Ladies and gentlemen, good day, and welcome to the Q4 and FY 2022 earnings conference call of Suven Pharmaceuticals Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rishabh Bharar from CDR India. Thank you, and over to you, sir.
Good day, everyone, and thank you for joining us on this call to discuss the Q4 and FY 2022 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Managing Director, and Mr. Venkatraman Sunder, Vice President, Corporate Affairs, and Mr. Subba Rao, CFO. 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 mailed to you earlier. I now request Mr. Jasti to share his perspectives on the performance and outlook. Over to you, sir.
Thank you, Rishabh, and good afternoon, everyone, who has tuned in for this update on the quarter four results and year-end results from Suven Pharmaceuticals Limited. I know everybody have the data which is circulated to you guys, and instead of rehashing the same numbers all over again, I think better you ask questions, and I clarify them to the best of my knowledge. I would like you to start the question answer session, sir Rishabh.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, Mr. Jasti. Thank you for taking my question. Firstly, now since you've completed this Casper Pharma acquisition, could you talk a little bit about the opportunity over here? Like, what is the end market sales for the six filed products, and what kind of visibility we have from the future pipeline that that might come from the, Rising Pharma's R&D?
See, at this time, yes, we have taken over this as of April 22nd. As you know, this is a brand-new facility. There are two ANDAs filed and waiting for the U.S. FDA to come and inspect for us to do the sales activity. Meanwhile, I mean, other than that, we have other 15 products to be filed within the calendar year. I mean, not calendar, within the fiscal year, ANDAs. As of now, this is the update I can give you because more than that there's nothing else, because they've not started the activity yet. Just taken the position of it and waiting for the U.S. FDA inspection to happen, then things will start running.
Right. Sir, did you mention two filed products from this facility?
What is it again?
Did you said that you had two filed ANDAs from this?
Yes. two already filed and waiting for the inspection actually. The dose evaluation by U.S. FDA is in progress and waiting for the U.S. FDA inspection, and 15 more will be filed during the fiscal.
Right. Those 15 product is from the Rising Pharma partnership and not the existing ANDA that you were doing separately?
No, no. This is all for the Rising partnership.
All right. Just a clarification over here. I think last quarter you mentioned that this facility has six filed products, so why this difference now from six- two?
Five products are ready for filing. Two are already filed under evaluation. Three are under compilation and filing. That's by end of June.
Okay. Secondly, sir, you know, CRAMS business growth. We have had a very healthy growth this quarter, so just wanted some qualitative update on, you know, are we seeing a big part of this growth led by the COVID drug that was commercialized the last quarter, or, you know, that hasn't been that much of a contribution?
No, no. It's not the COVID-led growth. It is a part, some of the activities are small quantities, the COVID-led growth for this quarter. Otherwise, it's overall activity. As you know, in CRAMS, it is not a guaranteed stuff until it goes to the next level in the clinical trials. It's very difficult for us to project anything in the future. As usual, we hope to maintain 10%-15% growth. There is always a possibility that if some of the molecules which are in phase II moves to phase III or phase III molecules moves into the pre-launch quantities.
Yes, yes.
Suddenly the volumes can go up also. As it is, it is a good growth last year compared to the year before, and we hope to maintain the same plus around 10%-15% growth as of now.
All right. Was the thing it was largely a broad-based growth and not a product-driven growth?
No, not at all.
Right. Any qualitative update in terms of any change in pipeline, you know, on the phase III and commercial?
No, not yet. Nothing in this quarter.
Right. Five commercial and five in phase III.
Commercial, five phase III, and the rest of them are all same under 32, I mean 35.
All right. Right. Okay, I'll get back in the session for further question. Thank you.
Thank you. The next question is from the line of Rashmi Sancheti from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. Sir, just to follow up from the earlier participant. What I understand that, you know, there are five commercial products in the CRAMS business. Is it that the fifth molecule has started, I mean, Zydus started supplying, from quarter four onwards? Are we not going to see a good ramp-up in FY 2023 and 2024? Your guidance looks little conservative.
We're always conservative in not knowing what is going to happen in the market because this is all the CRAMS model, not a generic where I can give you some kind of a guidance. More or less, you know, in the COVID situation also, where what is happening situation when the COVID is receding and the growth is muted. Based on that, not having any visibility, I cannot tell how this is going to go after with this COVID. That's why we had to be conservative and maintaining that itself is a challenge in the CRAMS business model. We hope to maintain plus about 10%-15% growth we expect it on a broad-based activity.
Okay. Sir, on your total formulation and technical services, what I see the number is around INR 84 crore. Out of that INR 84 crore, how much is just formulation sales and your other technical services, if you can give the breakup for FY 2022.
