Please note that this conference is being recorded. Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's performance have been emailed to you earlier. I now hand the conference over to Head IR, Ms. Cyndrella Carvalho, Suven Pharmaceuticals Limited. Thank you, and over to you, ma'am.
Thanks, Soman. Good evening, everyone. Today, we have our management team with us. I'll introduce you to our management team members. Mr. Annaswamy Vaidheesh, Executive Chairman, Dr. V. Prasada Raju, Managing Director, and Dr. Sudhir Kumar Singh, Chief Executive Officer. Mr. Venkatraman Sunder, Deputy Corporate Affairs, and Mr. P. Subba Rao, Chief Financial Officer. I will now hand over the call to Mr. Vaidheesh for the opening remarks.
Thank you very much, Cyndrella. So first and foremost, before I start the presentation, and good evening to everyone, and, we deeply appreciate each one of you for finding time to be in our... Thank you very much. And also best wishes to you and your family for a festive season and advanced wishes for a happy Diwali. This is the start of a new journey for Suven Pharma, and me and my full team are very excited about the next phase of Suven's growth. Firstly, we want to thank Mr. Jasti for giving us an opportunity to carry forward his business legacy that he and his team have created. We believe that Suven is a world-class CDMO with an incredible track record of serving select innovative pharma and specialty chemical customers. Suven has demonstrated track record of execution and delivery excellence with a strong back- end.
We plan to scale up Suven's capability and to build a strong leader in the CDMO space. Our goal is to rapidly scale Suven Pharma to transform into a globally respected CDMO organization, and we are pretty confident that we'll get there on the back of deep customer partnerships, differentiated scientific capabilities, delivery excellence, and our talented employee pool. While we have been predominantly focused both on our customers and employees in the last one month, and Dr. Sudhir, our CEO, will give more details shortly, and we will continue to invest in building R&D capabilities, operational capacities, and business development expertise. We will further invest in select differentiated platform technologies through both organic and inorganic routes.
We are really excited about the long-term growth prospects and confident that the unique combination of our global leadership team, our exemplary board, and strong support of our advisory council, that will help us deliver accelerated market-leading growth. And, let me also take this opportunity to inform you about the leadership role that we have in this company. First and foremost, the way in which we have organized ourselves as me being the Executive Chairman, and I have a fantastic team of leaders accompanying me in driving the future of Suven, is Dr. V. Prasada Raju, who will be the Managing Director, and Dr. Sudhir Kumar Singh, our Chief Executive Officer. Our key new management leaders, added in the first month of our operations include Mr. Gaurav Bahadur, the CHRO. He is from ex-Sanofi and Vodafone, with 30 years of experience.
Raj Kumaravelu, Chief Strategy Officer, ex-DRL, McKinsey, and ITC, and 27 years of experience. Mr. Brian Shaughnessy, Chief Commercial Officer, ex-Aragen, Dr. Reddy's, Piramal, and 30 years of experience based in U.S. If I count all the number of years experience, we'll run into hundreds of years of experience of talented leaders have joined this company. We continue to evaluate augmenting this talent pool and roles, keeping our long-term vision in mind. For instance, we are augmenting the entire sales and marketing engine under Brian's leadership, covering both U.S. and EU.
We also would like to happy to inform you that we have got a fantastic Advisory Council who have brief and tenured global experience in the industry and will be guiding our strategic choices, starting with Venkateswarlu Jasti, whom you all know, who is the founder of Suven Pharma and Suven Life Sciences. Abhijit Mukherjee, ex-CEO, Dr. Reddy's, with 35 years experience. James Mullen, ex-President and CEO of Patheon and Biogen, 35 years of experience, and Stefan Stoffel, ex-CEO of Lonza, with 40 years of experience. It's pretty impressive to have such qualified people supporting our ambitious journey plan that we have set out for ourselves.
I would like to take this opportunity to introduce V. Prasada Raju, Dr. Prasada Raju, and take you through how we are prepared for the transition across customers and employees, and how it can be executed seamlessly.
Thanks, Vaidheesh. So, let me give a little update on our transition plan. Team's operating agenda is to first, stabilize the core business and, secure the core business, and then accelerate the growth. Our new leadership team has already interacted with all our employees. Our leadership team has conducted first round of customer interactions, and we are excited to report that, we have done, physical face-to-face meeting with major customers. Customer transition has been successful. Customer's feedback has been encouraging. They're happy with the smooth transition and looking forward for the new journey with Suven. Our team is ensuring business as usual, continuity of supply assurance, and increased opportunities to collaborate. Customers are excited to open more opportunities in their ongoing portfolio, which will expand our existing business dynamically.
This is also reflected in our current RFQs, inquiries, pipeline, and next one, which is much higher than the whole last year of FY 2023. Some of our immediate priorities will be our next month's priorities are: continue deep engagement with customers and employees, while we have hired the commercial leaders, Maria and you, to build out a full commercial engine and set a robust customer creation position. Continuing to invest, upgrade infrastructure in R&D, capital efficient manner to have best-in-class EHS and quality processes and controls. Initial projects to drive life cycle management, invest in new technologies and capabilities organically as well as inorganically. Last, three, completing the CapEx project in a timely and capital- efficient manner, and change the point of view fairly, efficiently, and we could win CapEx projects within established timelines.
I will hand over our Managing Director for giving us the near-term macro and my business prospects also.
