Please note that this conference is being recorded. I now hand the conference over to Mr. Irfan Raeen from Orient Capital. Thank you, and over to you, Mr. Irfan.
Thank you, Priya. On behalf of Granules India Limited, I extend a warm welcome to all participants on Q1 FY2025 financial results discussion call. Today on the call, we have Dr. Krishna Prasad Chigurupati, Chairman and Managing Director, Dr. K.V.S. Ram Rao, Joint Managing Director and Chief Executive Officer, Ms. Priyanka Chigurupati, Executive Director, Mr. Mukesh Surana, Chief Financial Officer. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs or opinions and expectations as of today. These statements are not guarantees of our future performance and involve unforeseen risks and uncertainties. With this, I would like to hand over the call to Krishna Sir. Over to you, sir. Thank you.
Thank you, Irfan. A very good evening, ladies and gentlemen, and thank you very much for attending our Q1 FY2025 earnings call today. A detailed presentation of our quarterly performance has been uploaded on our website, and I trust all of you have reviewed it by now. We had a robust performance during the quarter, hitting our planned trajectory after a few setbacks last year. Our strategic initiatives for reformulation led growth trajectory driven by a new product pipeline and geographical expansion of partaking shares.
In line with our FD-led growth strategy, the share of FD had progressively increased to 76%. This is a significant rise from 65% in FY2024 and 55% in FY2023. Similarly, the sales of new products beyond our legacy five products have been growing well, contributing 35% to our Q1 revenue. Their contribution was 25% in FY2024 and 15% in FY2023.
We continue to strengthen and grow our business in the U.S., our most important market. We are uniquely positioned to optimize our offerings through Make in India at GIL and Make in America at GPI and GPAC sites in the U.S. Our investments in GPI, which includes a local manufacturing arm in the U.S. with a platform for the CNS and ADHD segment, are paying off very well and are a key driver of our growth in the U.S. Similarly, the capacity utilization at GPAC, our new packaging site in the U.S., is improving quarter-over-quarter. Our OTC private label portfolio sold through our commercial arm, Granules Consumer Health, is also gaining good traction, contributing to our growth in the U.S. We continue to prioritize investment in building R&D capabilities and improving the quality of our product pipeline.
We have exciting product pipelines in oncology, the antibiotic segment, large volume molecules, and select non-OSD dosage forms. We have made significant progress on products developed on innovation and technology platforms such as biocatalysis and continuous manufacturing. We are gearing up to put commercial-scale manufacturing capacity at Unit 5 in Vizag. Dr. K.V.S. Ram Rao will elaborate on this further. As we expect the formulation segment to drive growth moving forward, we are well placed with our FD capacity to cater to this incremental demand. The construction and capacity ramp-up of our new formulation facility at Genome Valley, part of Granules Life Sciences, is progressing well. The plant successfully commenced operations in March for the first stage of 2 billion capacity, and validation activities are ongoing.
On the sustainability front, we completed the milestone of submitting our climate action goals to SBTi aligned to the 1.5-degree pathway and net zero by 2050. Our net zero roadmap has been finalized, and action plans have been initiated on efficiency measures, adoption of biofuel and renewable energy, supplier sustainability programs, and the green molecule platform throughout CZRO subsidiary. To summarize, we are excited about various avenues for growth, including advancing our core products up the value chain, strengthening our position in the CNS ADHD segment, introducing differentiated new product lines, and expanding and deepening our presence in new geographical markets. With this, I hand over the call to Dr. K.V.S. Ram Rao.
Thank you, Chairman, and good evening, everyone. Through our efforts in portfolio management, R&D, and continued innovation in new molecules, we have successfully created a fit-for-peak platform for the organization. A lot of progress has happened in terms of product development and filing, strategic approach to creation of infrastructure in the chosen segments, and investment plans to reach the benefits in short-term and medium-term. On the oncology platform, oncology products have been an important portfolio for Granules. We have already built world-class infrastructure, both in API and formulation to our Vizag facility. Our portfolio includes Para IV, 505(b)(2), Para IV 181, and first-to-launch in the U.S., Europe, and the rest of the world. With this global development program, we expect to leverage technology and scale in a very effective way.
