Thank you, Andis. Good morning, everyone. Welcome to our first quarter FY 2026 earnings call. I'm Varun Mali from Investor Relations on the Corporate Communications team. We hope you have received the Q1 FY 2026 financials and the press release that was sent out yesterday. These are also available on our website. I would now like to introduce you to our senior management on the call today: Dr. Satakarni Makkapati, CEO of Biosimilars, Vaccines & Peptides Business and Director of Aurobindo Pharma Limited, Mr. Yugandhar Puvvala, CEO, Eugia Pharma Specialties Limited, Mr. Swami Iyer, CEO, Aurobindo Pharma USA, Mr. V. Muralidharan, CEO, Europe Formulations Business, Mr. S. Subramanian, CFO, Aurobindo Pharma Limited. We will begin the call with the summary highlights from the management, followed by an interactive Q&A session.
Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic actions and other affirmations on our future business, business development, and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties, and other important factors may cause developments and results to vary materially from our expectations. Aurobindo Pharma Limited undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances. With that, I will now hand over the call to our CFO for the highlights. Over to you, sir.
Good morning, everyone. A very warm welcome to Aurobindo Pharma Limited's Q1 FY 2026 earnings call. Thank you for taking the time to join us today to discuss the company's financial and operational performance of the first quarter of the current fiscal year. Let me begin with a brief summary of our performance. Our consolidated revenues grew by 4% year-on-year to INR 7,878 crores, reflecting a steady start to FY 2026. This growth was driven primarily by continued momentum in our European and the growth market operations, along with incremental contributions from our ERV segment. Our U.S. formulation-based business remains stable and resilient. EBITDA for the quarter was INR 1,603 crores, with a margin of 20.4%. At the EBITDA level, Q1 FY 2026 includes a substantially lower contribution from generic Revlimid compared to both Q4 FY 2025 and Q1 FY 2025.
Q1 FY 2026 was lower by about INR 150 crores versus Q1 FY 2025 and INR 550 crores versus Q4 FY 2025. Extra revenue growth in EBITDA is 12% year-on-year. In another major development, we are pleased to share that we have secured the renewal of consent to operate as well as the wastewater disposal clearance from the Andhra Pradesh Pollution Control Board for our PNG manufacturing plant. The facility successfully resumed operations on early hours of 1 July. We continue to scale up the operations and have achieved encouraging yields and are confident of sustaining the momentum. Business highlights. Let me now walk you through the key business highlights for the quarter. Overall, formulation business witnessed a year-on-year growth of 7%, with revenues reaching INR 6,953 crores, contributing approximately 88% of the total consolidated revenues. This growth was led by strong performance in Europe and key emerging markets.
API business accounted for 12% of the overall revenue, declining 16% year-on-year to INR 916 crores, impacted by geopolitical challenges, business mix, and the rising pressures. U.S. formulation. U.S. revenues experienced a year-on-year decline of 4% to $4.8 million, primarily attributable to a significant reduction in the transient product sales, generic Revlimid, a temporary moderation in customer demand due to seasonal dynamics, and destocking effects of the last quarter inventory due to anticipated tariffs. Despite lower generic Revlimid, overall sales were partially offset by steady demand in our overall base business and a series of new product launches during the quarter. Also, our U.S. injectable sales increased quarter on quarter by 11%. We launched 15 new products in the U.S. this quarter, filed four ANDAs, received 14 approvals. European formulation. Our European business continued its strong trajectory, delivering 9% year-on-year revenue growth.
Revenues reached €241 million this quarter, compared to €221 million in Q1 last year. With this consistent performance across all European major markets, we will cross the milestone of €1 billion in annual revenues for the region by the end of FY 2026. Growth markets. Revenues increased by 9% year-on-year to INR 772 crores, or $90 million, supported by strong underlying performance across key countries. ERV formulation. ERV revenue delivered a strong 51% year-on-year increase, reaching INR 355 crores, or $41 million. This was primarily driven by volume uptake and new tender wins in several geographies, which we expect to sustain in the near term. Operational and financial highlights. Gross margins remained stable for the quarter at 58.8% compared to 59.4% in Q1, supported by softer raw material prices and better product and business mix. Our contribution amounted to INR 4,629 crores.
R&D expenditure was INR 367 crores, representing 4.7% of the revenue. This continues to reflect our ongoing commitment to innovation and to build a robust pipeline, especially in complex generics and specialty therapy. Net cash flow for the quarter stood at $73 million, aligned with our investment priorities in expanding manufacturing footprint, enhancing compliance, and automation. We generated a net cash inflow of $98 million during the quarter, improving our net cash position, including investments, to $140 million as of June 30, 2025, up from $42 million as of March 31, 2025. Our finance costs declined to 4.9% from 5.5% in the previous quarter, benefiting from prudent treasury management. PAT for the quarter was INR 3,824 crores. Gross debt reduced to $884 million, down from $930 million at the end of March 2025, reflecting ongoing deleveraging and disciplined cash allocation. New projects.
