Ladies and gentlemen, good day. Welcome to Q4 FY 2023 earnings conference call of Alivus Life Sciences. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the Conference Call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Soumi Rao, General Manager, Corporate Communications, Alivus Life Sciences. Thank you. Over to you, ma'am.
Good morning, everyone. I welcome you all to the earnings call of Glenmark Life Sciences Limited for the quarter and year ended 31st March , 2023. From Glenmark Life Sciences, today we have with us Dr. Yasir Rawjee, our MD and CEO, and Mr. Tushar Mistry, our CFO. Our board has approved the results for the quarter and year ended 31st March 2023. We have released the same to the stock exchanges and updated it on our website. Please note that the recording and the transcript of this call will be available on the website of the company. I'd like to draw your attention to the fact that some of the information shared as part of this call, especially information with respect to our plans and strategies, may contain certain forward-looking statements that involve risks and uncertainties.
These statements are based on current expectations, forecasts and assumptions that are subject to risks, which would cause actual results to differ materially from these statements, depending upon the economic conditions, government policies and other incidental factors. Such statements should not be regarded by recipients as a substitute of their own judgment. The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. With that, I invite Dr. Yasir Rawjee to say a few words. Thank you, and over to you, Doctor.
Thank you, Soumi. Good morning and welcome to everyone on our Q4 Earnings call. Before we dive into the Glenmark story, let me talk about the overall macro situation. While we hear about COVID here and there, we seem to be okay from the industry perspective. Demand is stable. We don't have any challenges on supply chain, and operations are also not impacted by this element as of now. It's not going to be alarming. The China situation is certainly improving. Manufacturers have started in full swing. We are having a good supply situation as well as prices are under control. The other elements like inflation and, you know, the banking sector stress and so on have less of an impact on us, right?
Overall, the macro situation, I would say, is favorable to the industry. However, we must remain vigilant. Coming more directly to the industry. I had mentioned in last quarter that solvent prices were softening as a result of gas and crude prices coming down, and this has certainly played out well in quarter four. Even the freight situation has eased off, so, you know, we are okay. There is a bit of a bump with the customs situation in Mumbai, okay, with the new software being installed and some material getting slowed down. We are talking about this quarter. Okay. On Q4, let's talk about performance.
We've had a reasonably good quarter, strong growth on a quarter-on-quarter as well as on a year-on-year basis. This growth basically rides on the back of very robust growth in the generic API business, which was driven both by the external business as well as the Glenmark business. Then we had good recovery on the CDMO side as well in this quarter. Overall, I would say we fired on all three fronts that make up our business. On the CDMO space, one of the projects in the CDMO has picked up well on account of an additional indication that the customer received. Plus, there was some rationalization on inventory in the last two or three quarters. The CDMO space for us was a bit depressed.
Okay, on the one project that we are still waiting on, there are some regulatory delays, but hopefully that will also clear in this year. The one thing that also has helped our growth in a big way is the capacity that was brought on, the additional capacity that was brought on in Dahej. We added 240 KL at Dahej, which came extremely handy in this last quarter and helped significantly with this big demand that we saw. Dahej capacities have come fully online. We've also got the oncology block started off and started manufacturing oncology molecules commercially as well. When we look at the annual situation, the top line does look flattish, right?
I would say that the growth that we've seen is a quality growth, and that's reflected in our profitability numbers. You know, so I'll start with CDMO. Like I said, there's been some inventory rationalization, pressure from Q1, which I'd also highlighted in the earlier calls, and that has picked up very well in this fourth quarter. We believe that this momentum would continue. You know, coming to GPL business, again, Glenmark Pharma was in this mode of inventory tightening rationalization. That impacted us in the first three quarters of this year. That already, we began to see some very good demand from them in Q4, which will also be sustainable. Now, last year, we also had the impact of favipiravir, the base.
You know, this entire flattish behavior on the growth is as a result of all these things. The one thing I must say is that despite these two engines firing late, our external business has continued to grow at a very healthy pace of around 15%. Okay? This is a testimony to the diversification of the business that we have been able to create at the product level and at the geography level. This is extremely encouraging, and this is a trend that will continue. With respect to margins, like I said, the quality of the growth has been very good.
We've got a growth of 6.4% in EBITDA and 11% growth on net profit, in spite of being, you know, flattish on the revenue. Okay. To summarize on a full year basis, during the first half, we've seen demand issues for both GPL and CDMO, which began to normalize in the second half. This quarter, we sort of hit a pretty good situation, okay, with external business continuing to grow. Just to talk a little bit more on the external business. We have introduced a few new products to the basket that have contributed to the growth. The overall basket is now 139 molecules.