We are quite satisfied with the progress of product development and expect to file a couple of products in the next few quarters. The portfolio filings include near-term launches and are likely to start in FY2026. To prepare ourselves for the launches, we have taken up capacity expansion projects. We propose to create a new oncology API and facility and also augment finished dosage and other infrastructure enhancements. The project execution is likely to start from September and should take approximately 12 months to complete. This should enable us to bring flexibility to our supply chain and enable us to become a significant player in the oncology segment.
As mentioned in my previous communication, CNS ADHD is a very important portfolio for Granules. The therapeutic area is growing in the U.S. and also in other parts of the world. We expect to be a significant player in this segment.
R&D efforts at our Chantilly facility, with collaboration from our centers, have progressed well in successfully developing a good portfolio of ADHD products. The portfolio in this segment includes Para IV, Para IV 181, NC-1, and also Para IV. It's a blend of near-term and medium-term launches. Our R&D in Chantilly also focuses on complex products, some of which have been launched at a brand level for several years without competition owing to the complexity of the development.
This addition of portfolio to our existing products should help us become a dominant player in this segment. Our strict policies and management around manufacturing and commercialization of these products have allowed us to gain momentum in the U.S. With this well-balanced portfolio of immediate launches and IP-driven litigation launches in the next couple of years, we see a lot of excitement in this category. Endurance and manufacturing technology platform.
We have been communicating for the last Q4 on our progress on this platform. Five projects are significantly advanced and almost at the stage of completion of optimization in the lab. One of the projects has been tried at plant scale successfully. We are focused on creating manufacturing technology infrastructure in the next Q2 and start validation of at least three molecules in Q3 FY2025. This platform is expected to bring us global cross-leadership, manufacturing technology excellence, and help us lead towards our journey of sustainability. Our investment plans to build infrastructure in manufacturing of endurance are finalized, and we expect to start the project execution from Q3 . Also, we have finalized the investment plans to build infrastructure for the chosen products in this segment for the chemical steps.
These projects will get into execution by September 2024 and will take around 14-18 months to complete. The progress of this platform in a short period of Q4 demonstrates our commitment toward transforming the organization through science and technology. As was clear from the above, Granules is fully focused on building world-class product platforms and driving business growth through bottom-line sustainability and living the purpose and vision of the organization. To achieve this transformation, spending R&D has also been increased and stands at INR 62 crore for the quarter and is likely to increase in the subsequent quarters. Thank you all, and over to you, Mukesh.
Thank you, CMD and GMD. Let me take you all through the top financial parameters now. Revenue. The Q1 revenue was INR 11,799 million as compared to INR 9,855 million in Q1 FY2024, with a growth of 20% driven by formulation. Revenues grew by 0.3% as compared to Q4 FY2024. In line with our strategic focus, FD sales growth continued. It has been offset by a decline in Para API and PFI sales volume and price erosion. The sales breakup as per business divisions, geographic regions are presented in our investor presentation, which is available on the website. Value added.
Our value added as a percentage of sales for Q1 FY2025 was 58.9% as compared to 51.4% in Q1 FY2024. Value added as compared to Q1 FY2024 is up by 7.6% points attributed to higher FD sales and lower raw material costs.
Value added as a percentage of sales for Q1 FY2025 is down by 1.1 percentage points from Q4 FY2024, primarily on account of product mix. EBITDA and EBITDA margin. EBITDA for the quarter was INR 2,593 million, that is 22% of sales, as compared to INR 1,368 million, that is 13.9% of sales in Q1 FY2024. An increase of 89% in value terms, mainly on account of improved VA. R&D. Our R&D spend for the quarter was INR 620 million as compared to INR 413 million in Q1 FY2024 and INR 609 million in Q4 FY2024. Net debt.