I mean, it's technical sales is very meager. It will be less than 10%. The rest of them are all formula and sales and the profit share.
Sir, how much did you say? Sorry, I didn't get it.
Less than 10% is the technical sales.
10% is the technical sales.
Right.
Sir, lastly on, you know, gross margins, we are also seeing a inflationary pressure on the raw material prices. So what is your outlook over there? You know, are the gross margins what currently has been reported, are we going to sustain that or we are seeing that, you know, further, there will be some downward element to it? Or you think that, you know, things are improving from your end?
I mean, it is a status quo as far as the improvement is concerned. I don't see any, the rise in cost has come down since last time. At the same time, not also going up other than the diesel and all these things and the city cost. At the same time, in our business, what you call is the margins. It's all depending on the product mix. Since we are not supplying the same material day in, day out, everything is different. It changes from quarter-on-quarter, month-on-month and year-on-year. At the same time, we said last time, and I'll continue to keep the same number around 40%+ EBITDA margin, and we'll keep it.
Some surprises can happen on the positive side, but around 40% is what we hope to have, keep it as a guidance.
Okay. That would be slightly lower than FY 2022, right? If you're saying 40% EBITDA margin then.
We never said it is only we have performed. Doesn't mean that it will be the same, the product mix. Not knowing the product mix, I cannot comment. That's why we are sticking to the 40%.
Okay sir. Thank you. I'll get back in the queue.
Thank you. The next question is from the line of Yogansh Jeswani from Mittal Analytics. Please go ahead.
Thanks for the opportunity and congratulations on a good set of numbers. Sir, on your Casper acquisition, could you share what is the outlook here? What is your plan going forward with this facility? What kind of product are you filing for the ANDA that you said? If you could throw some more light on what kind of products these are and what is the kind of revenue potential once these molecules come into production.
As far as the product is concerned, we're not going to reveal it to you at this time until it is approved. Okay? That's a business thing we don't want to do. It's a brand new acquisition and a brand new project. It's not yet inspected by the FDA as I said earlier. We have filed a review by the FDA, and it's expected in the second quarter, hopefully the inspection. We have 15 more to be filed during the fiscal year. This is the update I can give you, but not the products until it is approved.
Sure. Fair enough, sir. Sir, just another clarification on that part. I think in your disclosure to the exchange, we had mentioned that the Casper facility had started in 2016, right? So is it that in 2016 it started commercially or it started getting built in 2016? If it has started in 2016, what was the business it was doing for last four, five years?
When you start a new greenfield business, the construction and the regulations and special economic zones, all those things takes time. As I said, they have constructed. Doing only the business of filing the exhibit batches and submission batches and waiting for the. Submitted a couple of ANDAs out of that. That's all. There is no revenues on that. The revenues will accrue only when the U.S. FDA comes into the picture, and then approvals take place, then only the sales starts. It is a brand-new facility, appropriately validated and submitted the dossier based on the, I mean, ANDAs, two submitted ANDAs, ready for 15 more ANDAs, just waiting for the U.S. FDA inspection so that the commercial activity can start.
Understood. That's helpful, sir. Sir, lastly, a follow-up on the breakdown that you shared about the five commercial products and five in phase II you said, right?
five commercial.
Five commercial, and five in, which phase you said?
I said phase III.
phase III.
phase 3.
Okay. Again, can you give the second-level breakup in terms of how many of these are in these specialty chemicals and how many are in your, the other one?
They are different.
These are all pharma.
This is all pharma what I have talked. 77 in phase I, 35 in phase II, five in phase III, five in commercial. In specialty chemicals, there are three products +1 development product.
Okay. In terms of pipelines, are we seeing post-COVID companies again getting aggressive in terms of development? Are we seeing more interest there, or is it still lower? How is the market feeling like?
It is starting. The activity is getting started. Activity is not started now. Not aggressive, but the activity started.
Sure, sir. Thank you. I'll get back to you.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants, we would request you to please limit your question to two at a time. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Pratik Kothari from Unique PMS. Please go ahead.
Hi. Good afternoon, sir. Sir, just one question from my side. Until now we used to cater to innovators and through Casper acquisition we are venturing into generic business. Sir just your sort of thought process, because you were always vocal about not entering this field. Your thought process, does it bring any change in the organization? Just why are we doing this?
You know, even before the Casper acquisition, we had the formulations in the last seven years. We are not going after the blockbusters. We are going after those molecules which are very small volume, very niche molecules, where not many people will come, which is a leverage exercise. The same thing will go in the Casper also. I mean, a little bit more number because it's a focused way. We don't have any problem with our innovators. They are fully in the know about it, and some of them were even discussing developing the dossiers for them in the preclinical stage if needed as a service. Everybody knows. There's no hesitation from the big pharma.