On the customer front as well, you know, we now are sitting with 700 customers across the geographies. Coming to R&D, we had 433 filings as of last year, which has now gone up to 468 at the end of FY2023. The R&D pipeline remains robust, with a total of 20 molecules in the pipeline now, of which many are complex molecules. We have threee ion compounds, out of which, you know, regulatory filings for 1 have been completed. We've also added 1 new high-potent API to our pipeline, taking the total high-potent API pipeline to 9. Out of these 9 high-potent API molecules, we have five which are in advanced stages.
Overall, our complex R&D pipeline has continued to grow and has a market opportunity of approximately INR 20 billion. A front-end market opportunity of $20 billion. Let me sum it up on the business side with, you know, saying that the demand has come back pretty strong with all three levers firing well. Cost pressures have rationalized, and that's why the profitability has also improved. I believe that this will sustain in this new financial year. We'll stick to our guidance of around 12% to 14%, you know, with stable margins.
Before I close and hand over to Tushar, you know, I'd like to just let you know that our HR team has done a brilliant job on employee retention, where we got a Gold Award from the Economic Times Human Capital Awards, competing with some really big names. We were selected for employee retention, we got the Gold Award. For business continuity, we got a Silver Award. I'd like to thank my entire team for working tirelessly and bringing a lot of innovative products, policies, you know, to the company. As a result, we remain highly optimistic to continue our journey. With that, I'll hand over to our CFO, Mr. Tushar Mistry, who will discuss the financial performance in greater detail. Thank you.
Tushar, over to you.
Thank you, Dr. Yasir . Hello, good morning, everyone. I would like to briefly touch upon the key performance highlights for the quarter ended 31st March 2023. We'll open the floor for Q&A. We registered revenue from operations of INR 621 crores with a sequential growth of 14.9% and 20.9% on a year-on-year basis. Doctor has already discussed the growth drivers in detail. I will move to the performance numbers. Gross profit for the quarter was at INR 341 crores, up 23.6% quarter-on-quarter and 31.7% year-on-year. Gross margin for the quarter was 54.9%, up 319 basis points on sequential basis and up 450 basis points compared to the same quarter last year.
Gross margin was driven by higher CDMO sales and better product mix. EBITDA for the quarter was at least INR 209 crores, up 37.6% on quarter-on-quarter basis and 42.1% on year-on-year basis. EBITDA margins for the quarter were at 33.7%, up 560 basis points on sequential basis and up 500 basis points on year-on-year basis. EBITDA margin for the quarter was higher due to higher gross margins as well as lower operating costs. Doctor alluded to this in his opening remarks that cost pressures for raw materials as well as for operations have come down, which has resulted in high EBITDA margins.
Profit after tax was at INR 146 crores in Q4 FY2023, registering a growth of 39% on sequential basis and 48% on year-on-year basis. PAT margin for the quarter was at 23.6%, increased by 420 basis points on sequential basis and 440 basis points year-on-year. PAT growth was driven by better EBITDA margins and lower finance costs. External business grew strongly by 19% on year-on-year basis and 2% on sequential basis. External business was driven by strong growth in US, LatAm, Japan with other geographies remaining stable. The Glenmark Pharmaceuticals business also reported strongly during the quarter, growing 45% on sequential basis. Glenmark Pharmaceuticals contribution to the revenue was 37% during the quarter and roughly around 31%-32% for the full year.
Generic API revenue for the quarter was at INR 530 crores, registering a growth of 10.4% on a quarter-on-quarter basis and 15.5% on a year-on-year basis. Strong recovery in Glenmark Pharmaceuticals business and growth on external API sales have led this growth. For the quarter, the CDMO business doubled on sequential basis to INR 56.8 crores, whereas on year-on-year basis, the growth was 30.4%. R&D expenditure for the full year was at INR 65.2 crores, 3% of sales. We believe R&D expenditure to stay around 3% for FY 2024 as well. Coming to for the business, working capital days for FY 2023 are at 171, peaked in Q3 at 178 days. Now we are witnessing it cooling down.
During the quarter, rationalization in inventory led to improvement in the working capital. Debtors for the year looks higher, they are driven by strong sales in Q4 FY 2023. I believe the working capital levels to remain at similar levels in coming quarters. The CapEx for the year was at INR 170 crores, which is in line with our strategy of doing calibrated CapEx of around INR 150-200 crores every year. Even after CapEx, we have delivered strong free cash flows of about INR 143 crores. We continue to remain a net debt-free company with cash and cash equivalents of INR 284 crores on the books as of 31st of March 2023, this is after paying the dividend of almost INR 260 crores in March.
To conclude, strong demand recovery supported by better input prices and availability of excess capacity will help us to deliver sustained growth in the coming years. With that, let us open the floor for Q&A. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please Press Star and one on your touchtone 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 Tarang Agrawal from Old Bridge Capital. Please go ahead.