Our net debt was INR 7,941 million as compared to INR 3,421 million at the beginning of the year. The net debt has decreased by INR 481 million. Cash-to-cash cycle. Our cash-to-cash cycle was 183 days in the current quarter as compared to 161 days at the beginning of the year.
New launches and Red Sea issues impacted both inventory days and overall CCC days. Operational cash flow. Operational cash flow for the quarter was INR 2,161 million as compared to INR 35 million in Q1 FY2024. CapEx. CapEx spend during the quarter was INR 1,444 million, primarily invested in Granules Life Sciences, INR 691 million. ROCE. ROCE for Q1 FY2025 is 19.6% as compared to 16.5% in Q4 FY2024 and 9.4% in Q1 FY2024. The increase is primarily on account of increase in EBITDA. With this, I open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone 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, we will wait for a moment while the question queue assembles. The first question is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Thank you, and congratulations on this set of numbers. So my first question is on the contribution of FD. We have achieved now 76% of the FD contribution to the overall total sales. How could this for the entire year? And are we not focused on increasing the sales of API and PFI during the year? What I want to understand is whether the contribution would fluctuate quarter-over-quarter or more or less it would remain stable during the year.
Hi, Rashmi. I'll take that question. Yeah.
Yeah.
The question was you're talking about the contribution of finished dosages as a part of our overall sales. With the number of launches we have going forward, we think there's a very strong possibility that it will remain this or grow a little bit further. And what is your target contribution of FD to total sales, and in what are you aiming to achieve within the next two, three years?
Rashmi, if you have seen our strategy, it is always to keep on increasing FD. That's what we've been talking about all these years, and we are on the path. Most of the APIs we make go into our FDs and PFIs. PFIs go into FDs today. So even if we sell all the APIs elsewhere and buy the APIs required for FDs, our revenues would have been at a different level. But most of the APIs are made for in-house consumption. So we see that this mix will, this ratio will continue at the same level or possibly grow.
Okay. Got it. So then in that case, we expect that there should be a decline in both API and PFI segments for this particular year because your FD contribution would be pretty high due to the increase in launches.
Yeah, that's the strategy, Rashmi.
Okay. Got it. And so then what about the gross margin? If the FD contribution also sustains, then do you think that the gross margin of this 58%-59% also sustainable during the year?
It should be around this a little bit here and there, ± a few points, but it should be around that.
Okay. And then any guidance on operating margin you would like to give since our gross margins are being improved by around 300-400 basis points in FY2025 over FY2024?
Rashmi, can you repeat that to me? I think it's not clear. I think there's some problem with the line.
Yeah. So on EBITDA margin, any particular guidance you are giving? I mean, I understand that your R&D and other expenses are being increasing, but your gross margins are improving as well. So are we still at the level of around 22%, or you feel for FY2025, with the increased launches and all, we would be able to do higher EBITDA margin?
Rashmi, again, I always maintain that we will definitely be much above 20%, and we'll keep improving year-on-year. So now the 22% margin has to improve a little bit. How much it will improve?
Got it. Then last question on your OTC business. As a percentage of your formulation business, how much is your OTC contribution?
I mean, that's about 15% of our overall business.
15% of overall sales or of formulation business?
Overall sales.
Overall formulation sales.
Okay. Okay. Thank you. That's it from my side.
Thank you very much. The next question is from the line of Parag from Old Bridge. Please go ahead.
Hi. Good evening and congrats on an extremely strong set of numbers. Just a couple of questions. Specifically on geographies, North America, are there any industry tailwinds, or would you ascribe most of the performance to systematic, sorry, idiosyncratic to your business? Second, if you could just comment on what's happening in Europe. And third, Chairman, I heard you speak about the large—I mean, you made some reference to large molecules in your opening comments. If you could just elaborate a bit on that. Thanks.
I think Priyanka will take this question, but before that, let me clarify. I didn't say large molecules. I said large volume molecules.
Okay. Sure.
