optimal utilization of cash continues to remain an important priority for us. We continue to focus on inventory management, customer collections, and aligning working capital requirements with the changing scale and composition of our business. Our ongoing capital investment continue to progress in line with our plans. As we also have indicated earlier, the nature and scale of this investment will continue to be evaluated against customer requirements and the opportunities we see across our businesses. Our CapEx outflow during the first half of FY 2027 was INR 261 crores, and free cash flows for the period stood at INR 99 crores, while net debt stood at INR -208 crores. While we remain conscious of external environment and near-term cost pressures, we continue to take long-term view for the business and remain disciplined in the way we deploy capital.
As in the past, our investor presentation, which has been shared along with the press release, contains further details on the financial performance. With that, I would like to hand over the call to Saharsh for his remarks. Thank you very much.
Thank you, Bhardwaj. Good evening, everyone, and welcome once again to the call. As the numbers show, this quarter has been below the trend that we have seen over the last few quarters. However, if we consider the first half of the year, it was largely consistent with our expectations. Before getting into further details, I think it's important to once again emphasize the underlying dynamics of our business, particularly for those of you who may have started following Neuland more recently. As a CDMO, Neuland's business follows the development and commercial requirements of individual customer molecules. In development, not every molecule advances through clinical trials or reaches commercialization, and project timelines also can shift. Commercial molecules also contribute unevenly as customer requirements, shipment schedules also vary sometimes between quarters.
As individual commercial shipments become larger, a shift in timing can have a greater impact on quarterly revenues, and that's why we keep saying lumpiness quite often in our earnings calls and conversations. This makes growth uneven from a quarter-to-quarter basis, and that is why we keep saying that we need to assess our business over longer periods. Over the last several years, Neuland has evolved considerably as a CDMO supporting innovators developing new chemical entities. FY 2026 was the first year where we actually had greater revenues contributing from CMS in comparison with GDS. We believe the increasing contribution from CMS will remain an important part of Neuland's evolution over the coming years. Coming specifically to this quarter, revenues were predominantly driven by the commercial molecules in CMS, along with products from the Prime portfolio within GDS.
While this quarter has seen sequential moderation, we continue to see a steady flow of new proposals. Our commercial NCEs will continue to drive the business in the near term, while newer projects progressing through the pipeline will support our long-term growth. One development that has been particularly encouraging is the level of RFP activity that we have seen in this financial year, and it has been the strongest to date. We're seeing multiple opportunities stemming from relationships that have been built and nurtured over several years. This reflects the continuous efforts of our teams and lends further credibility to the importance we have placed on long-term customer engagement. As we have indicated in previous conversations, the diversification of the customer base has been a priority over the last few quarters.
We have made meaningful headway in establishing relationships with big pharma, and we are continuing to make steady progress in this direction. At the same time, several of the proposals coming through have been a result of sustained efforts to build new customer relations. Turning to GDS, the business navigated unforeseen disruptions from geopolitical turbulence, limiting the impact on the overall business. We have filed two DMFs during this period. One is fezolinetant and the other is ivacaftor, strengthening our GDS portfolio. The first half of the year has also marked several developments on the investment and capability front. We have commissioned our new peptide block at Unit 1, which has seen encouraging traction and has given us greater confidence and visibility as we plan the next modules of our peptide expansion.
We are also planning to inaugurate our new process R&D center at Genome Valley in Hyderabad, which we expect to be fully operational by early next year. During the quarter, we took another long-term step through the acquisition of approximately 134 ac of land at Kakinada in Andhra Pradesh. This provides us with a sizable base for future expansion. As our customer discussions broaden and the nature of opportunities evolve, it is important that infrastructure does not become a constraint to our ability to respond. Kakinada gives us greater flexibility as we assess our long-term capacity requirements while remaining focused on building capabilities aligned with customer needs rather than adding capacity in isolation. I would probably urge investors to look at the investment in Kakinada more from a long-term return perspective rather than something that will give us returns in the immediate timeframe.
We believe these investments help us build and broaden our customer base. We also see encouraging responses in conversations with new customers. They are returning quickly with second and third projects, supported by the work we are doing and capabilities such as peptide API development and manufacturing. As we look at the second half of FY 2027, we remain vigilant and are closely watching movements across raw materials, freight, and the wider supply chain. Our teams continue to work on sourcing strategies, inventory planning, and operational efficiencies to manage these pressures while ensuring continuity of supply to our customers and to the patients. There are also risks intrinsic to the development of our programs. Molecules can progress differently from initial expectations, customer timelines can move, and the increasing value of individual commercial shipments can amplify the impact of timing movements between quarters.
We have become increasingly familiar with these characteristics as the business has evolved. At the same time, the breadth of capabilities, the breadth of customer conversations, the opportunities emerging from the relationships developed with a clear focus on human health over the years gives us confidence in the direction in which the business is moving. Our focus remains straightforward: execute consistently, deepen customer relations, and continue strengthening the capabilities required to support our customers. The first half was largely in line with expectations we had set for ourselves. As we enter the second half of the year, expectations of growth remain intact for this as well as the following financial year. We remain focused on delivering against those expectations while continuing to build the foundation for Neuland's longer-term growth. On that note, Runjhun, I would request you to open it up for Q&A.
Sure. Elba, we can start taking the questions.