Thank you, Dr. Sudhir. The second narratives, what you all have followed is, from Dr. Sudhir. He's our CEO. Hello, everyone. Thank you, Vaidheesh and Dr. Sudhir. Let me take this opportunity to take you through, medium to long-term business prospects for Suven, given near-term macros. As most of you know, from a near-term macro perspective, SpecChem is significantly impacted by the ongoing acute destocking globally. Our business has significant revenue contributions from API-based molecules, and hence it has also... As a result, we expect following few quarters to continue to be soft due to the impact of destocking in the specialty chemical segment, the base effects of COVID products. However, the medium- to long-term business opportunity is intact, and we are also quite excited about Suven overall growth prospects.
Just to take you through some of the important, favorable macros, which includes secular macro tailwinds for India, with both China-plus-one-le d supply diversification, coupled with increased manufacturing costs in Europe. Given our experience in SpecChem with such kind of cycles in the past, we expect business to bounce back in the subsequent quarters. Regarding Pharma CDMO, as Vaidheesh and Dr. Sudhir has alluded to, we will leverage our long-standing relationship with our existing market customers to grow existing business while securing new business opportunities. We have also seen positive signs based on our customer interactions and discussions at CPHI, which is a very recent event. Existing customers are very keen to deepen their business partnerships with more products, evidenced by the improved inflow of RFQs in H1. Internally, we continue to strengthen our sustainability and ESG initiatives further to stay relevant to our partners.
In parallel, we are also working on a five-year strategic blueprint, along with our Advisory Council . We look forward to sharing many more details in coming times. Thank you. And with this, I would request Sunder to take us through the financials.
Thank you, Dr. Prasada. Thank you to connect you all, after the last meeting. Now, we have the new management team here. I'm excited to be part of this presenting to you all. So we have these financials. I think you should have got it as a freshly brewed coffee after the completion of the board meeting just now to submit it. So the consolidated financial summary for the first half, that is FY 2024, slide. Revenue from operations was about INR 579 crore. There's a small decline, decline by about 6%. Reported EBITDA was about INR 265 crore, higher by 5.6%. Adjusted EBITDA, including operating effects, was INR 270 crore, higher by about 3.6% year-on-year.
Adjusted EBITDA margin were higher, and I'm proud to say that it's about 46.7% compared to 42.2% compared to previous year. In fact, also, you know, if you really see, it's really an increase. It's INR 200 crore, increased by about 11% year-on-year, 11.4% ... If you really look at the quarter-on-quarter, usually, you know, the, as we have been explaining to our shareholders, we are not looked at based on quarter-on-quarter, but still in percentages. The revenue from operations INR 231 crore, declined by about 13% year-on-year. EBITDA, about INR 19 crore, marginally declined by about less than 2%, 1.9%. So adjusted EBITDA was about 102 crore. It's also marginally declined by about 1.8% year-on-year.
Adjusted EBITDA margins, in spite of all those things, it is still higher at 43.9% compared to 37.1%, simply based on the product mix what we have actually. And, PAT was INR 80 crore, increased by almost about, 11%, about 10.4%. Give you some color on the revenue growth for, H1 FY 2024. Also, while overall growth has been impacted by SpecChem on base effect of COVID molecule, excluding SpecChem and COVID molecule, H1 FY 2024 growth in the revenue was about 42% year-on-year. So there is a growth there, the overall business. As explained by Dr. Prasad as well as, Sudhir, there was a drop in the SpecChem business. So Pharma CDMO business continued the growth and reported about 44%, H1 FY 2024 year-on-year.
Revenue growth, the X-code molecule, still impressive, about 38%. And we saw a record number of RFQ for, you know, Q2 FY 2024. I'm proud to say that. And still, you know, we continue to have more phase I, phase II, and phase III, and 10 commercial pharma projects are going. many exciting discussions with our existing and then potential new customers as... And we are also having credible discussions with long-term partnerships with customers to grow. When I really move on to specialty chemical, there is a decline. It's primarily led by, as we all know, global supply chain destocking, and we do not anticipate any structural changes in our business. To put it simple, business will go on as usual. Formulations- For our formulation business, the formulation of the services segment has reported a 52% growth, but of course, it's on a lower base. Currently, we have total about 17 ANDAs approved, 12 from our Pashamylaram facility, and then five from our newly acquired Casper facility, and we expect about another five-seven approvals to move on, actually. I'll hand over to Dr. Sudhir now to, to explain further.
Hi, Sunder. Let me give a little update on our CapEx plan. On the Suryapet project, we have spent so far INR 116 crore as of H1 of this year, and we expect the new block to be commissioned towards the end of this financial year. Total plan investment is about INR 200 crore, and in the H1, we have spent INR 47 crore on overall CapEx. We are also planning a new R&D center at Genome Valley here in Hyderabad. We phase I to require an investment of about close to INR 30 to 40 crore for a state-of-the-art R&D center. We phase I would be ready by Q1 of FY 2025. Cash flow and the cash on books, we generated operating cash flow of INR 252 crore in H1.
Our total cash, including the investments and cash, and cash equivalents on books, stood at INR 714 crore as of H1 of this year. Let me also give you a little outlook on our Q3 and H2 of 2024, you know. We expect Pharma CDMO to continue to remain positive. However, we are expecting Q4 to remain soft, primarily attributed to the SpecChem segment. Just to highlight, many of our key customers are planning to visit and meet us on a face-to-face, and we are keenly looking forward to these interactions in H2. Encouragingly, our substantial increase in RFQs, inquiries, and promising first round of discussions with our customers, being extremely encouraging, have boosted our determination. We are focused on establishing Suven as a unique global leader in the CDMO industry.