Hi. So I think the U.S. has always been a very, very strategic market for us, as you always know, and we are built for regulated markets. So on that front, it was obvious that the U.S. would be the biggest and continue to be the biggest. And that's primarily because of, one, our strategy, like I said, our service levels, our quality and compliance that I'm sure you've seen in the news that we've had absolutely no issues.
So I think the combination of all these three, and of course, having the right product at the right time, all of them contributed towards growing U.S. sales, which will continue to grow as we go. Number of launches also attribute—I mean, caused this increase in the U.S. numbers. Just a clarification on Europe. What exactly did you mean by can you provide some commentary on Europe?
Europe business is down about 35% in INR terms. So just wanted, I mean, is there something that you've already commented and I missed, or?
Okay. Yes. European sales were led by paracetamol all these years, and only recently we made the shift to FD, and FDs are picking up. Paracetamol, like I've mentioned in the last quarter, and most of you may know, is in a very bad shape today. There's a lot of inventory which the customers have built up across Europe and the U.S.., and some of them have another inventory sufficient for another six months. So literally, there's no big market, and also there's a lot of capacity that was built up, anticipating a huge demand. So paracetamol has not contributed, and we do not expect it to contribute for at least another Q2 . I think it's only possible next year paracetamol will come back and add to our revenue and profitability.
Got it. Just to follow up on U.S., I mean, roughly the run rates moved from about INR 700-710 crores in March 2023 quarter to about INR 870 crores. And in that time span, we've seen additional approvals of about 10 products. So if you could just give us a sense on how much of the incremental 25%, the dollar hasn't moved as much, would be on account of really the traction on the new products and how much—I mean, just a ballpark—would be on account of you getting more volumes in your base business?
I think it's a mix between both. I'm sorry, I forgot your name. My apologies. It's definitely a mix between the both. The new launches, to be very honest, we just touched a launch in Q1. So you will see those making a bigger dent going forward. But primarily, it was increased market share from the existing products.
Okay. Thank you.
Thank you.
Thank you very much. The next question is from the line of Darshil Javeri from Crown Capital. Please go ahead.
Hello. Good evening. Thank you so much for taking my question. Hope I'm audible?
Yes, Mr. Javeri. You are...
So just wanted to get an idea on currently how our sales are panning out. So maybe correct me if I'm wrong, but I think since the last Q7 , Q8 we've been in the range of around INR 1,100 crores-INR 1,200 crores. And I understand that U.S. has grown that much, but I think because of our European business, that's eating up all our gains. So now just wanted to understand in terms of our trajectory, we could see the similar growth in US, but will the European business stabilize, or how would we see our growth going forward? Because I think March 2023 and 2024 have identical numbers. On the face of it, I understand in depth there are a lot of differences. So just wanted to get a color on your perspective.
U.S. will always be our primary growth driver, Mr. Javeri.
And so it will always continue to grow, and we see no reason why it should not grow at the same pace. The only thing that will happen is Europe has degrown and we expect formulation growth to come up in the next few quarters. And in addition, when API sales also come up, possibly next year, there will be a better growth there. And we are also addressing a lot of other geographies, like many times I mentioned South Africa and Asian countries. So these also will be contributing to growth in the future.
Okay. Fair enough, sir. So any kind of revenue guidance could we have for FY2025, sir?
I think, well, I think also we made it clear we will not guide anything, but we will see the trajectory improving.
Oh, okay. Okay. Fair enough. So I'm just leaving my last question in terms of overall, in respect of North America, like in Latin America, what kind of market are we seeing? How is it performing currently? And any surprises from there or something on the positive side you can expect from there?
Definitely no surprises. Paracetamol, not Latam, was mainly led by PFIs in the past, paracetamol and other PFIs. So paracetamol being in what stage it is today, there was a different paracetamol stage in Latam. However, we managed to make it up with other PFIs. And today, the focus in Latam is to shift away from PFIs into FDs. A lot of efforts are being put into that. And also new countries in Latam also are being addressed right now. So we see that Latam will keep growing, not at the pace like U.S. will, but it will keep growing.