Sure. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who has a question may click the raise hand icon located at the bottom toolbar on your screen. When called upon, you will receive a prompt to unmute. To ensure we provide space for as many participants as possible, we request you to limit yourselves to two questions per turn. We will wait for a moment while the question queue assembles. We take the first question from Sajal Kapoor of Antifragile Thinking. Please go ahead.
Yeah. Hi. Good evening, team, and thank you for doing this on Zoom. It makes a real difference, for sure. Congratulations on inaugurating the peptide facility. It is also good to see the working capital down from 155 days to 104 days, and phase III projects moving up from 8 to 13. That kind of speaks to the pipeline question I raised earlier this year. I have two questions, both on the peptide investment. First, if the peptide plant sits empty for three years, who bears that cost, Neuland or your customers? What in your contracts determines that?
Sir, thanks for your wishes. I think with regards to the peptide facility, which has been just commissioned, the way our relationships with our peptide customers are is that we enter into MSAs for producing PPQ batches, which is the validation batches. Upon successful completion of validation, concurrently, we will also enter into commercial supply agreements. Typically, in our experience in the CDMO business, our deals have been typically about completing validation and then pivoting from validation development going into the manufacturing. So, we start with the CDMO work, which is leading up to PPQ, and then once you are completing validation successfully and if their drug is going as per track, then you pivot from a MSA that is focused on PPQ to a supply agreement.
During this transition and post this transition, typically idle capacity, cost of running the plant does not get into discussions with the customer unless it is a plant that has been built for a specific project. The peptide facility, as we have mentioned earlier also, has been built keeping in mind a portfolio of projects, and we are fortunate that a couple of those projects are moving forward, and we expect this facility to be used by these couple of projects. Therefore, if there is any idle time that happens to occur, which will happen for sure in the next one and one-and-a-half years , then that will be borne by Neuland, and it will be idle cost.
That is helpful, Saharsh. Thank you. Second question is, we have a fair bit of concentration, right? So, your top 5 customers are contributing 68% of revenues today. If for some reason, unfortunately, we happen to lose one of them, which investment will you reconsider in that kind of a scenario? Will it be phase II peptide or the Kakinada? Thank you.
Good question, Sajal. I think, again, it is a theoretical question for us. The module two, module three, module four, which is the peptide investment, will get triggered if module one gets occupied. If we have some kind of negative impact in our current CMS business or commercial business, we would still continue with those investments because we believe that there is a sustained demand for peptide API, and therefore, we will continue that investment. Even if you look at the Kakinada question, if there is an impact on our commercial products, the question we will ask ourself is, what is going to be the impact from a short to medium term? We will probably modulate our move to Kakinada accordingly.
I think as I think through this, maybe the immediate answer, which maybe we will have to think through further, will be not hold back on peptides, but maybe slow down a little bit on Kakinada. Also keep in mind that we also have land around unit 1, which we are also expanding. Our board had today approved investment to add some more land, which will expand our unit 1 footprint. So, Kakinada would be slightly long term, so I guess that can be the one that can be deferred a little bit.
That is very reassuring, Saharsh. Thank you for all the answers and all the very best. Thank you.
Thanks. Thanks, Sajal.
Thank you. We will take the next question from Chirag Shah of White Pine Investment Management. Please go ahead. Chirag?
Yeah. Thanks a lot for the opportunity. Am I audible? Hello?
Yes, you are.
Am I audible?
Yes.
Sir, three questions from my side. Question one is again on the peptide side. Where are we in the stage of recognizing the revenue? Because even when you do PPQs, there would be some revenue. Even when you do MSAs, there would be revenues. So, where are we in the stage of recognizing some revenue from peptides? Is it one and a half years away? See, based on your understanding of the development stage of that particular molecule or the two molecules that you are talking about. That is question one.
Maybe six to nine months away, Chirag, to see PPQ-related revenues coming from peptides. We already bill peptide revenues around development, but they are not substantial.
Okay. And then pivot towards MSA if everything goes correct with another six months, correct? That would be the right way to think about it?
Yeah, I think six to nine months because there is also timing, documentation, customer decision-making, everything. So, we expect that at least you should start seeing some PPQ finishing, maybe the first batch shipping out and stuff like that in the next six to nine months from PPQ.
Okay. So that is one. Second, coming back to our CMS revenue now, last quarter you indicated there are three molecules which are big driver of the commercial CMS revenue. Can you talk a bit about it? Was there any major launch quantity the last two quarters, in fact, not just last quarter, sequentially I am talking about, which is not there and what is that? Can you call out some number on that to understand the extent of drop that we have seen and how to look at it going around sustainable basis?
Chirag, I think I tried to address that in my commentary. There has been no launch in the last two, three quarters. I think the last launch we had was maybe about a year ago. I think we expect some more launches to happen in the next one, two years. So what you have seen in the last three, four quarters is only just the lumpiness associated with commercial shipments. The fact that the shipments are not happening evenly is why there is perhaps the unevenness that you are observing. It is not necessarily associated with there was some launch quantity and now there is not. Also, from a Neuland's point of view, we also split the development and commercial.
Yeah.
If you would notice, the commercial revenues are whatever revenues we have been clocking, I think, right, Sajeev? Majorly has been commercial only. That is also indicates that what I have said is consistent.