With these comments, I will request our Chairman, Annaswamy Vaidheesh, for his closing remarks.
Thank you, Dr. Sudhir. If I have to summarize, first 30 days has been an exciting 30 days, where the transition to the new management has been completed smoothly, and we feel very good about the progress. Met our key customers in person. Customer feedback has been encouraging. I'm very glad that they are happy with the smooth transition and having multiple discussions to work together. We have also augmented the senior leadership with proven track record and deep experience in this space, and initiated building out the commercial engine. Already hired key leaders for EU and US, in process of building a team below them.
team has interacted with all our 1,200+ employees, and is focused on retention of the existing culture and ethos of the company, and I'm quite sure that we make it into an admired company to work for. We are in for interesting secular driven, macro favoring India, and given Suven's multiple engines of growth, our deep technology capabilities, markedly customer logos, strong R&D and operational expertise and best-in-class management. On behalf of the team, I would also want to inform everyone that we are very committed to value creation for our stakeholders, and we are excited to embark on this journey. Our endeavor is to build a world-class institution and a global CDMO leader from India that is sustainably drive growth for multiple decades to come. I, I want to thank everyone once again for your time, and now we'll open the floor for Q&A.
Best wishes to everyone.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, please press star and one to ask a question. The first question is from the line of Pratik Kothari from Unique PMS. Please go ahead.
Hi, good evening. Welcome, and thank you for the opportunity. So my first question, on, so I mean, we did highlight about the strategy, the plans that we have. In one of the presentations, we have mentioned that we have met all clients and so on. Can you just highlight what the feedback has been from them? I mean, so historically, what our understanding is, CDMO, apart from technical capability, it also requires a high level of trust. Suven had the face of Mr. Jasti all this while. So now that he's not at the helm, how do things change from a customer perspective? You can share some global context, our experience, and just in our journey of scaling this up.
Yeah, let me give you an update on this. Actually, this was the first priority within 30 days. The first priority was two... There were two first priorities. First was to interact with all the employees, and second was to meet with the customers. And we did it in two phases. You know, the good thing was that immediately after taking over, the CPA was following up. So we went, the CPHI passed away. We met most of our customers, and followed by, site visits of our major customers. And, I can tell you that we have met about 11 to 12 of our major customers, and the feedback has been amazing.
You know, I was surprised to see that every customer gave a very good feedback in terms of delivery, science, commitments, and they understood the transition, and everybody was appreciative of the professional management coming over. And they're looking - they are looking forward to work with the new management, and also, they are looking forward to grow the relationship with Suven Pharma. And in nutshell, it's a very good positive feedback from every customer. So that's what I would say.
Pratik, I just want to add a couple of points to what Dr. Sudhir Singh mentioned. You know, first and foremost, we all need to recognize the fact, we have people like Dr. Sudhir Singh and Dr. Prasada Raju. These people have been in the industry for decades, and most of the customers know them by, know them very well, extremely well. So to that extent, the concern about whether is it something new for the customers is not necessarily, because all, all these leaders have a phenomenal relationship. So that's a good news, that they see, these leaders taking over such a good company. With Prasada, Mr. Jasti being around as an advisor, these are all adding phenomenal tailwind to our customers. They all are pretty happy about the way in which, we are planning to support their, interest.
Great. Fair enough. In, I mean, when we made the presentation a year back, we had highlighted that we intend to merge Cohance into this. So, any fresh thought there, and maybe you can share some number on Cohance. And, given both of these entities combined, how do we intend to take this forward? Because from a customer perspective, now you will have a large generic API or formulations company, and then some part in CDMO. Doesn't... I mean, how do we think about, does it change things for them?
So there are, Pratik, Prasada Raju here. There are three important elements here. One is from an overall corporate structuring standpoint. Unless this is discussed in Suven board and resolutions are passed, we might not be able to comment anything on the future merger. Number two, from an industry assessment standpoint, are there any leverages between Cohance business and Suven business? Answer is a big yes. The customer pollination leverage is possible. Third important element, there will be always interest of competency sharing between both the platforms, but at an appropriate time, we will come back with specifics.
Great. The intention to merge is on, I mean, obviously subject to approvals and everything, but the intention to combine the entities still exists?
That's right.
... Correct. And can we share any numbers of what, say, maybe Cohance has done in the six months or maybe the last year?
I think, if you are okay, as you understand, this call is primarily intended for discussions about the Suven financial performance. I hope you understand our limitations.
Correct. This is just from the perspective that ultimately, as shareholders, and we have been shareholders for many, many years, we ultimately have to think about the combined entity, and hence the question, nothing else. But I appreciate that you, you might not. One more question on CapEx. I mean, earlier, earlier management had guided to the INR 600 crore of CapEx that we had embarked upon, and, and you have mentioned that Suryapet is almost done. What about the other two? Any change in plans? Maybe we are adding something, subtracting something.
As of now, we don't have any plan. As we said in our opening remarks that we are doing a blueprint of the new strategy, and once the strategy is done, we will look at our allocation of CapEx. But the immediate plan is to invest in a new R&D at Genome.
Correct. Fine. If you can just share the three segmental revenues for this quarter, I mean, pharma, chemical, and formulations.
Yeah, the segmental revenue, if you look at it for this quarter, for the purpose of CDMO Pharma is about INR 148 crore for six months. And then, sorry, for the-
For this quarter.
Yeah. And the SpecChem is about INR 55 crore, and formulation is about INR 27 crore. If you look at for the six- month period, H1, is INR 394 crore of CDMO Pharma, INR 130 crore of SpecChem, and INR 23.9 crore of formulation services.