Hi. Good morning, everyone, and congratulations for a extremely strong set of numbers. Just a couple of questions from my side. One, if you could comment on the volume growth for the entire business for FY 2023.
Tarang, it's largely driven by volume growth.
The 6% growth that we've seen in the top line for FY 2023, would it be fair to presume all of it is volume?
Yeah, largely. I mean, there is some price, you know, growth, but, you know, but it's largely volume.
Okay. The second question is, you know, I mean, I think the commentary that you laid out in your opening, I guess it does seem like Q4 there weren't any one-offs. Would it be fair to presume that the traction that we've seen in Q4, given the capacities have expanded and overall operating environment has improved, should probably continue going forward in FY 2024?
That's what we would say, yes.
Okay. Any sense on, if you could give us a sense on what was the contribution of favi in FY 2022 to your overall business?
22?
Yes.
Yeah. Tushar, About INR 96 crores was the contribution in FY 2022.
Got it. The last question, Tushar, I mean, if I look at the business, right, I mean, working capital expansion has just been on one streak. If I compare 2022 over 2021 and 2023 over 2022, even though Q4 has sort of lightened up from Q3 numbers. I mean, I understand 2022 was on account of you wanting to hold off additional inventory given the uncertainties in the environment, but was surprised when I saw the balance sheet numbers yesterday that the expansion sort of continues. I mean, is there a way that this can be probably be addressed or this is how the business operates?
See the, if you see from Q3 to Q4, within the working capital, it is the inventories have softened, significantly. I mean, there you can see the softening happening on the inventory front for sure. The working capital has, it's seemed like sort of because of, debtors, because of receivables. That is on account of a very high number on the Q4.
Sales, revenues.
Mm-hmm.
Actually, if you annualize the Q4 sales and look at the receivables, they will not look like 136 days of receivable. They will look like 118 days of receivables, right?
Mm-hmm.
Out of the four quarters, the fourth quarter has been extremely good. That's why if you take annual sales and look at the closing receivables, the receivables will look higher. If you annualize the fourth quarter sales, then your receivables will be reasonably low, right? One needs to look at it from that perspective.
How should we see this number going forward in, say, if I were to look at September?
Yeah. I think, from 171 days, you should see another 8-10 days of reduction going forward.
Okay. Ballpark about 160-170 days is where you should be standing now.
Yes.
Is there something that's fundamentally changed in the business, which is resulting in an expansion in working capital?
No,
No
See that you would see generally across industry because everybody has been sitting on inventories. We have also built up the inventories cautiously.
Mm-hmm.
That's where the working capital had gone up. While, now we are seeing some ease off happening globally. Because of that, you can see that the inventory levels have also come down in Q4.
Mm-hmm.
While we are hopeful that it will still come down, but we'll still tread cautiously on this as we go forward.
Got it. Thank you, Tushar. Just last question. CapEx for FY 2024, how should we look at it?
CapEx should be between the INR 150 crore-INR 200 crore range.
Okay. Thanks. All the best, guys.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you for taking my question. Sir, on the fourth quarter performance, on the generic API side, if you could just help us understand what's the pricing trend that we're seeing, because, you know, some data shows us that realization continue to weaken, for generic APIs. Have we seen a similar trend? What's your sense on where the pricing will settle? Could you see more pricing pressure as raw material costs come off for, you know, for APIs?
Yeah, Neha, for sure, pricing pressure is there, right. More driven by the U.S. market. Okay. As costs do ease, there is an expectation from customers to, you know, lower prices. We've managed to sustain it, quite. If you recall, right, we had passed on some of our higher costs to customers. Now the shoe is on the other foot. Okay. There is an expectation which, you know, we've managed reasonably in Q4. In order to keep customers happy, we would be sort of addressing that as well.
just to get a sense, how much would realization, blended realization be down for our business, let's say from last year to, you know, where we are ending now?
3%-4%.
Okay. Okay. I'm assuming fourth quarter, this number would be higher, obviously, since this is from the beginning. There was also increase that we saw in the first half.
Neha, could you repeat that, please?
I'm saying that in the fourth quarter, probably the realizations are down even higher on a quarter-on-quarter basis.
Yes.
Okay. Second question is, you know, given we mentioned there's no one-off in this quarter, you know, your commentary seems pretty upbeat and we have the CapEx coming. Any reason for maintaining the revenue growth at the 12%-15%? I understand this quarter-on-quarter lumpiness in the business, but, you know, if I just look at the fourth quarter numbers, by itself, you should be growing in the mid-teen to probably slightly higher. You know, what, any concerns that are sort of keeping you conservative on the top line guidance?
Okay. See, our visibility for the first two quarters is pretty good. Okay. You know, I mean, things change, right? Yeah, we're being a little bit careful in terms of the numbers that we are putting out. That's it, right. Let's see, I mean, how the year plays out, but the first half of this year looks pretty good.