Oh, okay. Okay. Fair enough. So yeah, that's it from my side. Thank you so much, sir.
Thank you very much.
All the best.
Ladies and gentlemen, before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Sajal Kapur, who is a retail investor. Please go ahead.
Yeah. Thank you for taking the question. First, I would like to point our attention to slide 13, where we have listed our historic asset turns. So historically, 2x is what we got to fiscal 2022 as well as fiscal 2023. Now, moving up the value chain and introducing better and more complex products, increasing gross margins, I mean, logically thinking, we should try and improve our historic asset turns much better than 2x at full capacity, of course. I just wanted to understand what your thought process is. And I'm not looking for any sort of guidance for this year or next, but on a directional basis. Thank you.
Thank you and good evening, Mr. Kapur. Now, what has happened is U.S.. is performing to decent capacities and others close to full capacity. Unit 5 in Visakhapatnam is going to be utilized, and Max Block is almost there fully utilized. So the asset turns, as we go by, will definitely improve. You're also right. Some of the products being made in the U.S. are high value, so the asset turns will improve because of that too.
The denominator being the same, I think the denominator will keep increasing. So you're right. It will definitely improve. Mr. Chen, I just want to add a clarification. So as you rightly said, API is going into FD, so its capital consumptions are increasing. That is also in the overall asset term. Instead of sales, we are getting better margins. So return on capital employed is improving.
That asset term is reducing because of capital consumption also of API PFI. Secondly, we are also investing in new projects in Granules Life Sciences. Those asset turns will happen starting from next year.
Right. But directionally, we are all set to breach our historic high at some point, right?
We should. We should. Definitely, Mr. Kapur. That's the whole idea and strategy.
Yeah. Sure. Understood. And I think Mr. Surana mentioned that about the backward integration as the reason for the reduced or the reduction in the asset turnover. So, to the main theme, on this molecule, are we backward integrated? If yes, are we backward integrated at the intermediate level or just the API?
Colchicine is a very small molecule, Mr. Kapur. The volumes, of course, are not very high. It's a very low dosage product, maybe 0.5 mg. So there, even if we are integrated, it doesn't really make any difference. And such very low molecules, we prefer to buy from elsewhere if they're available. If they're not, we'll make it up there.
Right. Right. And finally, to a previous participant's question, Dr. Prasad, you mentioned that Paracetamol uptake is still about Q2 , possibly Q3 away because of this inventory issue across Western world. So does that mean that in the immediate next couple of quarters, we may not be reporting a decent top-line growth because we need Paracetamol contribution to get back to a better top line, albeit with slight dilution in our gross margins? I mean, how do you look at the sales trajectory in the near term because Paracetamol is still off, as well as gross margins impact because at some point in time, Paracetamol will start hitting our P&L?
In the next few quarters, the next Q2 where I can definitely have some visibility, there will be very marginal growth in top line. But we do expect the bottom line will not be proportionate. It will be a little higher than disproportionately higher than the top line. But maybe next year, Paracetamol will contribute and revenues will grow along with bottom line next year. But definitely this year, the bottom line will not be stagnant. That will be a little dynamic and move forward.
Understood. Understood. Thank you.
Thank you. Thank you very much.
Thank you very much. The next question is from the line of Harith Ahamed from Avendus Spark. Please go ahead.
Hi. Good evening. Thanks for the opportunity. So my couple of questions on.
Mr. Harith, can you be a little more louder?
Yeah. I'll try to be louder. So a couple of questions on Granules CZRO. I hope I'm audible now. So last quarter, towards the end, we have commissioned a pilot plant for DCDA. So any takeaways from that pilot plant so far and any updated thoughts on our INR 2,000 crore CapEx in this project? And then finally, any timelines around the PAP plant that we were planning to commission?