Correct. So, sir, if you can comment, I mean, chemical has seen substantial reduction from the first half of last year, maybe, I don't know, 50% reduction, and formulations have done extremely well. So if you can just highlight what is... I mean, you did talk about the inventory restocking, et cetera, et cetera, but is it so bad that this drop and also what is playing out well in formulations?
Let me explain that. SpecChem, you know, as we have already explained, the past two quarters, also, like, you know, this is going to be softer based on the global scenario is changing. That's the reason, you know, compared to last year and last quarter, SpecChem has seen a reduction. CDMO Pharma as such, actually, it's a mixed up product, whether it is you talk about Q2 or you talk about H1. The mix of products is quite encouraging and there is a growth. That's what has happened. Actually, particularly, if you look at the CDMO Pharma, from INR 318 crore it has gone up to INR 394 crore for the first six months, and particularly for this quarter, growth from INR 98 crore to INR 148 crore.
Looking at from the formulations, you know, it has gone up, no doubt about it, for this quarter from INR 18 crore to INR 22 crore. For six months, it has gone up from INR 27 crore to INR 23 crore. Basically, you are at a low base, and then, you know, there are many ANDAs that are getting added, people are going to be added. That's where you see a better traction in this business as it's been happening.
Thank you. Mr. Kothar i, the question has joined the queue for any follow-ups, as there are some participants waiting for their turn. Also, before we take the next question, I'd like to remind our participants to please limit the question to two per participant. If time permits, you may join the queue for follow-up. Next question is from the line of Ashish from IIFL. Please go ahead.
Yeah, thanks for the opportunity. So if you could spell out some more details on this agri- business, you did say that there's some destocking , but your interaction with the clients turning out to be pretty good. So in terms of actually the custom synthesis part, how is the development, whether you would be adding new technologies there, and Suven had a concentrated portfolio and post the merger, we want to diversify. So any broad color in terms of new technologies that you would be looking at would be helpful.
So, let me give you a color of new technology. Basically, we are looking at the growth with our existing customers, existing products. However, when we meet our customers, we always get a feedback on what are the new technologies they needed because we move along with our customers. We are definitely looking at, in the immediate term, we're looking at the flow technology. That's where the many customers are asking for it. However, it is too early to comment on that. We will do the validation with couple of our customers, and then we will invest. However, we have already invested in R&D scale, and we need to look at the how do we scale it up.
In terms of capital allocation going ahead, is there certain bias on the part of the management that we would like to put more capital towards CDMO Pharma, less towards Agri? Any thought process?
No, nothing like that. You know, as of now, we have enough capacity. As I said in the beginning, we are working on a blueprint for the next five-year strategy. Once we are clear on our strategy, we will allocate the capital according to that.
Okay. And once this new entity comes into form, are there any tax-related benefits which could also come through us?
What is this new entity you are talking about?
Once the entire merger goes through, are there any tax-related benefits that could flow through the organization on a consolidated basis?
... No, there are not many flow through, as such actually, but then those things will be looked at when, you know, when we really do the real merger kind of discussion, not at this point of time. As of now, we haven't started any synergy.
Thank you, Mr. Ashish. You're requested to join the queue for any follow-ups. Next question is from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead.
Yeah, thanks for the opportunity. So just one question on the-
Saurabh, your voice is not very clear. Please use the handset.
Hello, can you hear me now?
Now it's better.
Yeah. So, the question is on the, you know, the RFQ, which we have said in this quarter. So is it largely for the CDMO, or do we also on the SpecChem side?
No, this is mostly CDMO, Pharma CDMO. As we said in the beginning, that SpecChem is a little subdued, because of the global situation, destocking, Brazil's drought. But these are actually primarily from CDMO, Pharma CDMO.
Okay. And, and can you give some color in terms of, you know, pipeline on, on the Suven in phase III kind of molecule, number of molecules in, so each stage of, at least the molecules where we are, you know, late stage of the cycle?
As we said in the beginning of the call, we are about 100 molecules in the different phases. As of now, there is no update on the movement from the customers. As and when we get any update from customers, we'll keep you updated.
Okay, yeah. Thank you. Have a nice day.
Thank you. The next question is from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.
Yeah, hi. Thank you for the opportunity, and congratulations on building such a massive set of, you know, professionals for the new team. So my first question is in terms of, you know, the near-term opportunities, what the management sees in terms of the low-hanging fruit or the synergies which, you know, you can bring into the current system. In terms of the cost-saving side, if you could highlight or, you know, from a scale perspective, we understand that, you know, there is a merger which you guys plan to do at a later stage. But at least from a near-term perspective, what are the operational changes or synergies which, the new management teams on bringing into the fold?
Abdul, as you know, we've been cost-wise, you know, we've been working on, so, you know, it's a campaign business. Every time, you know, cost synergies, we look for opportunities. I'm 100% sure it will be-
Your voice is sounding very distant. Can I request you to come just close to the mic?
Yeah. You are able to hear me now?
Yes, much better. Go ahead.
Okay. So Abdul, you know, the, the cost synergies and then cost, you know, as you know very well, we think always, work with the cost as the main parameters, and then everywhere, you know, we try to do the cost saving. And that synergies we look forward, even with kind of, you know, if there is a possibility of some synergies that happens with Cohance, using their facilities or using their manpower or whatever, we would certainly would like to use that. But at this point of time, it will be very difficult for us to comment on this, as we need to still look for a blueprint and then look for a overall kind of synergies that will happen actually.