No, that is why I was asking, is there that you had a big order of supply in Q4 and Q1 which is not there now, either in some molecules or in one major molecule? That is what I was trying to understand.
Yes, that is evidently the case. It is because it is not even, so we have some orders which are more in quantum, and then obviously the orders are lesser here, so it is directly a reflection of that. But unfortunately, we do not give color on individual molecule level, so we will not be able to describe it in more vivid detail for you.
Lastly, of these nine molecules on the commercial stage, or I am saying intermediates including 19, if I have to look at this INR 214 crores of Q2 revenue on the CMS, how the split would be? Like top five molecules would be like 80%-90% of it?
I think we've given that split, right?
Yeah, you have given that. Yes.
Within the commercial molecules, Chirag, I think this quarter, I think we have recognized revenues probably around from five or six. I think that would be the case, because there are a lot of other smaller intermediates and others which in certain cases even come maybe once in two, three years because, say, they are for an ophthalmic product or things like that. Yeah.
Okay. Thank you. Just one last thing.
Mr. Shah, sorry to interrupt. There are several participants waiting for their turn.
Sure.
Thank you. Ladies and gentlemen, we would request you to please limit your questions to two per participant. Thank you. We will move to our next question from Karan Vora from Goldman Sachs. Please go ahead.
Thank you for taking my question. Hope I am audible. So, the first question is with respect to peptides. Just wanted more color on, I think, when we look at your peptide press release, we have mentioned that we have put three DAC columns, out of which two are of 60 cm , et cetera. So, just can you contextualize, like, how important is it in the whole peptide process, whole integrated peptide manufacturing process? Where does purification stand? What is more complex or more important? And when should we expect the inflection in peptide revenue? Just some technical and overall color on the peptide piece.
Sure, Karan. So, I will first answer the configuration-related question and then also give the broader context. See, if you look at peptide manufacturing, there is an upstream component and there is a downstream component. The upstream component is where you are making the crude and the fragments, et cetera. And then as you are getting into the downstream, which is closer to the final peptide, that is where you need the column for the purifying the crude, and then you need a lyophilizer or a spray dryer to isolate the peptide. So essentially, a peptide API maker requires these downstream equipment, like they need columns, they need lyophilizers. If we are just in the manufacturing of crude peptide or fragments, which are upstream, more like intermediates of peptides, then we only need SPPS reactors and LPPS reactors.
Neuland's play in peptides has always been that, we want to make peptide APIs, and we are a peptide CDMO, which means we want to design the synthesis of the sequence of the peptide, and we also want to manufacture it, and we have the ability to make the API, and we can supply commercial quantities. Therefore, the column and the lyophilizer comes into play. When it comes to the columns, why we have two columns or why these columns are of this size, what is the size of our lyophilizer? I think these are answered based on what is the need of the peptides that we currently have in our portfolio. I think we've been mentioning that we have a couple of projects. We are not being very specific because these projects have not gone through PPQ.
These projects require a certain kind of purification, so they require certain kinds of columns with certain kind of dimensions. They require isolation in the form of lyophilizing, and that's why we have designed this module 1 to match the requirements of these projects. Similarly, the SPPS configuration we have and the LPPS configuration we have in the module one is also for these projects. Module two, module three, and module four will get configured by appropriate sizes of equipment as we start seeing visibility of projects that will go into module two, three, four. The way to look at it very simplistically, Karan, we don't want to have two big vessels, or we don't want to have two small vessel. We want to have appropriate-sized vessels because ultimately we want to make the final product.
Here, maybe I'll just say one last thing from a broader context. What is the database we saw yesterday, Sajeev?
GlobalData.
Yeah. We were looking at some database yesterday, and it shows that between IND and commercial, today there are 1,000 synthetic peptides. 1,000 synthetic peptides between IND and commercial. Not all of these 1,000 peptides are multi-metric ton peptides. A lot of them would be in hundreds of grams, perhaps some of them would be in tens of grams, many of them will be in kilos, tens of kilos, et cetera. Our goal is to be a dominant, recognized player in making the APIs of these peptide therapeutics. In order for doing that, we need to have the right kind of configuration. Therefore, as we are looking at building our modules, we are trying to see what kind of configuration would be the best fit for that. Therefore, for us, the configuration we have chosen is appropriate for the current portfolio we have.
Maybe as we get into other projects or other projects move through the clinic or we are able to attract some new projects, we may kind of design our modules two, three, and four accordingly. Sorry, I just wanted to give an extended response because I think it's also a question that others might be interested in understanding.
Yeah. Thanks, Saharsh. Just one clarification here before I move on to the second question. So, you mentioned that it is according to the projects which you have in hand. So, say if you would have put a 120-centimeter diameter or DAC column, then does it increase the cost unnecessarily? What's the drawback in putting a larger column instead of the one which you've put?
It would basically be that you would have too wide a column, and then you would need to make much larger batch size than what the customer needs. Therefore, it's kind of like having a customer needs a 1,000-liter reactor, and you say you have a 5,000-liter reactor, then you are almost forced to make a bigger batch because you have larger equipment. The idea is to have the right-sized equipment. So that's why this column size is right for the projects that we are currently executing.