Further in the following areas where CAPEX has been done and where revenues have been delayed include the following. In biosimilars, the approvals have started coming in from EU. We expect revenues to start from Q3, Q4 will be well above the company average of EBITDA margins. Approximately $145 million invested in China facility, which has commenced production from Q4 FY 2025, and invoicing started in Q1 FY 2026. This facility, with an initial capacity of 2 billion units plus, is ramping up as expected and will begin contributing to revenue in the coming quarters and is expected to break even at EBITDA level by Q3 FY 2026. Third, approximately $70 million in two U.S. facilities. Data will start producing from Q2 to Q3 FY 2026, waiting for approval from the regulatory authorities. Fourth, the PLI project where all the approvals have been received and the plant has commenced production since July 1.
Production is going well and yields are improving. We are confident of generating healthy EBITDA from Q3 onwards. Five. On UGF 5 Weizza plant, we expect to file more than 20 products in the U.S. and Europe from this site over the next two years. On UGF 3, we have invited the U.S. FDA for reinspection. Sixth, approximately $13 million spent in biologics CMO, balance $100 million plus, expected to be invested between now and March 2027. To reiterate, the company is not expecting any further greenfield CAPEX investments in the near to midterm. We'll be focusing on maintenance and replacement CAPEX and capacity enhancements in the existing facilities. The company has a net cash position of $140 million as of June 2025. Outlook. Looking ahead, we remain optimistic about sustaining our growth momentum.
Our confidence is supported by expected volume expansion, continued product launches, and a stable pricing environment, especially in the U.S. and Europe. Ramping up of commercial operations at new manufacturing sites would further support both top-line growth and margin improvements in the upcoming quarters. We are confident of achieving our internal target margin of 20% to 21% range in FY 2026. Lastly, our recent strategic U.S. acquisition will help us to continue the growth momentum in the medium term. We now look forward to taking your questions. Our senior leadership team is happy to provide further insight, more details, and clarifications wherever needed. Thank you.
Thank you, sir. Thank you, sir. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to register two questions and then return to the queue for more questions. Requesting you to identify yourself and your company name. Please raise your hand from the participant tab on the screen to ask a question. The first question is from Damayanti Kerai.
Hi. Good morning, everyone. This is Damayanti from HSBC Securities. My first question is on debt limit. Just to clarify, this INR 150 crore less number and then INR 550 crore less number versus 4Q, it's at the EBITDA level, right?
You can take that as the top-line level. EBITDA, you can work it out yourselves. You must be knowing, I'm sure.
Okay. This is at the revenue level. That was good. My question is, on debt limit, definitely pricing pressure has intensified, and some of your peers have also mentioned this. From an opportunity perspective, do you think you can still make some reasonable sales from this product in FY 2026, or is this an opportunity which is broadly gone now?
Yes, Damayanti. In fact, I think we mentioned this in the last call as well. We have most of our generic Revlimid settlement quantities. We have sold it. We have nothing more to sell other than a minimal listing. The price impact will not have any bearing on our future revenues. At the same time, we don't expect significant sales coming from generic Revlimid because we already sold off.
Okay. It's already adjusted, the volume allotment which you have got, and nothing much to look ahead.
That's right.
Okay. My second question is, sir, if you can explain what has happened in the API, and do you think it's a temporary phenomenon and you can see recovery ahead?
API, the turnover has dropped mainly because of the pricing pressures. Otherwise, I think over a period of time, it will start recovering because it cannot sustain for a long time, right? That is the main reason. Yeah.
Okay. My last question is, you are maintaining your EBITDA guidance for the year. Basically, which will be the key drivers which make you confident that you can achieve your earlier guidance?
Yeah, because despite no generic Revlimid, we have been able to maintain them. The numbers of the last quarter are helping me to retain that confidence.
Okay, sir. I'll get back on the queue. Thank you.
The next question is from Tushar Manudhane .
Thanks for the opportunity. Am I audible?
Yes.
Sir, with respect to the operational losses for various plants, if I have to club together for FY 2026, if you can share that number and subsequently, you know how to think about that number for FY 2027, considering any new plan that might come up in FY 2027.
See, last year, we have incurred losses predominantly, as you know, in PNG, QUL, and other things, right? As I explained in the original script itself, I said we are expecting good EBITDA starting Q3 onwards. The losses will come down, right? That is the main thing. Out of the total thing, PNG was the biggest loss last year, and hopefully, that will not get continued.
This year, how much is that number for this, like, first two quarters, given that the scale-up probably will have benefits coming from the second half?