See, the thing is what we are doing in the big pharma, in the CRAMS side of the business is, there's no IP related. These are all the intermediates and own products. There's nothing we are copying or contradicting each other or anything like that. This is a misapprehension by the investors, but not the customers.
Okay. Fair enough. Sir, last thing, a couple of years back you had mentioned in the annual report that you wanted to go higher up the value chain from intermediates to API to maybe formulations. Just if you can qualitatively highlight how are we on this journey over last two years and how do we see the future assets?
Actually we started with three of our customers for the forward integration, and they are inclined to do. As I said, it will take two-three years before they can come on board for that kind of activity. Unfortunately, the COVID has stopped all the things. Not only that, even regular visits also stopped. We hope during this year, provided this fourth wave don't come up, hopefully the second quarter, I mean, third quarter onwards, we'll see the visitors coming in and the activity will start. Based on that, it will take a couple of years before you can see any forward integration activity to take place.
Okay. Fair enough. Just to understand this, two, three customers of ours used to take maybe intermediates from us, and they have shown some interest that we would want to forward integrate with you guys.
Yeah. Not only for the existing products, but also for those, I mean, lifecycle management. Like, that means if the big pharma has a product which is expiring soon and they want to continue the market, they want to have a partner who can do that rather than themselves doing that, both the API and the formulation itself. That's where the activity will come. In terms of the intermediate, if we are supplying N-2, maybe N-1, and eventually the API itself. These are some of the activities we are targeting. Only time will tell when actually they come on audit. I mean, they know the facility, but the team will be different and the strategy will be different. Okay, couple of years we have to wait before you see any result on that.
Great. Good to know, sir. All the best.
Thank you.
Thank you. The next question is from the line of Darshit Shah from Nirvana Capital. Please go ahead.
Thanks for the opportunity and congratulations on good set of numbers. Sir, my question pertains to the, I mean, the cash and investments which lies on our books, including the mutual funds. That's roughly around INR 525 crore. And I understand we're spending INR 150 odd crore in Casper Pharma and INR 60 crore as dividends we gonna distribute. Is there any other plan to utilize this cash apart from the normal CapEx that we would be doing in Suven Pharma?
Not thought of yet. It's only used for the normal CapEx at this time. I mean, we have not thought of anything on that.
Yeah, because we'll be obviously generating another INR 350 crore-INR 400 crore kind of operating cash this year itself. Do you want to kind of pile up on the existing cash?
Just because we have cash, I can't go into the market and acquire. No. The opportunity which meets our requirements, I don't want to go to a marginal operations where I drag my margins down just for the sake of top-line growth. No. We'll wait for the right opportunity, and also we'll see how to utilize the cash properly rather than just because we have. I don't want to go on a shopping spree.
Sure. Sir, on the Rising sale, where we got $41 million, so that's roughly INR 310 crore in our subsidiary. Has that money been kind of got back in our company or something is still lying with Suven Pharma , Inc?
No, we have brought back the money.
Okay.
Very, very residual amount is there, and the residual stake in our Rising holdings are there.
Okay. All this other income, basically whatever we have is through that dividends, we have infused.
Yes.
Sure. Okay, sir. Thank you.
Thank you. The next question is from the line of Abdulkader Puranwala from Elara Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. Just one clarification on the products which are supplied through the Casper side. Sir, in this, the margins would be identical as what your current formulation business would be?
Yes.
Okay. Secondly, sir, on the INR 600 crore CapEx plan, if you could share some details of where we are and, you know, how your CapEx project for the next two years would look like.
Yeah. It is a three-year plan. As I said, last con call also that we just started the activity, mainly to start within the Suryapet facility, and we'll be spending that money before the end of the year. With respect to the other expansions and movement of the R&D center has not started yet because the mandate is not. I mean, it's not important immediately it has to be there, but we have only apportioned that money. We are waiting for the other block to be started in the Pashamylaram facility, maybe three to four months from now.
Sir, could you just comment on some of the absolute numbers which you would spend in 2023 and 2024?
Huh? No. You said which year?
Sir, for 20, for the next fiscal. FY 2023.
It will be around INR 250 crore at least. INR 200 crore-INR 300 crore max. INR 250 crore-INR 300 crore maximum.
Okay. Sir, just final question on the cash conversion cycle. The cash conversion cycle for fiscal FY 2022 has increased slightly. Do you see that getting normalized in FY 2023, and if you could also highlight what led to this increase?
Can you repeat the question?
Yeah. You are talking about the cash flows?
Yeah. I'm talking about the receivables.
The receivables.
Yeah.
Yeah. Receivables is, it's. Yeah. Why was it there? He's asking.
Yeah. You know, from the previous year obviously it is higher, right? The revenue has gone up three years.