Got it. And secondly, the three large CMS or CDMO products which we have, anything which you would like to highlight with respect to their patent cliffs? So, I recognize that maybe the most recent or the third product will have a long patent life, but the first and the second products which we commercialized in the CDMO business, what is their patent cliff looking like, and when should we expect that revenue to draw down versus when should we expect the peptide inflection? So, will the peptide inflection fill in that hole, or will there be a gap? Just trying to get those things right.
So, Karan, in terms of the patent cliff for these molecules which are key, I think in the meaningful markets and markets which contribute significantly to our customers, we do not see any expiries happening before 2030, right? I think that's the way that we look at it. In terms of the peptide inflection, I'll let Saharsh answer that.
Yeah, I think the idea would be to ensure that the dip that will come post-2030 will have absolutely no impact on our growth trajectory. So, I think we're fairly certain that there will be no impact because of the dip from these molecules on the growth that is going to come, which, Karan, will not just be from peptides, right? They will also be complex small molecules. There will be other products as well. So, at an aggregate level, the business will continue to grow despite some molecules falling off the cliff, or rather tapering off the cliff.
Got it. Really helpful. Thank you.
Thank you. Our next question is from Gourav Bhama of JM Financial. Please go ahead.
Thank you for the opportunity, and thank you for the clarification that you provided so far. I had a couple of questions. The first and foremost, a bit of a clarification on the peptide. You said that six to nine months before you start seeing MSA revenues coming in, right? Beyond that, when can we expect the commercial revenues to come in from another six to nine months post that? So roughly one-and-a-half and two-year before actual commercial revenues start coming in for the peptide facility, right?
Yes, I think that's a reasonable expectation.
Understood. Secondly, any particular reason why the Specialty segment performance was a bit muted this quarter, both YoY and QoQ basis?
Yeah. Gourav, I think we have had a few molecules contribute significantly in the past to the Specialty segment. I think in some of those molecules, we have had customers have difficulties in terms of them being able to manufacture the product, and that has led to the impact on these products. We expect that the thing will be done probably by Q4. We should be able to start seeing more revenues from the products which contribute significantly, both to the top line as well as the bottom line from those Specialty products.
Understood. The business should normalize by Q4.
Yeah, that's our expectation based on what the customers tell us. Yeah.
If you may allow me one more question. As you said that the growth expectations remain intact for FY 2027 and the following year. If you can provide a specific number, well and good, otherwise a rough range of what to expect, some sort of guidance on the growth part at least.
It's difficult, Gourav. I think we stick to the previous commentary only that we had made. I think 2027 will grow, and then 2028 will also grow. But yeah, I don't think we are precise enough to go into more clarity there.
Even a rough range will be difficult, like high teens, that kind of thing. I understand the lumpy nature of the business itself.
Yeah. It's not that we don't know, we just don't want to share.
No, that's understandable. Thank you for the opportunity. That's all. Last one last. In terms of, I saw that there's another in our pipeline, we have supported one more NDA and nine IND filings. If some sort of visibility, like some color on that particular product, the NDA filing. Is it something meaningful we are expecting? By when are we expecting that particular product to come up?
I think, Gourav, in that case, I think it is still something which is small, and I think it is something which we'll have more clarity because I think, again, we work with some of these biotech companies where their expectation may be a little I think it is difficult for us to judge. We are just waiting for things to pan out before we can comment significantly on that.
Understood. That is all from my side. Thank you for the opportunity.
Thank you. Our next question is from Prateek Srivastava of Nivesh Wisdom. Please go ahead. Prateek, you may ask your question now.
Yeah. Can you hear me, sir?
Yes.
Yeah. Again, thanks for the opportunity. Sir, my question is more related to all this, the new usage of AI in the drug discovery. The thesis is that the AI raises the number of candidates that entering the clinic, and it pushes the bottleneck more on the development and manufacturing. That is the thesis. I actually want to hear from you that, what is your thesis? Because I directly want to hear from you. So what do you see as such? Is AI more sort of, I would say, a tailwind for you? Or is it like a more headwind for you because it also sort of takes away some of the differentiation with the Chinese players? So what do you see, and are you in touch with any of these new AI-native biotechs or large pharma AI bio programs?
Are you in touch with them, and what is your thoughts on that, sir?
It's an interesting question. I'm not sure if I have a lot of insight to contribute, but I'll just share a little bit of what I think, and Sajeev, if you have anything to add, please do that. We've come across a few AI-driven discovery companies. I think even very recently, I met a company where the CEO is an AI guy from Google, and his entire team is only AI people. They have hardly a few CMC experts, and they are a completely focused drug discovery company. Everything, including IND filing, they're doing it using AI. There's not a lot of human, I think even second-level review is being done by AI. Now, for us as a company, we see as a development-focused player, as a company that focuses more on IND onwards.
As you know, we're not in the discovery services, and therefore we're not really in that space of pre-IND. We don't see a direct threat of AI taking away our work because most of our work is actually work that goes into generating material or designing and demonstrating a process that generates material. That is something that we, at least for the foreseeable future, don't see AI taking away. Obviously, as a company that's trying to embrace AI, we are going through our own AI journey on how do we become more efficient, et cetera. I think the only correlation I can draw is that, as I mentioned in our opening remarks, we are seeing a very high flow of RFPs. But is that attributable to AI-powered candidates moving faster into the clinic? I don't have any concrete evidence to say that.
It just seems like it's a combination of China Plus One, a combination of maybe favorable funding, India being seen in favorable light. I think it's these factors at play more than AI alone. But I don't know, Sajeev, you have anything to add?