See, last quarter was around the very low number, around less than INR 50 crore, right? One good thing is we started the production. We had a good production, I mean, even though the plant stuff, really the first output came sometime in the second fortnight of July, we had a good run. What is very encouraging is the yields are improving day by day, and hopefully, it will get stabilized in the month of August and September. That is the reason we think by Q3 onwards, we'll be able to do well. That's the main reason.
Sir, just to add, like how much PLI income to consider for this year?
I think we will be expecting anywhere between 7,000 to 8,000 tons production, right? That means at least you can take more than half of it, maybe around INR 150 crore, right? The clear numbers, etc., will be known in the next quarter because the key thing is we need to sustain this yield improvement which has happened in the last three or four days in this month of August and September. That will give you a very clear indication in the next quarter.
Understood. Just one more from my side. Maybe the basis contract where revenue made businesses no more, but given any increased competition and all, beyond contract, will you be able to sell or it's like because of the contract, we'll not sell itself and the other guys have their share and subsequently the pricing still remains steady. How to think about revenue at the product?
In general, the entire market will open up from February 2026. We are getting prepared to take more market shares starting from February 2026. Even though we will have limited sales of revenue for the next one to two quarters, we expect Q4 we will because the entire market will open up and we have capacity to take within the market share. It will be an open market game at that point of time.
Got it, sir. This is helpful. I have more questions. I'll be on the.
Thank you. Thank you. The next question is from Tarang Agarwal.
Hi. Good morning. Am I audible?
Yes, Tarang.
Okay. One on the API business, you spoke about pricing pressures. Is this pricing pressure on account of domestic supply being more aggressive, or is it because of imports, or is it because of both?
Because of both.
Okay. Because a 16% decline is something, to the best of my knowledge, I've never seen in this business in the last multiple quarters.
It may be a 16% on the top line. It may not be that much percentage in terms of the volume, right? Okay. Plus, you know, this quarter is always the summer quarter, so the offtake is also very low across India.
Got it. Okay. Second question is on UGF. If you could give us the U.S. sales numbers of UGF for Q4 and Q1, Q4 of 2025 and Q1 of 2026.
We are not giving that number separately, Tarang.
Okay.
In general, Tarang, we already mentioned that the regular injectable sales is growing, and we have shown a growth of 11% over quarter.
This 11% is on a year-on-year basis, correct?
Yeah, on year as well as quarter on quarter, it is almost a similar number.
Okay. The European exposure of UGF or ROW exposure of UGF continues to be in the ballpark of $35 to $40 million a quarter?
Yeah, it is a split of, you can say that it's around $50 million there, Europe is $100 million, and the growth markets like Canada, Brazil continues to grow. Overall, we are trying to shift the balance of sales. It's around 70/30. We are planning to shift it to 60/40, and we are hopeful of doing that.
Got it. The third question is on Petanam. Doctor, just wanted to check. I think the initial estimate of the capacity creation was about INR 1,000 crore, which is later appended to about INR 1,500 crore. I think Subbu Sir did call out in his opening comments, of some outlay already being done. If you could just rehash in terms of what's happening there and in terms of, you know, are you seeing incremental demand in that business?
Good morning, Tarang. Tarang, as you know, we initially started the project with the two 15K mammalian centers by our reactor lines, and the CAPEX guidance was around INR 1,000 crore, close to INR 1,000 crore to complete the project and fully commission it. In the CMO space, what we are trying to do is that we are working towards strengthening our collaboration with MSG. This means that, or this translates into the addition of the need to add two more 15K bioreactor manufacturing lines, and it's associated with the purification and the utility capacities. These lines will also come into full operation somewhere in 2028. The initial CAPEX guidance that we provided of around INR 350 to 400 crore essentially is to enhance capacities and strengthen our collaboration with MSG. Is that the answer to your question, Tarang?
It does. It does. That's quite helpful. Just a couple more. One, on the free cash generation, last two quarters consistently, you know, almost about $100 million of free cash generation for the business on each quarter basis. Is that the trend that we should work with, or, you know, some working capital expansion should probably, I mean, the place that I'm trying to get at is, is the business now at a point of time where $400 to $450 million of regular free cash generation is something that's visible for you? That's one. Second, on Lannett Company, if you could just, you know, walk us through the transaction and why it would take about 8 to 12 months for the transaction to achieve closure. Thanks. Those two from my end.
Yeah. I'll answer the first one. Swami will answer the second one. In terms of the free cash flow, we have reduced the working capital considerably, and that is not helping. Apart from that, the CAPEX, overall CAPEX has come down in the last two quarters. This quarter, the overall CAPEX is around $73 million, including the new market, PLI, everything put together around $73 million compared to earlier trend of around more than $100 million. That is also healthy. There is a working capital improvement taking place, and there is a reduction in the capping. That is the reason why it is there. We will strive, we will endeavor to achieve a cash generation of $100 million quarter on quarter, subject to any strategic expenditures being incurred. Okay?