Yes, on a long road, yes, it will have some kind of benefits, and then we will certainly look to, you know, exploit the synergies, whatever is going to be there, actually. And then what was your second question? I lost track of it, actually.
Yeah. So that was pretty much of my first question. My second question is basically, you know, if I refer to one of your slides, slides like the, you detailed out the kind of opportunity or the market size, which Suven Pharma would be catering. So I understand, I mean, historically, we had a presence in the intermediate portion, and now we are also trying to look at API. So based on the current capacities what you have, you know, what is, again, you know, immediately on the plate or, you know, this is something what we aspire to move towards or in the near future by, you know, getting some traction from your clients?
Yeah, that is a very good question. Basically, I would like to say actually, as you know very well, that, you know, we have built a capacity specifically with the OEL for customers, and then it is for that market. And we would certainly would like to leverage those APIs, what is really being required, and then we would like to focus on that. That's what the new team, which is going to work on as, Mr. Vaidheesh, as well as Sudhir, were talking about actually. The new team, it is Brian and then the team which has come, they'll be focused on to get into those lines actually, to think about where we can leverage that actually. Suven capacity, we do have. We don't have any problem at this point of time, actually.
Sure, sure. Just a final one from my end. And again, you know, referring to the presentation, you mentioned there are 13 active commercial projects. This includes the COVID molecules as well? Is that understanding correct?
10 commercial molecules, CDMO, and three are the specialty chemicals. Three commercial molecules, specialty chemicals is included. That's why it is 13.
All right.
To answer to your question, the COVID products were excluded because it's one-off.
Sure, sure. All right, got it. Thank you.
Thank you. Thank you. The next question is from the line of Kunal Jain from Aliya Capital Advisors. Please go ahead.
Hello? Hello, am I audible?
Yes, Kunal, please go ahead. You're audible.
Yeah, hi. My question is on the, the three, we have phase III segment. is there any update on that in terms of moving tophase Iv?
... As of now, we have been in touch with customers. As of now, there is no update from customers. You know, as and when something comes up, we will keep updating everybody.
Okay. Given the fact that our CapEx has been very subdued at INR 26-27 crore in first half, if these molecules were to go into pilot scale, would we be in a position to address the needs of the customer in terms of the capacity, sir?
See, you know, there is—it's not directly linked. The CapEx is totally different, compared to what you're talking about. The molecule coming off has got nothing to do with the CapEx. We have already have a CapEx, including the new CapEx that was incurred in Suryapet, which Suji was telling actually. We are ready to go commercial there, actually. We have adequate capacity in case of any of these molecules. Specifically, when you are referring to these five molecules, even one of the molecules get to the pre-launch position, we'll be ready to go. There won't be any, what you call, pressure on the CapEx. Pressure on the capacity. Yeah.
Okay, great. Maybe just on the specialty business, I think the revenues for the quarter was around INR 55 crore. Now, this number is a very low number, what, what we've reported in the last... I think the lowest number last we saw was in December 2020 quarter. So I understand that there is a subdued outlook, but, sequentially, should we get better, or the numbers can actually go lower than, the current reported number?
As we said in the beginning of the call, that SpecChem business is going through the downturn, and we are not the only one. Everybody is facing that challenge. What we learned from our customers that this talking China issue, Brazil drought, that will continue next couple of quarters, and hopefully, after few quarters, we should see the bounce back.
Okay, so there's no clarity with respect to that they are running along the bottom. It could further decline from here, given the industry environment.
It's, it's hard to say, but, this is, our gut feeling that probably we have bottomed out. This is our gut feeling, but it's hard to say because we depend on the customer feedback.
Fair point. Thank you so much, and all the best.
Thank you. Thank you.
Thank you. The next question is from the line of Kshitij Kaji from Sage One, please go ahead.
Yeah. Hello, am I audible?
Yeah.
Yes, go ahead, please.
Yeah. Good evening, sir. I just had one question. So you know, from your opening remarks, you cited that we are spending heavily on a lot of commercial avenues, so hiring a sales force in U.S. Also, we're spending more on R&D for new platforms, et cetera. So given that Suven's margins are, you know, already so high today, you know, in the next maybe one or two years, do we, you know, intend to go in an investment phase and, you know, which may impact the margins and, you know, it may get back these margins after a few years? Or how do we see margins from maybe a one to two years standpoint?
Yeah, thank you. I think that, you know, that's a very good question. So at the end of the day, all our investment that we are making is not just for a couple of quarters or for a couple of years, it's for a decade. All our business expectation that we have out of these investments are towards the long term. So we won't be worrying too much about what it will do to our current EBITDA, because that's not the way we are designing our organization. This is for a long term, and at the end of the day, we'll all start seeing the results. Even after a couple of years, all the investments will start paying off. But here, we are here for a long term.
Obviously maintaining a good, you know, the kind of margin that this company is used to.
Right. So in the near term, do we expect margins may come off slightly, or do we intend to keep them at the current levels?
Well, well, you know, as you know that our aim is to keep the current margins. We'll be in and around the current margin levels, but there will be a couple of percentage points because of the fact that we are investing. You may see some variation, but at the end of the day, it's not something for us to worry about. It is not a big issue for us to tell you that there's going to be a big drop in our margin, but we'll be in and around what we have been delivering in the past.
Perfect, sir. Just wanted to understand that. Thank you so much, sir. All the best.
Thank you. The next question is from the line of Sunil Kothari from Unique PMS. Please go ahead.