Okay. This will also have the contribution from the CapEx, right? The commissioning of the new CapEx.
Yeah. I mean, the new CapEx has kicked off very well, right? The Dahej, I mean, utilization is around 80% already. Okay.
Okay.
We will complete the Ankleshwar intermediate block fully. That will also help. We'll hopefully get it done in the first half itself, the Ankleshwar block. Both will contribute very significantly to, you know, the servicing of the business.
Got it. My last question, you know, similarly on margin. You know, we did 33% margins. Your commentary on raw material costs easing, freight costs easing, good top line improvements, you know, Ankleshwar kicking in. Again, any reason for keeping flat margin expectations? I would assume that with the additional CapEx coming in, operating leverage there, and cost easing, we should be seeing margin improvement going forward.
The thing is, see, if you recall, right, in the last couple of quarters, what we said was that there are headwinds, right? You know, even in the headwinds, we've been at that sort of 29% range, right? If you look at Q4, basically all the good things have happened together. Right. If all that continues, right, what you're saying will happen, right? Let's realize that we live in a world which is changing very rapidly. You know, something here and there could move around, and as a result of which, you know, that would have some impact on the margins. That's why we are saying that we'll maintain at around 31-ish%.
Got it. Last.
One moment, Ms. Manprina. May we request that you return to the question queue to the participants waiting for their turn?
Sure. Thank you.
Thank you. The next question is from the line of Madhu Sudhan Kela from MK Ventures. Please go ahead.
Hi. Good morning. Congratulations on a great set of numbers. I had two, three questions. One, we had paid INR 21 as a dividend. What is the thought process going forward? Is there any particular payout percentage which we have in mind of percentage of profits? That is one. Second, is there any PLI benefits which are there in the Q4 margins? As Neha was saying, you know, everything is pointing towards better margin. Let's say if we are not to be conservative for any other external event happening, what is the kind of possibility do we see for margin expansion?
In Q4 of 2024 we had 58.8% gross margin, and we had 36.4% EBITDA margin. I understand there was COVID, there might be some COVID impact on that quarter. Can we see the margin going back to their levels in the first two quarters? The third is we have had INR 450 crore of CapEx in the last 3-4 years. How much do you think the turnover can go because of this CapEx already being done? What is the kind of potential which is there?
Okay. I'll let Tushar take the first two and then come back on the third.
The first one was.
On the dividend.
Yeah, on the dividend part. Mr. Kela, actually, if you look at our cash flow generation, if you take roughly about INR 600 crores of EBITDA and look at how the EBITDA is getting converted to cash, we will continue to generate about INR 200-300 crores of free cash. That is the momentum that we'll maintain of distributing that free cash as dividend. That is the way to look forward for this business.
Tushar, based on this quarter number our annualized EBITDA should be INR 840 crore.
Yeah. Exactly. I mean, that is something that one can continue to expect going forward.
Okay. Fair enough. Fair enough.
Whatever is required for business after CapEx and after working capital investment, whatever is there will be distributed. One has to be mindful that 80% is still held by the parent, and the only way to upstream cash is through dividend, and that is something that we'll continue to do. Right?
Yeah, I understand, but I just wanted to reaffirm that.
Yes. Yes. Second is on margins. PLI has benefited the margins in the current year. Roughly about 200 basis points improvement in the margin would have come through PLI benefit. Between 150-200 basis points would be there. Overall from a margin perspective this quarter, another 100 basis points would have come because of the better CDMO business, I would say. Because that is where we saw some good revenue generation happening. CDMO business is a much better margin business compared to the other parts.
But
higher margins.
Tushar, sorry, my question is simple. Can we go back to Q4 margins in the first two quarters of this year? We had 36.4% EBITDA margin, and we had 58.8% gross margin.
First two quarters was not that high. First two quarters was.
No. I mean year as a whole, we had that kind of margin. Is there a potential that we can go back to those levels of margins?
No. We will, as Dr. mentioned earlier, we are treading cautiously on this. I mean, this is while, as Dr. said, all the levers hit us, hit positively in this quarter. It's a outcome of product mix overall, and some products do well and some products are higher margin business.
33% of what we did in Q4 might be sustainable, expansion is not possible.
Yeah. I mean, that is a fair enough assumption.
Okay. I asked for the peak potential of turnover because of the CapEx which you have done.
Yes.
If you can answer that.
If you look at our fixed asset turnover ratio, it is somewhere around 2.9 at the net block level. For the fresh CapExes that we are doing, one can fairly assume it to be between around 2 levels. 1.8- 2 levels is how we would look at how this additional CapEx will contribute.
I have one last question. We had 37% contribution from Glenmark Pharma business in the current quarter. Where do you think that will sustain in the current year, in 2024?