Sure.
Swami?
Okay. On the Lannett Company acquisition, this is subject to FTC approval. Obviously, there will be a lot of back and forth. We have given nine months as a micro-abundant caution. It could be earlier, but obviously, we will do whatever we can to expedite this. If it gets cleared earlier, obviously, the integration would happen earlier.
I just wanted to understand, are there, I mean, how difficult or how soon can you integrate this business? What are the synergies that you're looking between both the setups, and some metrics on the broader market in which the target is operating?
Sure. They believe that integration is very easy because we have a similar kind of product. We are in the ADSV segment. They are mostly in the controlled substances and use other products that they have. We believe that those are very close to what we have. What they have, one other advantage is they had a strong BD team, which we have started working on now, and they also have a bit of in-licensing. That is going to be clearly one synergy. The other synergy, they have about 70+ active products, and many of them are in controlled substances. They're all in this area where the products are in short supply. We believe, based on what we are seeing, quarter-on-quarter trend, that there could be good potential for an upside in this business. They have been consistently able to get the quota.
They have been consistently able to replace the quota, which is very important. The market pricing is pretty stable. We also think there are some synergies in terms of rationalization of some of the resources. That would immediately, some of these could be low-hanging fruit. Another factor is that they have a good CMO business with a few countries with approval in some of the other markets, which we think we'll be able to tap better because we've got good presence in those markets. Our understanding is that some of the products that are being manufactured there at Lannett Company could have a good potential in one of our neighboring countries. Also, we can spread out a little beyond that because they do have the regulatory approvals for those countries. They also have manufacturing capability for oral solids, liquids, and potent substances. The manufacturing capacity is not fully utilized.
They utilize only to the extent of ballpark around 40%, which gives us around 60%. Aurobindo has a large portfolio. We can quickly leverage our large portfolio to bring in some more products, which are in demand in the U.S., especially for the government markets. That could be an immediate gainer. Lannett Company has also discontinued some of the products. We think there is scope for, with our procurement practices, with our ability, we believe that we can revise those products, especially for the government markets. Not last but not the least, they have a very good workforce in the manufacturing. They all have very long tenure. The wage level, everything is very, I would say, very comparable or better. That gives us a good feel about the whole acquisition. Net net, we are very upbeat about this.
Wonderful, sir. Thank you and all the best.
Thank you.
Thank you. Next question. It's from Surya Patra.
Yeah. Thanks for the opportunity, sir. My first question on the U.S. business, you have commented about the stocking impact. What is the nature of this stocking, sir? Is this anything relating to tariff-related preparation, or can you clarify this?
Yeah. What Subbu had alluded to was primarily, you know, the tariff is supposed to go in effect from April 1. If you see, there was a huge surge, much more than the normal quarter surge in the quarter ending March. We believe that some of the wholesalers have stocked up the product in anticipation. They were also asking us to keep more inventory, and they themselves seem to have stocked up. We are not seeing a decline in the demand of the oral solids in the U.S., nor have we seen any loss of awards, any major award. We are understanding, it is our understanding that this is primarily because the wholesalers have stocked up during the last quarter, and they are winding down those positions.
Okay. Okay. It is a quarter-specific issue then, I believe.
Yes. Not just that, you know, for a Q2 one, there's been a fairly good quarter, especially on the total volume that has been sold from the wholesalers. Typically, Q1 is a non-seasonal quarter, but it's been a fairly decent quarter, I would say.
Sure, sir. My second point is about the PNG manufacturing plant. Now, having resumed our operation there, what is the kind of visibility that we are having in terms of that output? In the previous quarter, we had indicated about the MIP, the minimum input price. What is the update on that front, whether that is a kind of necessity given the current situation, and what is your risk assessment about that relating to the PNG manufacturing plant, if you can?
In terms of the PNG production, as I said, the production is improving in the last three or four days, and the yields are improving. We believe, I mean, we are very pretty confident this going will be very good in the coming two months, and we will be able to do very well in Q3. That is what we believe. In terms of the MIP, I'm not sure we can talk about it in detail because there are a lot of things that are happening. Probably we may be able to talk about it in the next call.
Okay, sir. My last question is about the European business. Obviously, we have been seeing a very strong pop-on consistently since the last few quarters, and you have already guided about the kind of strong growth in FY 2026. My point was about the margin pop-ons there. Sir, with the new capacity addition, what is the kind of outsourcing that we are dependent on external resources for European operations now, and what is it likely to improve to by the end of this year, and hence what margin pop-ons should one anticipate for the European business?