Thank you for the opportunity and welcome to the new board members, MD, CEO, and it's a very glad to hear voice of Mr. Venkatasubramanian also. Sir, my point I just wanted to convey or ask is, I'm since long, I'm shareholder of Suven, the way Mr. Jasti has nurtured and created this unique and very specialized company. So my point is to ask you is, what are the first point which you have been encouraged to buy this out, this company? The second, which are the places and areas where you feel you can do better than what the first management was doing? So little bit qualitatively, if you can talk, will be really helpful.
Yeah. So, you know, you're pretty bang on in terms of why investment has to happen and why did we engage in investing in this company? See, first and foremost. As you rightly said, Mr. Jasti and his management done a fantastic job of creating the special, you know, creating a niche market and created need for CRAMS and CDMO. The biggest opportunity is in scaling up. One of the biggest strength that we have, we as a management team, as you must have seen, the kind of team that we have put together, is in scaling up our deep customer partnership. Like, for example, Jasti and his earlier management, they developed partnership with certain set of customers, which is pretty good.
Now, it's our job to deepen those relationships, take it to the next level, what I call the Suven plus. Differentiated scientific capability, right? Now, the kind of talent that we are bringing in are going to be addition to what the organization has done. Because the macros are so good, you know, as Dr. Prasad and Sunil had mentioned, the macro is so good, this is the time for us to scale up and go and get this opportunity. Delivery excellence is pretty good, and we need to scale that up and make sure that we are able to bring more customers and refarm whatever we have, and also to... And the last but not the least, talent and employee pool that we are bringing in, they are going to give multiple engines of growth.
So frankly, in my opinion, it's no brainer for many of the investors to come and take this opportunity and take it to the new level of what Jasti has left. And I would - Dr. Prasada, I would like to say a few words.
Yeah, thank you, Vaidheesh, and thank you, Sunil, for your comments. Just to summarize, we are primarily looking for marquee customers with a different relationships, and wherever we go, we always very heartened to hear the clear message of reliability and delivery orientation. It completely differentiates Suven from any other partner in the same CDMO space. It is one of the biggest motivation for us. Second, scientific capabilities and innovation through science has been one of the another important pillar. Third, normally, any company comes with a lot of risk mitigation outside of the strategy and outside of the business, but this company, in Suven, we have multiple engines of growth. All the engines have immense potential to substantially grow further.
Primarily, these are all the three important elements, which we feel are the key elements for us to be able to really look at this company. These are all the elements that help us to really grow the company to a next orbit. As you also have followed us, we felt following the question, what you mentioned, what you feel could have been done better or what you feel could be invested, we have found answers for it. That's where the commercial engine has been completely rebooted.
Great, sir. Just my observation, I would like to convey that Suven is dependent on very few global giants, and the way Mr. Jasti has his proven track record without any accident, without any observation, without any problem, I feel hurry to scale up. New management will not make any mistake and will definitely grow faster than the past. My good wishes to you, sir.
Thank you so much.
Thanks very much.
Thank you so much.
Thank you.
The next question is from the line of Chirag from DSP Investment. Please go ahead.
Yes, sir, thank you for the opportunity. Sir, typically, we indicated that we have three to six months visibility on the pharma business. Can you provide some color on how the second half of this year, particularly for the pharma business, looks like versus the first half?
As we said in the beginning, we look very positive. Pharma CDMO outlook looks very positive. However, you know, at this point, it's very difficult to give you the guidance or a number. But, as I said in the beginning, pharma CDMO is a bullish.
We're quite excited with this, Chirag, in addition to what Dr. Sudhir has rightly mentioned. As you understand our business, it all depends on our customers and products growth. From an organization, we are trying to do everything right internally, and we are fully prepared to co-grow along with our partners.
Understood, sir. There is nothing unusual happening this year, you know, post the change in ownership. That is a very clear message, right?
Yes.
Of course.
Understood.
That's a big yes, Chirag.
Understood. Okay. And sir, in one of your slides, you're mentioning that 75% of your active projects are with global innovators, so Suven is a partner of choice. When you say global innovators, do you mean big pharma or, you know, emerging biotech companies as well?
No, it's fully big pharma only.
I would put it as a large cap, because that includes the big pharma as well as the SpecChem.
Understood. Okay. And, sir, just if I can squeeze one more question. What are your plans for formulations business? You know, where does this fit into the overall, you know, scheme of things as far as creating a, you know, CDMO, CMO, you know, post the merger, et cetera, is concerned? Where does formulations, both the factory as well as, you know, the, ANDAs, et cetera, where does that, where does that fit in, sir?
Chirag, yes, you understand this business very well. What we are actually trying to do is two things. One... We wanted to build five- year blue print, to understand what kind of strategic choices that we wanted to see. Irrespective of it, we feel while our business is to stick to the core, which is CDMO of pharma and SpecChem, we wanted to make sure that every business should go, grow to the fullest extent of its potential. That's where our business goes more to the core business. However, to the possible extent, we try to see capacities are properly managed, and today's formulation business, especially on the customer side, we see the opportunity for capacity optimization. Our endeavor is to make sure that capacity is optimally utilized.
Understood. Why has R&D spend increased in the second quarter, sir?
It's basically, basically because of some, filings that has happened, and the cost of R&D has been.
It will go back to earlier levels or will it remain at this level?
We cannot say that way, actually, but it depends on the filings, actually. The R&D cost is more related to that. And then some process R&D is also there, that we keep spending.
Understood. Okay, sir, thank you so much.
Yes.
Thank you. The next question is from Nihar Dave, from Vallum Capital. Please go ahead.