Yeah. So I think if Prateek, as Saharsh was saying, that we are more involved in this stage from IND onwards, and if we look at a lot of the work which these AI companies are doing are more at a discovery stage. I think that is definitely, it should act as a tailwind for us. But when it comes to, what do you say, what it should help in terms of where we believe AI could also be used more is probably in, say, clinical trial design. But the one limiting factor will always be that clinical trials are in human beings, and there's a particular time that we need to give for it.
I think that is one factor, and also, I think us being able to gear up the number of projects which are likely to come our way is also something that we are increasingly looking at and trying to model, even in terms of how do we plan for the future.
Yes, sir. So yeah, I also see that, right, that probably the bottleneck could become more in the development and commercial molecule. Also, one more thing, right, follow-up to this. But let's say AI produces more candidates, right, but the failure rates would be higher. Does that mean that you'll have more developmental revenue but not necessarily more commercial molecules? How do you think about that mix, sir?
Yes. I think if we have more candidates coming out as a result of that, we would have more developmental revenue for sure. I think strategically, does that benefit us? I'm not quite sure. Because Neuland's core competence is GMP manufacturing and our ability to produce drugs for phase III and commercial. So if you're going to see a lot of activity at early stage, but theoretically stuff not moving forward, then we don't really see that as a favorable place to be in.
Got it. Thank you. Thank you for your honest answers, sir. All the best for you in the future.
Thanks, sir. Thank you.
Thank you. A quick reminder to our participants, if you wish to ask a question, you may click on the raise hand icon. Our next question is from Sanjay Kohli of Goldstone Capital. Please go ahead. Mr. Sanjay Kohli, your connection is unmuted. Please go ahead. There seems to be no response coming in from this connection. We will therefore move to our next participant, that is Mr. [Mehul Panjwani] of [40 Cents]. Please go ahead.
Thank you so much for the opportunity. I am new to CDMO companies. My basic question is, if you can put in very layman terms, why is Neuland's revenue numbers and profits lumpy while we do not see that as a trend in other CDMO players? I mean, this is a very high-level observation, and I am happy to be wrong and corrected by yourself. That is my first question.
I think fair question, [Mehul]. The reason for our lumpiness is that we have a pipeline of molecules where only a handful of molecules contribute disproportionately to our commercial revenue. When we only have a handful of molecules that are contributing to our revenue, and these molecules are of the nature that they are not produced on a continual basis by our customers, and therefore the orders are not necessarily throughout the year. They come across maybe one quarter, two quarters, three quarters, not across all four quarters. They create a sort of a lumpiness, which is also not very easy to predict. I think that is a very simplistic way of explaining why we are lumpy. Why others are not lumpy, I do not know if I can answer that question. I have to go back and check.
But I think all these companies are very unique, and they are in different life cycle stages of their pipeline, so maybe different scale. If you are more in the early stage, discovery services, maybe it is less lumpy. I am not quite sure if I can answer that part, but yeah. Please go ahead. You said you had another question.
Yeah. Just follow- up on this, and I appreciate your answer on lumpiness. Is there any timeframe, like after 12 months or 24 months, this lumpiness will come down considerably, or this will remain as a core of our business?
I think it is a great question, and I think if See, we have been in this CMS business for almost 15 years now, and I remember even, maybe the old investors will recall, even 10 years back, we used to see lumpiness. At that time, our biggest product used to be INR 40 crores a year. Our total CMS business was INR 100 crores. Therefore, that INR 40 crores used to create a lumpy environment for a INR 100 crore business. Today, fortunately or unfortunately, everything has gone up by 10x. The CMS business has grown, but the contributors of the larger size have also increased in size, and therefore that lumpiness is continuing. To answer your question, lumpiness would go away if the size of the contributors remain the same, but the number of contributors dramatically increase. Let us say I have a handful of contributors.
Let's say I only have three contributors or four contributors that are giving me majority of my CMS revenue. Assuming that the contribution per molecule does not change, but I have from three to four, this number becomes 30 over the next five, 10 years, then for sure you can be assured that the lumpiness would reduce because the spread is smaller. What we find challenging to predict is, will we keep finding similar-sized opportunities or will we attract perhaps even larger opportunities? If that happens, then the lumpiness will be there. I don't necessarily see it as a bad thing also, because it would be good to have big contributors. Even some of the largest innovator companies, like you take Eli Lilly, for example, their largest drug contributes to 50%, 60% of their revenues.
Sometimes big products do carry a business, and they create the opportunity for the businesses to diversify and grow. The goal is to keep attracting molecules. Some of the bigger ones will probably bring in lumpiness, and it's hard for us to indicate that, oh, this lumpiness will go away in 18 months from now.
Right. My next question is that—
I think you have already had your two questions.
Sorry, no, this is a—
We have a few more questions, people in the line, so if we can just—
This is a very small basic question because it was just a follow-up the last one. The one question is that we are expecting FY 2027 and FY 2028 to be quite robust, and FY 2026 has also started on a decent note. Can we say that FY 2026 is an inflection year for us? Sorry, yeah, FY 2027 is an inflection year?