Yeah. From the market perspective, I can handle this. The plant-related, I would suggest you to do that. Sure. First of all, pleasure speaking to you. Good morning, and thank you for your compliments for the European business. Yes, you have been demonstrating the sustained momentum since the last several quarters, and happy to be going through posting a strong number this quarter. Coming to the third-party sourcing versus in-house, we are steadily moving the products in-house as much as possible. Of course, there are certain small volume of some technologies which we cannot handle, so this continues to come from the third-party suppliers. As far as the margins are concerned, you would have known several a few quarters ago where we were in the mid-teens, but now we are going strongly much above to the high teens and touching the 20% mark very soon.
This is on the margin perspective.
Got it.
In terms of the production, I'm sure you must be knowing we have been having a capacity around 3 to 4 billion tablets. As explained in the last or previous call, I'm not sure, we have ramped up the capacity further, and that has helped in terms of supplying more material. That is also one of the reasons the European team was able to take the sales to greater heights, right? We will continue to do that. In terms of the margin also, because of the in-house production, we were able to increase the margin percentage jumps. Your last question was in terms of percentage, we were somewhere around 50/50 or slightly above in favor of the captive consumption.
Okay, just said whether the injectables have seen any ramp-up in Europe?
Yes. In fact, we have been growing at a rate of 20% for the European market because we find a lot of shortages happening in Europe. Murali's team could take full advantage of the market situation there. Now, what's happening is our capacity versus demand. Demand is outstripping the capacity. In fact, we have taken a decision to add two more oncology lines to take care of the European requirements. I'm quite positive that Europe is continuing to grow.
Okay. Okay. Sure, sir. Thank you. We see you on the way.
Thank you.
Thank you. The next question is from Neha Manpuria.
Yeah. Thanks for taking my question. Two questions on the U.S. business. Swami, sir, if I look at the oral solid business, could you quantify how much would be the destocking impact just to understand how the date business is done both from a year-on-year and a quarter-on-quarter perspective?
It's hard to quantify exactly the kind of amount, but what I'm saying is in terms of total demand for the U.S., it has been pretty stable. We have got our awards intact, barring a few losses and a few gains. Overall, I think we are in good shape there. I'm not exactly sure on how much. My guess would be it could be anywhere between half a month to one month. That's my guess because if the wholesalers have stocked it, they would have stocked it for at least 15 days to one month for the tariffs. That is only my guess. I can't say precisely.
Understood. I'm just wondering about the U.S. business decline quarter on quarter, and you commented the injectable business seems to be improving. If it's just 15 days or one month of destocking, the entire INR 550 crore decline quarter on quarter is just generic Revlimid. I mean, if I were to look at the last quarter injectable-based or Eugia-based as we used to mention, it seems like the ex-generic Revlimid business isn't actually showing as much improvement or normalcy as what we seem to be viewing. What am I missing here in the U.S. business?
Neha, you cannot do that. No, U.S. business is not only the solid orals and injectables. We have the branded injectables. We have the OTC from direct deck structures from India, which is a significant amount. It's a combination of everything. If you say this is a remote, I mean, if you dedicate and then if it's because of the oral, etc., it is not like that. It's a combination of many things.
Okay. What I'm trying to understand is that, you know, how far are we from the injectable business getting back to, you know, the pre-destruction levels? You know, is it 20% lower, 30% lower? That's what I'm trying to understand.
Yeah. Okay. That's, yeah, let me just clarify a few things. Yes, the generic Revlimid revenue was much higher in Q4. Your assumption is to some extent right. Second thing is we are back to pre-disruption levels with respect to injectable business. I'm very, very confident. My entire injectable business is growing, and all the production facilities are back and running, and UGF3 is back. We are very, very confident that we have come back to the pre-disruption levels.
Understood. My last question is on Lannett Company. Lannett Company also had a very good portfolio that they were planning to file. I think you also alluded in your presentation in Lannett Company that, you know, there are some NC minus one opportunities. Are these opportunities still valid once we finish integration, you know, the acquisition of Lannett Company? Also, do you think, given the portfolio overlap based on IPVR data that we have with Lannett Company, there would be directly that would be required to get FTC approval in your view?
First things first, on the pipeline, we not only get the products in commercial state, we also get the products in pipeline. There are some good pipeline products. That's what I would like to say at this point of time. We are quite excited about what they have in pipeline, that is a few products. Now, as far as the FTC is concerned, FTC has to review this, the sheer volume of work that they have to do because, as we know, it's a big company. We have to submit all the data about all the products, and they would take time reviewing it. It could take time, but we feel very optimistic that we should be getting it and getting for the entire portfolio of commercial products in the pipeline, barring a few where there could be conflict.
Overall, like I said before, we are quite upbeat on what we will, what we are likely to place here.