If you look at the full year number, it is around 31%-32%. Historically, it was upwards of 40% because of favi that was there last year. We expect it to remain within this one-third range in the near term. On a longer term basis, we expect it to keep on coming down year-on-year gradually. It will not significantly come down, but it will gradually keep on coming down over a year-on-year basis.
One last thing. You have 82.5% holding in Glenmark Pharmaceuticals, and by regulation you will need to go to 75% in defined period of time. Can you share us what is the timeline for getting this done?
It will be July of 2024. Since the listing happened in August 2021, it was three years from then.
Still time is there.
Yes.
Thank you so much. All the very best. Thank you.
Thank you.
Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is on the line of Sajal Kapur, an individual investor. Please go ahead.
Yeah. Hi, good morning, and thanks for the opportunity. Question on the CDMO business. You have clearly reported a very strong CDMO in the fourth quarter. If you zoom out over the last three, four years, there is no growth actually. I know we have only got three, four projects and they are all generic, and we have no commercial molecules in the non-GPL CDMO. When I look at your slide 17, that includes CDMO as a growth leader. Are we really investing in the business development? Are we trying to secure more late phase III or already on patent molecules as well? What kind of scientific capability you think we need to get to the growth part of CDMO?
Clearly, about 25% annualized growth in the non-GPL CDMO space is what we can factor in. If we continue with this generic CDMO, there will be pricing pressure, because ultimately the end product is off patent, so there will be market driven and pricing challenges there. Just wanted to understand, you know, the outlook on the CDMO on the back of that slide 17 comment, and where do you see this growing over the medium term? Thank you.
Okay, thanks for the question. Let me reiterate, CDMO will be a growth driver. It is a growth driver even now, because if you see, we are a late entrant into CDMO. Given the overall size of our business, even though CDMO features at 7%-8%, right, it's still quite significant from a top line, even more so from a bottom line perspective. Our approach to CDMO is, yes, there is a generic element in the lifecycle management piece. We also have an innovator piece in which we are working with specialty companies. We have had significant traction in this piece in the last 1.5-2 years. Much so that we are looking at, we have discussed, you know, more than 10 opportunities, you know, actively with customers in this space.
We believe that given the kind of traction we are having, you know, on the number of projects, you know, in the specialty space and some even in the life cycle space, this is an area that would grow and would continue to grow. The reasons are that we are a standalone API company. There's a lot of trust factor, okay, with players, you know, in the CDMO space. What happens in this space is that, you know, like I said, there's a lot of intellectual property that is shared, and customers, you know, are happy with companies that will not compete with them through the formulation space, right?
We happen to be in that situation and would drive both the specialty, which is an innovator segment, and the life cycle management, which is a generic segment. Addressing your specific point about NCE, what happens here is that there is a very different set of capabilities that needs to be built with a long period, or, you know, with a long gestation period for projects to come online. The investments that we have to make, we have to keep making and then realize at a very late stage in terms of time. We have, you know, made a conscious call not to get into that space because there are significant opportunities in the spaces that I pointed out to earlier. To reiterate, CDMO will be a growth driver.
We have seen a lot of traction, and we believe that even in the near term we'll get significant contribution from CDMO.
Sure. That's helpful, Dr. Rao Ji. Fundamentally speaking, we are a chemistry company, chemistry capability company. If we get Our specialty chemicals are a non-pharma CDMO opportunity, which is lucrative in terms of the margins, and we have the necessary resources and capabilities to cater to that demand on a sustainable basis. Would we shy away from such an opportunity just because it's not in the human pharma domain and we want to stick to the human pharma domain? That doesn't matter because fundamentally we are a chemistry company. The reason I'm asking this is because different companies look at the CDMO space differently. Some want to be a pure play pharma CDMO, whereas others are more open to play it on the overall chemistry horizontal level. How do you see that?
We would stay with pharma for a couple of reasons, right? The first is our infrastructure is a high-end infrastructure. Getting into a non-pharma play, you know, would hamper, you know, us from the sort of sharing that infrastructure with pharma, right? That, at least, off the top of my mind, you know, we would stay away. The second reason is that there are so many opportunities in pharma itself in the CDMO space, right? We really don't see the need to get step out, right? Largely it is driven by the fact that the quality of infrastructure that we have is more suited to pharma.
Right. Okay. Secondly, being in a fortunate space where customers want to de-risk from China, and how do we decide which customers are opportunistic or lower quality in the supply chain shift versus those that are better quality and we could potentially become their long-term API partners. These are the customers who don't see us as an API, quote, unquote, "supplier." They would view us as a long-term sustainable partners because they want supply side security, plus they also want complex chemistry partnerships.
How do you pick and choose between customers, given that this de-risking is happening at a global level quite clearly and this will likely to get the supply chains that is, they're likely to get frozen over the next year or two?