Yeah, hi. Thank you very much for the opportunity. Like I said, we might invest for the coming quarter. Just one question I have, this question has been asked earlier, but if you just look at, you know, commercialized molecules that we are making for big pharma, so is there any possibility of, you know, any contracts happening in that? Because, previously the company said that, you know, that doesn't necessarily work on contracts, but more an understanding between the pharma company and Suven. So just wondering if that can work on contract basis.
So if I understand correctly, Nihar, as you understand, there are certain multilevel contracting happens, especially quality and supply agreements. Commercial level, it is always goes with a partnership model. That is being ensured, and we also see if there is any possibility to improve further, we strengthen. Otherwise, we are in existence. Quality and supply agreement, without that, no pioneering company will come back for any CDMO opportunity.
Right. So and so my follow-up question to that would be that, in earlier phases, within the... again, like you said, it's just quality and, this thing that you, that are the contracting based on in earlier phases?
That's right. That's right, Nihar.
All right. Thank you very much.
Thank you.
Thank you. Next question is from Darshit Shah from Nirvana Capital. Please go ahead.
Yeah, sir. Thanks for the opportunity, and wish all the best for the new team, and I hope they continue the legacy and credibility which Mr. Jasti has.
Darshit, your voice is not very clear to interrupt. It's not very clear. Ladies and gentlemen, we have lost line for the client for a second. We'll move to the next question. It is from the line of Rolan Nand from Goldfish Capital.
Yeah. Hi, sir, just one question from my side. You mentioned that in the last 1 month, you have met a lot of clients, right? And probably, you know, conveyed them this whole transition of ownership. But, have you also been communicating to them about this whole, you know, Suven plus Cohance ? If you can share some clients' feedback, like, what are they, you know, I mean, how excited are they about this whole, you know, Suven plus model that you just mentioned, you know, few questions back. If you can just give some anecdotal kind of an evidence or some conversation with clients that you had with the clients, that will help.
Yeah, thank you for the question. As you said, that definitely we met with most of our clients, and they gave us their own feedback. They're excited with the new journey. Our focus is mostly on two things: improving our capabilities in R&D and investing in ESG. As you know that in today's world, every big pharma is looking for a big way on ESG investment, and that has been our focus since we took over, improving our R&D capabilities and enhancing our ESG capabilities.
Sure. No, so where I was coming from was that, you know, obviously, a lot of people have asked about this whole, you know, merger with the platform entity that is going to come, right? In some sense, that was one of the, one of the reason, if not the only reason, for, you know, change in ownership. So, I mean, you know, are clients also equally excited about an entity which is going to be much larger than, well, Suven, and are we getting the kind of confidence that we had before, you know, meeting them? I mean, is the confidence level the same as it was before meeting them as well?
Actually, to be honest, you know, I mean, since we are, ourself is not clear when will happen, what will happen, and we did not bring it up, and no customers asked this question. There was no question from any customer on this merger issue.
Okay. All right, sir. Thank you a lot.
Thank you. Thank you, sir.
Thank you. The next question is a follow-up question from the line of Chirag from DSP. Please go ahead.
... Yes, sir. Sir, what will be the CapEx for this year and next?
As a part of our overall blueprint, we are still evaluating. Whatever has already been approved by the board, we still feel there is no need for us to immediately revisit onto it. However, in next coming quarters, we will again review whatever is needed to be invested on the various growth engines. Then we can, again, we'll calibrate existing approved CapEx can be repurposed and used. Otherwise, we'll come back with a full answer. Immediately, we don't feel the necessity of immediate CapEx right now.
You've done INR 25 crore in the first half, likely second half also will be similar, sir?
Likely, the same run rate will maintain. However, you should please locate two important elements. There is already approved CapEx, for example, INR 200 crore of R&D and Ashwamedh facility expansion that we are not spending right now. Hence, consumption of existing CapEx, we will try to phase It appropriately. If there any need for new CapEx, we will come back with a comprehensive answer once we complete our overall five-year strategic blueprint. I hope it answers your question.
Understood. Understood. And just the last question, sir. Can you... By when do you think you can talk to us about the Cohance pro forma with numbers and, you know, a proper plan? By when, in terms of timelines, if you were to guess?
So like all of you, we are also quite excited. Please allow us for some time. Appropriately, we'll get back to you, please.
Okay, sir. Best of luck.
Thank you.
Thank you. Next question is from Mayur Parkeria , from Wealth Managers India. Please go ahead.
Good evening, sir, and thank you for taking my questions. Wishing all the new management team all the very best, and for the future as well as for the near term. So just one question I had, while we understand in such a large takeover, you know, acquisition, you know, it takes time for the new management team to set themselves, get into the groove, understand the business fully from inside out, and then, you know, execute their plan of action, as we go ahead. While this is very true, and the long-term picture, as you said, we are in the process of preparing a five-year blueprint.
While all this is happening, we also know that, you know, on a practical ground, there are certain near-term, you know, near-term targets also, or the near-term things which have to be managed, and, you know, they are targets in terms of from an execution, you know, for the execution team. From that perspective, I know it's a little near-term outlook, but, you know, given the fact that from a shareholder wealth creation perspective, long-term has been very historic, but from slightly medium to near term, there was, there has been a stagnation there. We are looking at how the... We are also excited and anxiety is there with respect to the near term also.