Understood. Thank you so much.
Next question is from Binod.
Hello?
We can't hear Binod.
Hello, can you hear me now?
Yeah, yeah.
Okay. Hi. Good morning and good evening. First question, Subbu Sir, our gross margin is holding up at about 59%. You mentioned that revenue was down Q2 by about, I think, $17 million, and there was pricing pressure in the APIs as well. What's helping us hold up to a gross margin at 59%, which is comparable to Q2?
As explained in the original script itself, no, it is a combination of multiple things. There is a positive, favorable mix in terms of the businesses. For example, when the API business percentage of revenue share goes down, automatically, it increases the weighted average because the API does not give the margin same as the company average margin like that. We also had good UGF done well, plus the existing product profile also good in the solid oral. It is a combination of multiple things, Binod.
Okay. What are the PNG prices in the market today, and what is your latest estimate about your profitability levels? At what price would you be profitable?
I think the current market price is anywhere north of $20, right? We will be profitable somewhere around, I mean, we will be breaking even somewhere around maybe a couple of dollars plus or minus. We'll be profit, I mean, we'll have a breakeven a couple of dollars plus or minus like that, depending upon the yield in the particular month or the quarter.
Okay. Understood. Last one question. For being eligible to get the PLI payment, is there a minimum level of production that we need to have in the year?
No, there is no minimum level of production. Whatever you produce, you will get a % on that. You will get the PLI incentive.
Understood. Thank you very much. I'll come back to you.
Next question is from Shyam Trivanagh.
Yeah. Good morning. Thank you for taking my question. Just the first one on the biosimilar launches in Europe. If you could just highlight what are the things that we need to keep in mind. I think the presentation talks about Q3, Q4. The kind of infrastructure, the kind of preparation, maybe initial market share that we are targeting. If you could help us outlay the commercial strategy.
Sure. To answer your question, we started making the manufacturing quantities for commercial supplies. In fact, we made one supply as well to meet the requirements in the UK market. The first six months leading up to March would essentially be meeting the large quantities, enabling our commercial operations teams and our partners to park the large quantities in the markets verified too. I don't have a number read out for the first six months. It will be a very small thing to do with commercials and I use the LinkedIn. The focus for us right now is to ensure that we have adequate supplies. The supply chain is sorted out. Our group testing services that we are scheduling in Europe through CRO partners and through our own setup in Malta, they function seamlessly in grazing and testing biosimilars, which is required in Europe during a qualified personnel testing.
All this will take about a couple of quarters to stabilize. As you know, we have four product approvals that we received from Europe, three with the European Medicines Agency and the Rheumatology Lab with MHRA. All four products, we are ready to supply these products into the European market. I hope to stabilize everything from supply chain to closing out on a couple of distribution deals that I'm focusing on in Europe right now in the markets that we are not directly present. In the markets that Aurobindo Pharma Limited is directly present, Aurobindo will handle the commercialization of these products. In the markets that we are not strong in, we have a few partners. For example, in the Nordics, we have Orion Pharma. In some other markets, I cannot disclose the names, but we are working on closing a few deals.
I see by April quarter next, we would have fairly stabilized commercial supplies, and we will have some plans laid out for how much we will be able to sell in these markets for the year. Shyam, that answers your question.
Yeah. Thank you, Dr. Satakarni. If you could give us your credit for the first European launch at your earlier shop. In the last, whatever, five, six, maybe even a decade of doing this, what are some of the big differences you see? Is profitability in Europe for biosimilars distinctly different now and lower, perhaps? If you could comment on profitability as well.
It's a very subjective question. I have been asked this question on multiple occasions. From my first launch in Europe, way back, India's first launch in Europe, way back in 2012 to now, absolutely, there is a big difference in the pricing erosion that we are requesting, which affects the profitability margins. What needs to be also understood is that the European landscape is extremely distinct in a manner that there are a few countries which are extremely tender to many, or solely tender to many, if I may use this word. There are a few countries where the retail prices are still very exciting, where you can still make a good 85% gross margin. There will be countries where you will make probably around 15% to 20%.
You need to look at Europe as a whole and see if a company is putting out a product at a cost when they transfer price to its partners where it can still make an overall margin of, say, 40% to 60%, then I believe that they are still in the game. Having said that, in the last decade or so, you definitely have seen in the chronic segment, when I say chronic segment, essentially, like immunology, rheumatoid arthritis, etc., you are seeing a major draw, a major erosion in the prices. From my hospital days when we launched in 1969, the price erosion that I see now is very high. Still, in the oncology segment, not the supportive oncology segment, the oncology segment, I still see the price erosions not reflecting to the extent what you see in the chronic segment.