I guess it is a subjective word, right? I think maybe, like I said, see, 2026 was the year where CMS outgrew GDS. In that context, I would say yes, it is an inflection year. But 2027, 2028, I think it will just be years of good growth. I think I wouldn't add too much more to that. Those are subjective, so I would leave it to you to make that interpretation.
Okay. Thank you so much, yeah.
Thank you. Our next question is from Dr. Kartick Bane of Bajaj Life. Please go ahead.
Thank you very much for the question. I want to understand how easy or difficult is it to goof up the peptide manufacturing at the scale at which Neuland does it? In terms of API degradation or amino acid sequence change, how much time would we be able to take to notice it, and how much time would we require to correct it?
Yeah, it's a good question, Kartick. I think, unfortunately, it's quite easy to goof up peptide manufacturing. I see a doctor in your name, so I don't know if you're a process chemist or an organic chemist. What happens is, peptide synthesis is considered to be irreversible. In small molecule chemistry, if you get an impurity that is not desirable, you still have a recourse. You can reprocess it, take it back into a solution, and figure out a way of getting rid of the impurity. In peptides, many times you might have to junk the entire reactor. If you're talking about these large value peptides, then there's a lot at stake. Precision becomes very important, especially as you go into downstream manufacturing of peptides. Neuland has a lot of years under its belt doing peptides process development and peptide synthesis at small scale.
We are now slowly getting into larger scales. Our largest reactor used to be 50 liter SPPS in GMP. Now we have 500 liters. We are looking at 1,000 L. We are going to make APIs. We are not making fragments. Or we are making fragments, but we will use the fragments for APIs. So, if we take any missteps, especially in the downstream, the challenges will be quite important. Therefore, we need to fortify ourselves. We need to have the right kind of talent. We need to have the right kind of systems. We need to have the right kind of controls. That is where we will build our core competence.
Okay. Thank you.
Thank you. We will take our next question from Shrikant Akolkar of Nuvama. Please go ahead.
Hi, good evening. Thanks for taking my question. My first question is on the R&D center that you all opened up. Would it be possible to talk about it, like what kind of modalities we are working on?
Just, Mr. Akolkar, I just want to check with the management. Are you able to hear Mr. Akolkar?
Yeah.
Yeah, yeah.
I am able to follow. If you could just speak a little loudly and a little slowly for the remaining question. I think so far you are asking about the R&D center, just continue.
Yeah. Yeah. I was asking that we have opened the R&D center. Just wanted to know what kind of new modalities we are working at the moment, and the potential inflection point for those modalities to become commercial.
Right now, the R&D center is going to be current capabilities, which is peptides and small molecules. But what will be different is not in terms of platform, so we're not really going to do, say, oligonucleotides or ADCs or HPAPIs, which are all newer modalities compared to what we have. That's not the immediate plan. But the plan is to be able to do the small molecules and peptides a lot more effectively, because this will be a process development center. We're not going to be doing med chem, we're not going to be just doing route scouting. We'll be doing process design. And what will make this center very effective is that it'll be integrated. So we can be doing process engineering, quality by design, flow chemistry, and integrated development that can actually generate even small volumes of API from this facility.
Earlier, we would have to do process design in the R&D facility and then take it to one of our three manufacturing sites and find a pilot plant and produce material there. But this will enable us to not only design the process using more modern instrumentation and equipment, but we will also be able to use the same facility for generating material which can go into experimentation at larger scale. So that creates a very strong value offering for our customers, because they often find it very convenient if companies can do everything integrated in a paperless, highly automated environment, which is what this will do. The platform addition, which is, okay, adding HPAPIs or adding oligos, et cetera, I think those are things that we'll follow up later.
Because again, as a company, we've mentioned that we are now hyper-focused on ramping up our small molecule peptide capabilities first before we start getting into other areas. So the focus remains, but the ability to deliver value will get amplified because of this new facility.
Understood. Last question is on the staff cost. Our Q2 staff cost has substantially gone up. I understand that possibly will be for the peptide unit, but now is this the base that we should work on, or there will be further additions going forward?
Certainly, there will be certain additions in terms of our headcount to cater, one, in the regular R&D, but also on a longer note, there will be additions not only at the R&D center, but also at the manufacturing site for the peptides or other materials.
Understood. Thank you so much for answering my questions.
Thank you. We will take our next question from Ritika Agarwal of ValueQuest. Please go ahead.
Hi, sir. Thank you for taking my question. My question is a follow-up on the earlier answer that you gave that we are mostly on the downstream part of peptide process. Would that be correct? Wanted to understand that we have heard a few of the players talking about creating an integrated platform for peptides, which is upstream as well as purification and otherwise, which is downstream as well. Could you help us understand how we should place Neuland in the peptide frame? Why only downstream and why not integrated, or if there is anything otherwise?
Yeah, Ritika, see, I think what we were saying is that Neuland is focused on making the complete peptide API. That is why there was the emphasis, I think, to, it was Karan's question about why column, why lyophilizer, which is all part of the downstream equipment. Having said that, I do want to clarify that we also make the upstream. For us, the idea is not to say we will only do downstream. In fact, we will do the fragments, and then we will do the crude, and then we will do the purification, and then we will isolate the final peptide API. That is the capability we offer to clients. And where Neuland stands out, Ritika, is not only our ability to offer the equipment that is needed to make these peptides, but also the scientific talent to design the process to make this peptide.