So good evening, Harith. Interesting question. Something close to my heart again. CZRO, we did commission the pilot plant. We had some teething issues. Like I've always been saying, this is a new technology. It was demonstrated in lab scale. And pilot, we had some issues. These are huge equipments. So we're making some changes. And I think with the changes, we'll again restart next month, modification of equipment. And hopefully, it will go well. And once this is demonstrated for a few months, consistent yields and consistent quality, then we will start working on the main plant, which is to come up in Kakinada. The main plant equipments have been ordered already, and we are waiting for some modifications that will be needed before they'll be delivered to us.
Regarding the INR 2,000 crore investment, we have mentioned that we are very cautious in going forward at every place. We have a stage gate, and once we cross that, we'll be investing more. So we are cautious. Right now, there has been a little issue on infrastructure creation in Kakinada. Power has to be brought in from a distance. So a lot of discussions are happening with NTPC. Our partner has already been working on that and also discussing with state government and all on access for building and the power. And also for electrolyzer building and all are happening. Electrolyzers, they're making their own electrolyzers, which will take some time.
So in view of infrastructure creation getting delayed, we are in no rush to get there. And we also understand we seem to be far ahead of anybody else.
Being too early also may not be the wisest thing. We will take it a little easy, become stronger, and then go ahead.
Thank you, sir. One related question. So we had announced these expansions of the backward integration projects when the prices of DCDA and PAP were much higher than where they are now. Now that PAP and DCDA prices have corrected, is the case for backward integration as strong as it was at that point? And is that also factored into our capital allocation into this project?
Financially, not as effective as it would have been in the past, Harith. But again, when you look at where the world is going, these prices where the overseas manufacturers are giving today may not last. And our experience in the past is these types of products hit a very low and again slowly start creeping up to abnormally high prices. So we think we are on the right strategy wanting to do these APIs also intermediates, even though it may not give us any great attraction in the short term.
Okay. So my last question is on the.
The carbon footprint is going to be much, much lower than what we get from overseas. As you know, with CBAM coming in Europe and other places and incentives in other places, this is going to make a tremendous difference, and it's definitely the right way to go.
Okay. The last one on the formulations business. So in FY2024, we had received quite a few interesting approvals like Metoprolol, Esomeprazole, Pantoprazole, all modified release versions. And then we were preparing for launching these in FY2025. So are there any timelines that you can share or any updates on specifically these products? And if I may add one second part to the same question, Priyanka mentioned that 15% of our formulation sales is from OTC. I was hoping if you could give some more color regarding the share from the controlled substances, the ADHD products, and our legacy molecules. Some ballpark breakup would be very helpful. Thanks.
Hi, Harith. I think your first question, sorry, your second question first. The share from the controlled substances versus legacy products is perhaps something we can really share, but I'll say that both are equally contributing. There is no significant change in the percentages of contribution necessarily. And on your yes, we did receive a lot of launches last year. We launched about 3 products at the very end of Q4, which essentially we launched in Q1, and also another 2 products in Q1. So that's about a total of 5 launches that we did. But we just started the business. So the actual value from the businesses you'll see over the next couple of quarters.
Okay. That's very helpful. I'll get back into it. Thanks.
Thank you.
Thank you very much, ladies and gentlemen. Before we take the next question, we would like to remind the participants that you may press star and one to ask a question. The next question is from the line of Sahil Vora from M&S Associates. Please go ahead.
Hello. Am I audible?
Yes.
Yes, yes, Mr. Vora. You are.
Hi. Good evening. I just had a couple of questions. The employee costs and other expenses have increased by approximately 16%-18% year-over-year. So when can we expect the operating costs to grow at a slower rate than revenues?
Yeah. So employee expenses have gone up, you're right. Other expenses are coming down. The increased percentage will be lesser in F25. But we see employee expenses will still be at a double-digit rate of increase in the FI25, which will come down in F26, where we can see a better operating leverage of employee costs.
Okay. Understood. My second question was the Paracetamol API sales have been declining and witnessing a price erosion somewhat. Where do you see these stabilizing?
Mr. Vora, it's already sort of stabilized at the very lowest, anemic levels. Okay. Now it's only the way up. Like I said, only end of this fiscal year or early next year, we will see that things will look up. It's going to take some time. These are cycles that happen once in about 7-8 years. This type of cycle happens, and this is one of the worst cycles I have seen in about 40 years of existence in Granules.