Having said that, Europe has a distinct flavor now with the price erosions that you are seeing. Any company, any biosimilar developer and manufacturer who wants to be serious in their European business needs to at least prepare them for an overall 50% margin from the entire European market. There will be some countries that will give you 70%, 80%. There will be some countries that will give you 10%, 15%. As long as you keep your cost in a manner that you have an overall margin of around 50%, you are good, which also means that you need to have a good and strong commercial positioning in Europe across Europe to make that happen. I hope that answers your question, Tarang.
Yeah. Thank you. Thank you, Dr. Satakarni. My second question is that.
Maybe I can contribute here in addition to the eloquent reply you gave. For example, like France, the generic substitutability trend is increasing, where it was hardly one or two products earlier, now as many as nine products are in the list of generic substitutability. A similar trend is to be expected in certain other countries as well, meaning there will be a higher volume uptake as we launch some of our products. This is a positive trend for us, which we would like to encourage on.
Helpful. Thank you. Just my last two questions. I'll keep it very brief. First one, our experiences of this Lannett Company with the FTC vis-à-vis the Sandoz acquisition that did not go through. Subbu Sir, Swami Sir, anything that gives you confidence that we can get through this FTC bar this time around with us that that failed episode? Second question is just a data point on the opening remarks. You said 12% growth excluding Revlimid . Is it U.S.? Is it oral company? The numbers you have shared, I'm not able to come up with that number. If you could help us. Thank you.
Yeah. First, I'll take your question on FTC, Subbu. On the FTC, we don't have any of the critical products that we think will have a conflict where we would be reluctant to look at it, or we don't expect that many products where we would have this issue. We think it will be a smaller list based on our understanding, based on the advice that we have received. We think we should not have a problem with that kind of smaller list. What we are focused on are some of the products where we think it will go through without much difficulty. Obviously, it's a decision of the FTC, but that's what gives us the confidence that the main products will be intact, so we have a bit more flexibility in there. Subbu, thanks.
Yeah. Shyam, you talked about the 12%, right? It is year-on-year share.
Sir, which geography, sir? Is it U.S.? Is it oral?
No, it's overall. Overall, I'm saying overall, group as a whole.
Okay, sir. U.S. would be what? Sorry.
U.S., we are not given any specific number directly. We never used to give. This is the overall Aurobindo as a whole on concern basis.
Okay, sir. Thank you. All the best.
Next question, which comes to Kantesh.
Hi. Good morning. Thanks for the opportunity. I have three questions. First question is on our...
I think, Srikhan, my request to you is since there are three, four people who are still waiting, can you repeat the two questions?
Sure, sir. No problem. Firstly, on the annual guidance, last quarter, we talked about single-digit growth. However, with the PNG restarting and you are giving encouraging comments on the project, do you see any requirement to upgrade our annual guidance?
No, I told you now I will be able to give you a better picture in the November portal. Also, you can see our call, what we want to do.
Okay. Sir, what are the utilization levels at PNG manufacturing plant currently?
No, PNG unit currently, we are doing around 50% to 60%. We are trying to improve the yields. That is our primary objective, to cut down the losses so that better yield will cut down the losses. Once we stabilize that in the next two months, we will scale it up.
Okay. Just one more question. On the controlled substance business, we have seen some trouble by some of the Indian companies. If you can update what is happening in the controlled substance market and how do you see the kind of growth that can happen in the market and where do we stand to benefit from this opportunity? Thank you.
Actually, Srikhan, I didn't understand your question. What about the Indian companies? What did you mention?
In the past, we have seen some of the Indian companies getting in the controlled substance market in the U.S. However, there have been some challenges, and therefore, some companies we have seen cutting down their manufacturing units in the U.S. If you can tell...
Understood. Yeah, yeah. Understood. Yeah. Okay. Controlled substance is primarily put into buckets. One is the opioids, the other one is the non-opioids, okay? What we are looking at right now, some opioids have some problems. Opioids have some legal issues, and they also have a lot of other issues, so many number of players in that market. If you take opioids, it's not so easy. It's got a good market if you've got the market share, but otherwise, that can be challenging. What we are looking at right now in the controlled substance as Lannett Company is concerned is mostly in the non-opioid segment, and these are ADHD products, which are all in short supply. That's how we feel very confident about it. Where we have opioids, we'll look at it. Essentially, this Lannett Company is all about the ADHD medication, and these are non-opioids.
Yeah, that is helpful, sir. Thank you so much.
Thank you.
Thank you.
The next question is from Kunal Dhamesha.
Hi, thanks. Can you hear me?
Yes, Kunal, we are able to hear you.
Yeah. Okay. Thank you for the opportunity. First one on the Lannett Company. Manu, let's say if there are overlapping products and if FTC guides you to kind of divest it, would you be divesting on the Lannett Company side, or would you be divesting on Aurobindo's side?