In many of the peptide projects that Neuland has in our portfolio today are projects which have started as process design projects, when we never even had a manufacturing facility. So we were doing the peptide sequencing and design of the sequence in small scale. We were making grams of the peptide, and because our clients were really satisfied with the process we designed, now they are committing to Neuland to become a manufacturer of these peptides. So, point number one is that we want to make the whole peptide, doesn't mean we want to make only the downstream of the peptide. So I hope that part is clear. I think with regards to integrated peptide, I am not quite sure what your understanding of that is. See, ultimately for us, we want to be able to create value as an API maker.
We don't necessarily see ourself as someone who wants to make everything associated with peptides. See, peptides has so many components. You have these amino acids, unnatural amino acids, you have resins, you have then the fragments, and then the crude, et cetera. I think we will have to play to our strengths, which is our ability to design processes, our ability to manufacture API, our ability to do GMP. Where those strengths are valuable, those are the components that we will make. Where the strengths are not valuable, we will probably not make those components. So, there is no strategic intent that everything associated with the peptide has to be made. But making fragments is a core part of peptide making, and that is something that we will do, and it will be a capability that we intend to capitalize on.
Sure, understood. Thanks for the explanation. Second question was on CapEx part. In one of our press releases, we came out saying we are doing the second module for peptide. What kind of CapEx would the second module involve, and what is our CapEx guidance for the next three years?
I think CapEx guidance for the next three years, we mentioned approximately, I think around INR 1,700 crores-INR 1,800 crores is what we had indicated, which is a broad number. We keep revisiting that number. I think Kakinada brings in a certain factor over there, and then there are other things that are at play. With regards to module two investment, I think we've not really crystallized on what exactly that configuration is. I think that would be the goal for us to finalize and move forward in the next three to six months. I think once we have that number, we'll let you know. But I think so far we've spent maybe around INR 250 crores just for module one. So you can probably do some approximate math.
Understood. Thank you so much for answering.
Thank you. Our next question is from Sajal Kapoor of Antifragile Thinking. Please go ahead.
Yeah. Hi, guys. Thank you for the opportunity again. Saharsh, your answer to Mehul was really a scaling law. So 10 years ago, your largest molecule was INR 40 crores out of INR 100 crore CMS business. Today, everything is roughly 10 times bigger, but the ratio hasn't really moved. That, of course, looks like self-similarity in the sense that the lumpiness is growing with the business rather than averaging away. And this is not a defect or a flaw. I mean, this is called Geoffrey West's scaling law, nothing else. And it may actually be the signature of a business that grows through a few large hits. So the question that I have is, are you scaling primarily by adding more molecules or by making the individual molecules bigger? And is the number of new meaningful contributors increasing faster than the size of the existing ones?
Thanks, Sajal. I think the question you asked, is the number of new molecules increasing faster than the size of the existing molecules? Did I—
Correct.
—paraphrase you correctly?
No, exactly that. Yes, absolutely.
I think it is a good question. I have to go back and check on this. I will explain the intent, and I do not want to seem like I have the exact answer. The intent is to add more molecules. The intent is to increase the basket. But we have obviously been a lot more selective today than we were 10 years ago. We used to even do generic CDMO. Like some guy would come and say he needs some generic API to be done exclusively for him, and we would pitch for that business. But today, we do not even get into those discussions. So I think there is a certain level of screening that comes in.
The pedigree of the clients has changed. Today, there is a lot of big pharma in the conversations. I had mentioned this earlier, I hardly used to see a INR 100 crore molecule until five years ago.
Today, I see numerous INR 100 crore molecules. We've even seen INR 1,000 crore molecules. The point I was telling Mehul was that as the business has scaled, the size of these large opportunities has also increased almost in proportion. Therefore, it seems like we are kind of stuck with the lumpiness. Having said that, the intent of the organization is to break away and add more and more projects. I think that's why we are creating the span. The idea of having our three manufacturing sites together, unit one, unit two, unit three, are 60 acres. The facility in Kakinada alone is 134 ac. The intent is to be able to create a wider span so you're able to take on more molecules.
Unfortunately in our business, you're not able to foresee whether a project I'm going to get today will be a INR 40 crore molecule or a INR 400 crore molecule. Therefore, there is a certain uncertainty which also creates a little bit of a challenge for us in answering the question that Mehul posed or what you said. Does it make sense?
Yes, it does, Saharsh. Just to clarify on the Kakinada, you said 132 ac. I think we also have the first right of refusal on the additional 60-odd ac, right?
Yes.
If necessary or if required, depending on the business growth plans, we can go up to close to 200 ac.
Yes. The idea is to be, rather get into a commitment right now, we thought we were able to negotiate something. Right now, what we've committed to is 134 ac, but yes, it could be 200 ac over the next two years.
No, perfect. That's all from my side. Thank you so much.
Thank you. Our next question is from Chetan Kial, a retail investor. Please go ahead. Chetan, you may go ahead with your question.
Anyone?
Please go ahead.
Chetan, can you go ahead?
Thanks for the opportunity. I am a retail investor. I am associated for Neuland from long time. Still it is difficult for me to understand the business and all technicalities, but I believe whatever you are doing is best, and best of luck for the futures, whatever is coming for Neuland in long term. By now, I can understand that business is lumpy, the word, that it can go through various cycles. From mine, just a smaller question, like what we see as a vision for Neuland in coming 5-10 years, which we can rely on as a retail investor, without going through very technical depth and all?