So do you believe that FY 2023 revenues of INR 1,340 crore, or do you think we will be in a position to protect that, given on one side, the huge correction in SpecChem, but on the other side, the pharma and formulations outlook is doing reasonably better. So, do you believe that we'll be able to protect that kind of a revenue for that year? How so, how H2 looks at? And also going into FY 2025, it's a relatively near term. Do you believe, sir, that we can start looking at growth from there on?
So thank you for raising this point. It's a very important question. I'll just try to divide this into three important elements. One is the proven experience of M&A by such a large investment. We are very happy to inform you that, as a team, we have proven track record of last 31 months, where successfully multiple transactions have happened without compromising on core of each business and also protecting the culture of every organization. That gives immense confidence to us. As you have also seen, we have installed right professional team, and the competent team is already built in, and this has been thought through as a part of the transition. Hence, on day one, majority of the hires are already in place. So answer to the first point, on M&A side, we feel that is the unique competency and capability that we have.
It's a proven track record, hence, we believe that's going to be a substantial strength for us. Coming back to why we are trying to address about a long-term view, how are we trying to do what can be done in short term to mid-term? As you understand this business, we want it to be a preferred partner of choice to our customers, as Dr. Sudhir actually mentioned. We found there are certain strategic interventions which are needed, for example, investing and expanding in R&D capabilities. While we have OEB facility at a scale-up level, we don't have R&D, which can handle the product at OEB level in a meaningful manner. Hence, we have decided to strategically go ahead with investments in Genome Valley. These are all the certain interventions and actions possible to secure mid-term to long term, be a short term.
However, it's very difficult for us to predict how the product level and customer level growth is going to happen. Hence, we might not be able to comment specifically on the current year quotient. However, next six quarters, which is going to be a full year of next year, we are quite convinced that there is going to be both revenues, which will be completely unlocked. Because of two reasons: one, macros will be softened. Number two, whatever interventions that we are putting right now will also be resulted. As you know, anything that we do in the current space, in CDMO business. I hope your questions are answered.
Yes, sir. Thank you once again, and wish you all the best. Thank you.
Thanks.
Thank you. Next question is from Darshit Shah , from Nirvana Capital. Please go ahead.
Yeah, sir, thanks for the opportunity and all the best to the new team to carry on the legacy of Mr. Jasti, who created this great company. So my question comes to, you know, Suven has historically generated good amount of cash flows, and even right now, we have around INR 600 to 700 crore of cash and equivalents in our books, and probably by the end of this year, it would inch towards 1,000 odd crore. So, I understand you are in the midst of making this five-year blueprint, but, would there be a dividend policy also in that blueprint, where we would probably have a formalized dividend payout to the shareholders?
Yes. As of now, if I have to really come back, yes, there is a healthy cash position right now. The way current priority for us is right now to look at the five to six years of strategic blueprint. As you know, strategy has no relevance unless it comes into execution excellence, and we are definitely looking for an accelerated growth opportunity for Suven, which means we might have to choose to decide on inorganic options of acquisitions through Suven. Hence, we wanted to preserve this cash situation so that our abilities to go and accelerate the growth via M&A will be protected. This is how we are looking at right now. However, all of you know, with Mr. Jasti's legacy, company has been securing the shareholders' value creation.
Whatever we do on the M&A side also, it is going to be completely a value accretive.
Got it. And, just to, confirm, in terms of molecules, we mentioned there are five molecules phase III. is it correct?
Correct, yes.
Okay. And then lastly, just, since the open offer has been concluded, what would be our total stake, if you could highlight after the open offer is the tendering process has been done?
Currently, we are still waiting for the...
The merchant banker has to give the final data. We don't know as of now, it is not closed. Even though it is closed for the, you know, surrendering, we need to get the data from merchant banker, then only we'll be able to... We are working on it.
We are just still waiting for the final consolidated report, and once we receive, we'll certainly share with some comment shape to all of you.
Sure, sir. Just lastly, since I think we in in Suven, as earlier, also participant asked, and we understand it's a more of intermediate, intermediate supplier to the innovators. And, you know, even the erstwhile management has spoken about migrating towards API for innovators, which is far more value accretive business for Suven. What's your take on that, and, where are we in that process of value migration from intermediates who's supplying APIs to innovators?
We are quite excited and happy to inform you that that plan is, is still active. As you must have followed the previous conversations, innovator has to come back to us by auditing our facilities and completing certain formalities. That is still on, and we are quite hopeful that soon we will get into the graduation of supplying from intermediate to API, and we hope that we should see one such example in near term.
Great, sir. Nice to hear that from you, and all the best, for the upcoming years.
Thank you.
Thank you. Next question is from Varun Bang, from Bryanston Investments . Please go ahead.
Yeah, thank you for the opportunity. All my questions have been answered. Just, in addition to the previous question, as and when this API, or let's say, forward or backward integration activity starts, would it be on an experimental basis, or it will be a full-fledged and good value business for us? How should one look at it?
If you are asking about graduation of a CDMO on pharma side from intermediate to API, it is a commercial molecule. By the innovator, it is going to be a long-term project. Hello? Hello.
Yes. Yeah, so would it be a good value business, or let's just-
Yes, it is, it is going to be very value accretive, and it's going to be commercial, and it is going to be very long term. As you know, the pattern cycle goes on.
Understood. Thanks.
Thank you.
Thank you. Ladies and gentlemen, that will be our last question for today. We now have the conference back to the management for the closing comments. Thank you, and over to you.
Thank you everyone for your time. If any questions are unanswered, please reach out to the investor relations team at Cohance IR. Thanks a lot, and wish you all a very happy Diwali!
Thank you very much. Ladies and gentlemen, on behalf of Suven Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.