For us, it's the regulated play that matters the most. If you see our business, 80% of our business is now regulated market. The thing is that when we are dealing with customers in that space, right, the business is very sticky, right? A similar kind of thing would apply, right, even when customers are migrating. This whole opportunistic play happens once in a while, right? We are able to see that, and we do that only when we are likely to see the short-term benefit ourselves. To address the China de-risking piece, we are certainly seeing momentum there. There's been a lot more filings from customers who were only China-focused, but are now moving to a more diversified supply chain base for themselves, which is India as well as China.
This is visible. Of course, it does take time because there are regulatory changes and regulatory filings involved. You know, as long as that's the element, that's the, you know, space in the business that we are chasing, we see that, you know, this will be sustainable going forward.
Right. That's helpful.
I'm sorry to interrupt, Mr. Gaur. sir, may we request-.
Just last question.
Sir, I do apologize, but we have participants waiting.
Okay. I'll join the queue. No problem.
Thank you, sir. The next question is from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.
Congratulations and thanks for the opportunity. My question is regarding the parent, the revenue bump that we saw in this particular quarter-
Sorry to interrupt. Mr. Rajesh, sir, your audio is not clear. Your voice is sounding very muffled.
Is it better now?
Sir, can you use the handset mode while speaking?
How about now?
Sir, slightly better.
Otherwise I'll come back. Okay. My question was regarding the business of the parent, the growth that we saw in this particular quarter, was it being driven by their domestic business or their export business? If you can just comment on that. Do you see that kind of growth continuing in the coming quarters?
Yeah. Like we said in the commentary, basically they were in an inventory correction or a rationalization mode in the last, two or three quarters, which has now they have reached a sort of stable point. That's why, you know, the demand has come back in Q4, and this is something that is likely to continue.
Okay, understood. Then, the growth is coming from their export business or domestic business?
That I would not be able to tell, but given the fact that they are also largely in the regulated space, right, it would be driven, you know, for us at least, with the regulated market space. Of course, they've got a very significant India business as well. We supply largely for the regulated market.
Got it. Okay. If I heard you right, you were saying, Tushar, that the EBITDA margins this year could be around 33%. Did I get that right?
That, what we said is that if all guns fire, it will be in that range, but, not all guns fire every time. We retain our guidance around 30%-31%.
Thank you. The next question is on the line of Sharad Ratnakumar from Eila Consulting. Please go ahead.
Hi. Good morning. Thanks for the opportunity. My question was regarding the US FDA audit, and if you can just tell us when that is expected, how we are prepared for it, and if we've had a good level of client audits recently.
Yes. US FDA, we are due in all three of our plants, right? Because we passed the three year timeframe. It can happen anytime. For us, a sort of surrogate marker or an indicator is other regulatory audits. We've had a very successful Anvisa audit, which is the Brazilian agency, and a very successful Cofepris audit, which is the Mexican agency. This is very recent. In addition to that, like you pointed out, we continue to have customer audits, which, and like we since we work with the top 20 generic companies in the world, right, we have pretty detailed audits from customers as well. So far, very good string of audits from customers as well.
We believe that we are ready, you know, whenever FDA comes and we remain in a state of all-time readiness.
Thank you. Thank you, sir. My next question was regarding the Solapur CapEx. I understand from the presentation that we are commencing construction in this financial year. Have you planned it in terms of phases? Do we plan to use it fully for CDMO or is there gonna be generic contributions as well? Can you just throw some light on that, please?
Solapur would start this year. We've received all the permissions. We are geared up to get started this year. The planning, obviously, you know, we will do it in phases because we don't want to spend all the money very quickly, okay. It has to go hand in hand with the business. What kind of business, you know, the good part is that it's a, it's a multipurpose capacity, whether we use it for CDMO or for generic, so it would be used for both.
Okay, sir. Thank you. Regarding the asset turn that we're expecting from there, is it along the similar lines of 2.5- 3 that we'd guided earlier?
For every new CapEx, you will have to consider it to be on the lower side. It cannot be that high. Eventually it will go to that level. For new CapExes, you should keep it around 1.8x-2x times.
Thank you. The next question is on the line of Surya Goku from Anand Rathi. Please go ahead. Mr. Goku.
Thanks for the opportunity, sir, and congratulations on your results. My first question is regarding Glenmark Pharmaceuticals approaching some investors for the stake sale. Is that right? What is your internal discussion about that?
Like we explained earlier, right, to an earlier question, there according to SEBI regulations, there needs to be a dilution of the promoters holding to 75%, right? There is some discussion already, right? That process has started. you know, we have also participated in that. That's an ongoing thing. It's a regular process that, you know, is going on in order to make that happen.
Is that any chance they are selling that they will completely sold out or majority stake, though, it can affect our business, right?