Okay. That's it. I'll join the queue for further questions. Thank you so much.
Thank you very much. The next question is from the line of Parag from Old Bridge. Please go ahead.
Hi. Just wanted to check on the OTC business. About 15% of formulations revenue in Q1. There was a comment in Q4 FY2024 that the OTC business grew by about 25% in FY2024. But if you could give us a sense on how big the business was for full year 2024 and full year 2023?
It's been growing at from INR 40 crore to INR 60 crore this last year. This year, we expect a similar growth rate in the 40 figures.
76 crore.
76 crore. Sorry. You want to get the numbers?
Yeah. Sorry.
Million. I'm sorry. I was talking about million.
That's all right.
The current quarter is about INR 20 million. It is increasing in strong double-digit quarter-on-quarter as well as year-on-year.
How much was this for FY2024 and FY2023?
FI24?
Yes.
FY2023, fully the financial numbers you are asking?
Yes.
In FY2023, it was roughly about INR 40 million. FY2024, about INR 60 million.
Sure. Just the last comment. Sir, if you could just give us a comment on your top five products, one. And second, given the performance that we've seen in FY2024, considering the cycle that Paracetamol has been going through, would it therefore be safe to presume that year on, even though Paracetamol and the top five products are significant contributors, but in a large sense, you've been able to hedge your business or your dependency on these products? Or is there still time for us to reach that conclusion?
I think, as mentioned in the strategy both by Chairman and me in the last couple of communications, while these core products like core Metformin continue to be very, very important products, but we started looking at the increase in the FD sales. And also, we are looking at the addition to different product portfolios in different baskets. So you clearly see that in Q4 and Q1 , although the paracetamol decline is seen in the API, we are still able to maintain a very healthy and a sustainable bottom line.
I think this itself is, as I told before, this itself is a good example of our de-risking and also making sure that we have a very positive way forward in terms of looking at FD growth in U.S. and other geographies. And this should enable us to continue to have.
When Sara comes back, as told by the Chairman as well, I think we will only add more to the bottom line.
Okay. Thank you. Most of the capacity creation that's happened in Para has been mostly in India, right?
It's all in India. Yes.
Okay. Thank you.
Thank you very much, ladies and gentlemen. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Forum Parekh from Sharekhan. Please go ahead.
Yeah. Hello. Congratulations and a good set of numbers. My first question is, I see North America sales growing by almost 45%. And I understand it's because of the lower base. So may I just understand what would be the normalized growth rate going forward? I mean, how do we see North America region? I mean, do we see any price erosion pressure there? How do we think about it?
Yeah. You are right. Last year, Q1 base was lesser because of cyber incident as well. But we are seeing North America region to grow in excess of 20% and largely driven by formulations.
Okay. So my second question is, now that we expect formulation sales to increase even from year on and European region also to contribute from next year as paracetamol sales kick in, so do we expect better margins to go north of 22% and settle somewhere around 25% in a year's time or so?
Yeah. That is the accretion. But we are currently seeing around this range is what we will maintain and also inject quarter-over-quarter as we see with the increased revenue of formulations.
Okay. And my last question, if I may squeeze in, may I just understand that on a sequential basis, though our sales have gone up and RM costs have come down, then why are we I mean, what has impacted gross margins by 100 basis points almost on a sequential basis?
Yeah. On a sequential basis, it is not because of raw material cost. Raw material costs were more or less flat. It is primarily the product mix within the formulations.
Okay. Is it the API sales which has not kicked in, or what in the product sales?
Within the formulation, also, there is a product mix. Largely sequentially, the formulation mix has changed.
Okay.
It's more of product mix, nothing major. But this 100 basis points ±, we will see every quarter ±. Depends on the products we sell and the customer mix and product mix.
Right. So largely, we would want to maintain around 60% on a gross margin level, right?
Yeah. ± around that level.
Okay. Thank you. That's all from my side. Thank you.