Thank you for your question. I think what you can expect Neuland is to continue on this focused journey of being a CDMO that is really focused on human health, CDMO that will really keep building on unique technologies, and will be highly customer-obsessed. I think that is the way we are looking at it. You will also expect Neuland to be agile, to move with the needs of the customer. So we do not position ourself as a large volume player or a small volume player or a mid-volume player, but see ourself as someone who can really kind of evolve with the molecule. I think with that way, we also see that there is a snowball effect in terms of the work we have been doing.
I think if you followed some of the conversations we have been having earlier, I think today we are attracting far more larger opportunities than we did earlier, which is also a testimony that as a company, we are able to attract more exciting opportunities. Therefore, as long as we are able to stay focused and execute well, which is what we have been doing, we will keep adding more molecules, and that should give good returns to all investors. I think my only personal caution to retail investors is that, see, ultimately, our business, it has a certain level of opacity, because we do not disclose which molecule is doing well, et cetera. So when there is a poor quarter, there might be a certain stress that is created as to, oh, why is this quarter so bad?
For which we might not be able to answer as transparently as an FMCG company or a branded company. Therefore, retail investors who have the appetite to be able to manage that kind of uncertainty, I would definitely recommend looking at Neuland as a long-term investor. That's just my personal advice. Thank you for the comments, and it's good to know that you're a long-term investor.
Thank you, and best wishes, sir.
Thanks.
Thank you. We take a last question from Mitesh Shah, an individual investor. Please go ahead.
Thanks for taking my question. I think so this will be a lumpy, but I can understand about that you have given good return to the investors. I just have a one macro-level question about the peptide. I think I heard about the peptide most of the time with Neuland, but now post the GLP-1, I think so I heard the peptide manufacturing, increasing manufacturing from almost all the CDMO players, including not only in India, across the world. Do you think so that suddenly most of the companies are interested to be manufacturing of the peptide, and that would be an easy process? I heard about that it won't be that easy process. So what's your call that it would be oversupply in a few years of time, or it would be not that the case?
I think it's a good question. I think in terms of peptides, yes, you're absolutely right. I think there's a lot of talk around peptides, especially last few years since the GLP-1 has exploded. See, this GlobalData that I was talking about, where I had mentioned earlier that we found that there are 1,000 synthetic peptides today between IND and commercial. That's the number of synthetic peptides that are there. The same number in January 2025, it was only 500. So the world of drug discovery and development is also changing. More and more peptides are coming into the mainstream because peptides are considered to be natural molecules. They are friendly therapeutics, unlike small molecules, which are considered to be chemicals. And it's always preferred if you can deliver a therapy through a peptide. Therefore, there's a lot of energy focused from innovator companies to develop peptides.
Therefore, it's natural that peptide CDMO demand has gone up. But nothing goes lock in step. There's always going to be some overcapacity because of the euphoria created because of these GLP-1s. That euphoria creates excess capacity. There will be some testing, and then again, there will be a correction. I think that happens in any thriving industry, and I expect the same with peptides as well. I believe the players who will stick out are players who are very focused, players who have the ability to do process development. A lot of players who are just putting in reactors and expecting customers to come and do the technology transfer, I believe that they may face more challenges, because the moment that customer goes away, they only are sitting with equipment and not necessarily capabilities.
But if you have strong R&D capabilities in peptides, then you're also able to cater to these other 1,000 molecules. See, the goal of our investments is always to cater to those 1,000 peptide drugs. It's never to cater it to one weight loss drug or to this one next GLP-1. It is to cater to a diverse portfolio of molecules so that there will be some success that we can get. In that way, if you look at India in aggregate, I think we still have very less capacity, if you ask me. So I don't think there is overcapacity, at least in India. Maybe there's overcapacity in China. That's what I have been told. But I think India, it's not just Neuland. I think all these companies, we all need to invest in peptides. That's my personal take.
True, Saharsh. But if it would be overcapacity in China, that would be impacting for global, including India as well, right?
Yes. Therefore, the point I made earlier that there will be some pains because of overcapacity, et cetera, is there. It is there. I think my comment with regards to, is there overcapacity in India? Absolutely not. Because for small molecules, the kind of capacity we have in India for CDMO, we do not have that kind of capacity when it comes to peptides.
Saharsh, we have enough talent in India that a sudden surge of the peptide demand would be filled by the talent available in India?
I do not think we do. I think it is a challenge. Not for CDMO. I think we have talent for generic, but not for CDMO.
Got it. Just a last question about that. How long you can go on the peptide on the chain-wise? It would be a small chain of peptide you are manufacturing or—
We have done 40+ amino acids so far.
Okay. Got it. Great. Thanks a lot and all the best.
Thank you.
Thank you. I now hand over the floor back to the management for closing comments. Over to you, sir.
Once again, we'd like to thank everyone for your interest and for your questions. I think in case you have anything further, please reach out to Runjhun Jain of EY. Wishing you all a good evening and also a happy Diwali. Thank you.
Thank you. Ladies and gentlemen, on behalf of the leadership team, I would like to thank you for your time and your continued interest in Neuland Laboratories Limited. Should you have any follow-up queries that were not addressed, feel free to reach out to the investor relations team. Thank you all for your participation. Goodbye.