I'm not able to comment because really that is held by Glenmark. They will decide what, how much they want to sell. Okay. As far as the business goes, it's not going to have any impact on the business. Okay. We continue to drive the company independently. What kind of shareholding eventually happens, right, is something that will not impact the business at all.
Okay. regarding any USA...
Mr. Goku, may we request that you return to the question queue? There are participants waiting for their turn. Thank you. We'll move on to the next question. That is on the line of Sudans Maheshwari from Vanian Capital Advisors. Please go ahead.
Yeah. Hello, everyone.
Yes.
Congratulations and thanks for the opportunity. I have two questions. One question is regarding capital allocation. Though, I mean, that has to some extent been asked by the previous participant. Sir, do we expect same level of higher dividend payout in the coming, you know, 3-4 years? Or is it because, you know, currently higher dividend is mainly because, you know, we have already incurred large CapEx. That was first question. Second question is, sir, how difficult it is to maintain, you know, margins in a business where, you know, realizations are declining. Do we see similar level of decline in raw material costs, and do we expect same level of realizations decline in, you know, in near future also?
I'll answer the margin question. I think Tushar has already answered the dividend question. We'll skip that. We have a very highly distributed business. Okay? While we have, you know, big molecules, right, that are more mature and do have a little bit of margin pressure, we are introducing on a regular basis many new molecules, right, to as well as existing customers. The reason for our better margin profile, right, is just that we have... I mean, our business is not based on 10 or 15 molecules. Our business is based on, you know, today a commercial set of around 80, 90 molecules, and in the overall pipeline we've got close to 140 molecules. I mean, this is something that will continue because we continue to introduce newer molecules as well as grow geographically.
We are very confident of maintaining our margin profile.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Ketan Cheda, a retail investor. Please go ahead.
Yeah, hi. Thank you for the opportunity. I'd like to ask the question regarding the CDMO. While Dr. Rawjee sounded very upbeat about the CDMO prospects, but if I look at one of the earlier presentations, you had mentioned that the aspiration is to double the percentage of CDMO revenue contribution in the next four or five years. That would mean your revenue contribution probably would kind of, you know, hit a peak of about 15% maybe three or four years out. I'd like to know that, you know, isn't it this kind of a low aspiration or a low target, while you are still kind of, you know, very upbeat and you're very positive about the CDMO business?
Yes, I'll answer that. See, right now we are around INR 150-170 crore, right, which contributes around 7-8%, right? When we are saying we are gonna double it to 15%, the rest of the business is also going to grow, right? More or less double. In order to sort of make it 15% of a roughly doubled business, INR 150 crore will have to go to INR 600 crore. Okay, I mean, that's not bad, right? Taking INR 150 crore to INR 600 crore in about 4-5 years' time. You know, I mean, that's what I would say. To go beyond that, I think it's possible.
I mean, we won't rule it out, but then just like in whatever we do, we want to be very measured in terms of what we are able to see and how the overall global environment also shapes up.
Okay. Okay, thank you for that response. The next question is, you know, in terms of the growth levers, we have the high complex complex API platforms, pipeline compounds, oncology compounds. Could you comment what is the contribution of these molecules as of now and when these would scale up going forward?
Today, it's small, right? Because we just started this business. Okay. It has started, okay. The thing is that these are levers for, you know, growth in the future, and so they will contribute very substantially going forward in the future.
Okay. Okay. you know, given
Mr. Cheda, may we request that you return to the question queue? There are participants waiting for their turn.
All right.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is from the line of Sajil Kapoor, an individual investor. Please go ahead.
Hi. Thanks. Thanks for the follow-up. I had the question on the employee. Congratulations on getting that employee retention and HR award. What is it that we are doing differently to ensure a lower employee attrition, really? That's really what I wanted to understand better because clearly ours is a business that depends highly on that getting the right sort of scientific talent and the supportive staff. Just wanted your thoughts around, you know, and congratulations again.
Thank you. Thank you. With respect to retention, I think a lot has to deal with the culture. The culture comes from the senior management, right, where we engage very closely with our people, regardless of level. This is something that I think I would not say is unique, but in the industry context of a manufacturing industry, it is not very common. Like I said, all my senior leaders, be it R&D, operations, supply chain, you know, finance, regulatory quality, we have a very deep engagement with our people.
I think giving that kind of comfort to our people, you know, on sharing their ideas however, you know, at whatever level they are and so on, right, is very meaningful and goes a long way to building confidence, you know, with people. They like to come to work, basically. This is something that we worked actively on and also to try and assess, you know, how they are feeling. I mean, you need to ask people how they feel, right? If you just treat them like a, like a cog in the wheel, then, you know, it doesn't work. I'm fortunate, I think we are blessed as a team to get that response from our people, and that has led to this award. Thank you for asking.
I mean, I'm glad you asked a question that's not a financial question, right? It's very important because that also drives, you know, a big part of our sustainability really to keep our people happy and, to, you know, go forward.