Kunal, that's not our call. I wish it were. That's not our call. That's normally dictated by what the FTC tells us because ultimately, it is their decision, right? We have reviewed if we divest what the implication Lannett Company has to divest. We feel confident that our business will be good even if we divest our product or their product, wherever the strength is. Ultimately, it's the FTC's call. If I take the worst-case scenario, I think we are still in good shape.
On the 15% EBITDA margin that you suggested in the presentation for the Lannett Company acquisition, is it for a particular year, or do you plan to take it to 15%? How should we think about it?
Yeah. This is the current run rate. I mean, at this point of time, if I take the TTM, trailing 12 months, if I take any period, we are somewhere around that. I believe that's a very conservative estimate. We think that in the future, we will be able to get a margin of 15% or more.
When I look at the implied gross margin based on the gross profit multiple that you have given, it seems like a 30% gross margin there. I'm just wondering how we can achieve 15% EBITDA margin on 30% gross margin.
Yeah. The 30% gross margin, what do you have? Obviously, I can't go into product-wise detail. We have reviewed that. We have reviewed it product-wise, and then we think that there are some synergies, there are some options there. Overall, we think that gross margin will also go up and EBITDA will go up.
Sure. The last one for Subbu Sir, I still didn't get the 12% ex Revlimid growth because if I just adjust INR 150 crore, meaning this quarter, which is the revenue mid loss on a year-on-year basis, we would be at more like 6% growth. I still don't get how can we jump from 4% to 12% if we adjust for that INR 150 crore?
You discuss it with me offline. I'll explain to you.
Sure.
Okay?
Sure. Sure. Yeah, thank you. Thank you and all the best.
Thank you. The next question is from Devang.
Hello.
Devang, please go.
My question is, with the U.S. government now prioritizing domestic manufacturing of generic drugs, reportedly supported by Japanese funding under the trade partnership, what is the outlook on the future of U.S. generic business? Specifically, how do you see this initiative impacting the competitive landscape and pricing environment? My first question.
Yeah. I can answer that, Devang. First is, I didn't know where the Japanese connection has come from, but yes, U.S. government is pushing for manufacturing in the U.S. If any company is prepared for it, I think we are best suited for it. We have a manufacturing facility in New Jersey, which has already started some products. We can add more products with the FDA approvals. We also got Lannett Company, which has got a huge capacity. If there's a need, we have another facility that's waiting to be commercialized if there's a need. Plus, we have a host facility that we can always do it with some time. We are best suited for enhancing our footprint in the U.S. Practically, if it's manufactured in the U.S., the product pricing would go up higher. It's not, we've not worked with it.
It works with imports from India or other countries because the basic cost level will be a little higher. Competition-wise, if we had a supply from India, we had a competitive supply from the U.S., we would be competitive. U.S. would be a different price level altogether. When can U.S. manufacturing happen? Only when the supplies from other countries are not cost-effective. That can probably happen due to duty structure. We are not sure what the government will do. We are ready whichever scenario happens.
Sir, we have Howard Lutnick in an interview on CNBC who said that $330 billion, which are coming from Japan, will be used, some part will be used for domestic manufacturing of generic brands.
Sure. If we are getting $330 billion, the infrastructure for U.S. generics will probably go up if they invested in the generic market. Whatever that amount is, $330 million or $3 billion or whatever the amount, it will definitely go up.
He told us somewhere around $15 billion.
No, Devang, I'm not disputing that. If it happens, that's so be it. All that I'm saying, the operating cost in the U.S. would be higher. If I manufacture in the U.S. for the same product, it's going to be higher. The only way you can sell is a little higher. If I'm selling and selling it from India, if you have a price, if you manufacture in the U.S., it's going to be a lot different. If you are forced to manufacture in the U.S., if they say that you have to do it, we'll do it and we'll be competitive. It's a level playing ground.
Thank you, sir. Second question is, when are we expecting something on tariffs and how much will generics be excluded or not? Any insight?
You know, that is something President Trump can say. We cannot say at this point of time. We have not seen anything so far. It might happen. I've seen various press statements like you. Somewhere he has said that he's going to do it after a year. He's going to bring in a huge duty. We don't know. It's definitely the President and the President of the administration's call.
We will now move to the closing remarks.
Thank you. Thank you very much, everyone, for joining us on the call today. If you have any of your questions unanswered, please feel free to get in touch with the Investor Relations team at Aurobindo Pharma Limited. The transcript of this call will be uploaded on our website, www.aurobindo.com, in due course. Thank you very much once again and have a great day.
To the management team, ladies and gentlemen, on behalf of Aurobindo Pharma, this concludes today's conference. Thank you for joining us, and you may now disconnect your line and exit the webinar. Thank you.