Thank you. The next question is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Yeah. Thanks for the opportunity again. Priyanka, a question to you. In the U.S. business, what is the price erosion now?
Price erosion has stabilized to a very large level that way. I would say it's an average of mid to a little bit of a higher single digits, but it's more mid single digits.
You said that earlier that you have increased your share in the existing products. With this mid single digit growth, you are not seeing any sort of value erosion in the U.S. business. Is this right to understand?
Yes. I wouldn't say no value erosion. I wouldn't say significant value erosion.
Okay. And I mean, on the launches part, how many have been I mean, how much are you targeting for the new launches this year?
In terms of number of products, like I think I mentioned to somebody earlier, we did about end of Q4 and early Q1, we did about 5 launches. So in addition to increasing share on those launches and starting to see value on those launches, we'll be doing about 3-4 launches in the U.S. and roughly about 8 launches in the rest of the world for the rest of this year.
Okay. So for the full year in North America, that is in the U.S., you will be doing around 6-7 launches?
Yes. It will be about 3-4 more launches. And we have already launched about 2 if you consider Q1. But I would say about 9 launches roughly if you consider the last part of Q4.
Got it. Got it. And on the cash conversion cycle, you all mentioned that the equity issues have impacted the working capital base. So are we expecting to get normalized during the year? And it should be similar to what we have seen in FY2024, or it would remain at the elevated level?
We are looking at similar to FY2024 level during the year. So it will normalize as the risk issue impact comes down.
Okay. My last question. On the FD side, what is the current capacity utilization?
In our Granules facility, they're almost 100%. We just started validations in our new GNS site. The first stage has 2 billion capacity. I think by the end of this year, we should be doing at least 1.2 billion, 1.3 billion. Early next year, the new capacity is another 8 billion will start up. We expect to pick up another 2 billion or 3 billion of that capacity too in the next year.
So basically, what I understand is that as the capacity is picked up, we will see that the second half will be much stronger than the first half.
Second half could be a little flattish, but Q3 on the second half, you're right. The second half will be.
Yeah.
Second half will be stronger.
That's right.
Okay. So thank you. That's it from my side.
Thank you very much. The next question is from the line of Ashish Soni, a Family Office. Please go ahead.
Sir, this future portfolio on co products, when do you think, and other products, when do you think can be launched?
As I told before, we expect from FY2026, the launch of oncology products should happen. They won't happen in all the geographies. I think it kicks off with a chosen geography where there is a possibility of early launch or early approval, and it keeps going. We expect this to go on from FY2026 onwards.
Okay. And this innovative platform for diabetes, product for diabetes, what exactly are you trying to do here? Can you just throw some color on that?
So, we are trying to look at that because we are very strong on Metformin. So we are trying to look at several derivatives of Metformin as a part of our diabetic segment. So we are trying to look at the Glucosamine, the Gliptins, and also other important areas of diabetes because we want to be a very serious player in this segment. And you keep hearing a lot more as we move forward on how we are going to look at this segment and this platform in a larger way.
This future portfolio, how much revenue can it contribute in terms of percentage in your overall revenue in the next two, three years?
I think we have been looking at this. We feel that it will contribute quite significantly to our entire portfolio. And maybe because all the launches are going to be most of them are going to be on day one. And also, we are looking at the dominance of this as a part of our Metformin. We look to be a very significant player in the diabetic segment. And I think that is what is the guidance we want to give.
Any CapEx plans for this year, next year?
I have already told that we have been taking a lot of capacity expansion both in finished dosages as well as in the APIs and also in our enzyme technology platforms. Yes. There are CapEx plans, and we will be in line with all our estimates and expectations on the capital expenditure.
Okay. Thanks. And all the best.
Thank you very much. Ladies and gentlemen, that was the last question for today due to time constraints. I now hand the conference over to Mr. Krishna Chigurupati for closing comments.
Ladies and gentlemen, thank you very much for attending this call today. I wish you all a great rest of the day and a good night too. Thank you very much.