Thank you. The next question is from the line of Somil Shah, an individual investor. Please go ahead.
Congratulations on a good set of numbers. Most of my questions were asked, so I just want a reassurance from you. You did mention that the first half of this financial year looks really promising. Can we expect similar numbers of Q4 or we can expect even better numbers than Q4 going forward?
Somil, we'll stick with our guidance, you know? Okay. Like I said, we've got good visibility, we've also put out guidance, we'll stick with that, right. you know, hopefully we'll deliver better than that. you know, I don't wanna give a different set of numbers to a different question.
Okay. The first half looks promising.
Yeah, yeah.
Understand.
It's well, you know.
Okay. Okay, fine. Thank you very much. That's it from my side. Yeah.
Thank you. Thank you.
Thank you. The next question is from the line of Ketan Cheera, a retail investor. Please go ahead.
Yeah. Thank you for the opportunity again. My question is on the backward integration. The project that we are doing right now, it is I guess partially commissioned and the balance part will be commissioned in the coming year. I wanted to understand what is the margin contribution that we will have from this backward integration and to what amount of our volume sales this backward integration will contribute to, like, of course we would not be backward integrating 100% of our manufacturing API manufacturing. To what level are we backward integrating? Thanks.
Okay. One is the capacity related, the other is... The capacity will come on fully this year. Okay. On the project side, we've already got one project that we are doing commercial. One project that we are doing commercially, okay, Actually it's gonna start in Q2 of this year, and it'll contribute very significantly to that project. We expect around a 5%-7%, you know, improvement in the gross margin on that product. This is a product that's around close to an INR 100 crore product, so it would be very significant, the contribution.
Okay. I just was trying to understand like, in a full financial year, how much improvement that would reflect in the EBITDA margin. Like what amount of basis points that would contribute to?
At this point, I would not put numbers, Ketan. Okay?
All right.
But it would definitely contribute very meaningfully, okay? I mean, I don't want to say that it's not, but, since you're asking for hard numbers, I don't wanna put something down yet. We are getting into this game, right? We've got, tasted early success, I would say, right?
Mm-hmm.
It has to pan out on a broader level of APIs for it to be, you know, sustainable and meaningful.
Sure. Sure.
Thank you.
Thank you.
The next question is from the line of Tushar Bora from MK Ventures. Please go ahead.
Yeah, thanks so much for the opportunity and congratulations to the management for a very good set of numbers. Just at an overall macro industry level, just to understand, you know, API companies last four, five years, numbers have generally trended up much better than say, you know, the preceding few years. This also coincided with a large round of CapEx buildup, which incidentally continues. I, you know, reading through whatever your peers are doing as well as, I'm cognizant that you are looking at a large capacity expansion over the next two years. You know, there was a lot of noise, you know, from investor perspective that maybe there's a bit of COVID element in the performance, say, FY 2021.
2022 was a bad year for a lot of your peers. 2023 also, you know, the commentary initially was mixed, though now, most people are starting to become more bullish. I want your opinion of where we are in the overall cycle in API business and in the, in the context of, say, the pricing erosion in U.S. overall, on the formulation side. Where are we in the overall API cycle? How do you see the next two, three years, not just for yourself but from an overall industry perspective? Why is it that across the board, you know, the CapEx buildup is so high for, you know, for the industry when the numbers in the near term don't look that promising?
Okay. See, frankly, I won't be able to comment on the industry, right? Because the API industry is really not a single, it's not a single type of API. There are players that do large volumes, you know, drive cost leadership and focus on relatively smaller set of molecules, right? There, I can really understand why the CapEx buildup is big. With us, we have CapEx buildup, but I would still say it is reasonableRight. We are keeping it highly calibrated depending on the kind of business we are seeing. Fortunately for us, you know, our capacities are completely, you know, fungible. With the kind of multipurpose capacity we have, we don't have to make that much of an investment, right? Yes, investment will continue because the outlook on business is very strong for us.
Okay. Like I said earlier in my comments or somewhere in the answers, right, to questions that the hedge capacity was brought online only in Q4, and it has already touched 80% utilization, the additional capacity. It's very encouraging for us, right? And this is something we would continue to do because if we don't then actually we are disadvantaging ourselves, right? With respect to erosion in the U.S. market, yes, there is pressure. I think Neha asked the question, you know, on pricing and stuff. Yes, we have to kind of deal with that. Again, ours is a very distributed business geographically, and we also have a lot more new products, right, that contribute very significantly to a higher margin.
On an overall business, the margin for us will remain sustainable despite erosion and despite giving our customers the support they need to stay competitive in the business.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Okay. Thank you. Thank you very much for joining, you know, our call. I think we'll close the call now. Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Alivus Life Sciences, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.