Yeah. I mean, they'll normalize within a month's time usually. I mean, it is end of the quarter, end of the year. It looks big numbers, but they are normal. They are not overdue.
No, no.
No, no.
Sales.
Yeah, I know.
Both specialty chemicals, Casper commercial and
Yeah. It's all based on the sales and, sometimes, it goes in the last month. It may come in the first week or second week of the
Normally in a 60 days.
Yeah.
Timeframe.
There is no difference other than when we have, I mean, 50 product.
Yeah.
Got it, sir. Got it. Thank you so much for answering my questions.
All right.
Thank you. The next question is from the line of Saravanan from Unifi Capital. Please go ahead.
I have two questions. One on the taxation. This year, is the tax high because of the dividends, and what is the guidance for the FY 2023 tax rate?
The tax rate will be, you know, normal tax. You see, FY 2023 will be normal tax around 25%. That's what we expect. This year is basically because, you know, the U.S. tax and Indian tax, including the dividend tax play actually. Also for the credit higher. That's what it is.
Okay. Got it. Formulations from a yearly perspective, FY 2022, we saw a moderate growth of 5%. In the next two-three years, what are the strategies here? Because I think a year before we had expected formulations to be 1/3 of the revenues by FY 2024 or 2025. Are we on track to achieve it?
No, because it is taking time to get the inspections done and on the filing also. When the numbers goes up, naturally the volumes will go up and the profitability will go up. That's what we hope to achieve in three-four years' time. That's what we said. It's not that it's a guaranteed thing because it all depends on the product. Because when we choose a product it may looks guaranteed, but when we file actually it may be different, so we cannot tell. Right now things are going a little bit slow, but now it's speeding up and hope for the U.S. FDA will give us the permissions as we file the number of ANDAs, and that will give us the revenue growth.
From a mid to long-term perspective, your investments in formulations would continue, right? The filings and, capacity-
Yes.
Anyway, capacity you have acquired now.
Yeah. As I said earlier, I mean, in Casper Pharma itself, we are filing 15 more during the financial year and another seven or five to seven more in the Suven Pharma FDA facility in Pashamylaram. It will be around 20 filings will happen during the 2022- 2023. You know, the timeline it takes for the approvals and then, I mean, in the long run, yes, it will come up.
Casper, U.S. FDA inspection, are you expecting in the next two quarters any indicative timeline?
Yeah. It should be anytime. That's what we're expecting. Anytime, but we are not getting any. Because nowadays they're just giving you a week notice to come to us. Based on the two ANDAs that are pending, we hope to get that within the second quarter itself.
Front-end, you would always operate through partners in formulations, right?
Yes. Yes. Yes.
Do you have plans to
We are not going to have our own marketing department, no. We'll have various partners.
Okay. Got it. Thank you. All the best.
Thanks.
Thank you. The next question is from the line of Ranvir Singh from Sunidhi Securities. Please go ahead.
Thanks for taking my question, and congratulations for good number. Just on Casper acquisition, wanted to check whether that consideration has already been paid to Casper.
Everything is paid. It is in our possession as at 22nd of April.
A short-term investment, that INR 300 crore additional is all related to, that realization from Rising Pharma, that $44 million, that is sitting in short-term investment, right?
Yes.
Okay. Despite this, you know, the CapEx we have, we'll have a surplus cash and a very good amount of cash going forward. You know, anything if you could give some you know color, where we are going to invest it or do we have any plan for inorganic expansion, or anything of that sort of?
No. As of now, nothing. We'll be thinking about it. First, we want to handle the things and-
Capitalization.
Capitalization and CapEx plans, we'll be utilizing it. As I said earlier, if an opportunity comes which meets our requirements, then certainly we're gonna go the inorganic. Right now nothing is in the cards.
Okay. Okay, fine. The two product which we have filed through Casper, that two product, how critical this product is because pre-approval inspection is pending. Just wanted to understand, is this a critical product or just it's a simple product, it will be easy going for getting inspection and getting a-
No. They're regular products only. There is nothing like a simple product that attracts the U.S. FDA to come and inspect. These are the things which we have chosen and this is through the Rising Pharma partnership. They have filed actually because it's. We got this only 15 days ago, right? These are all filed by them at that time.
Okay. Okay, fine. The last one. In last call also, you indicated that the six month, including this quarter and probably next quarter, you had a visibility of CDMO, you know, business coming in, kind of flow. Going forward, we do not have much visibility. Because now we are already in last quarter of this fiscal, can we give some qualitative indication what kind of things, you know, in second half of FY 2023 is going to come? Because what we believe that this six month has been a very good. Whether this kind of thing will continue going forward?
No. In this branch you cannot guarantee yourself because it all depends on the success of the molecule at the clinical trials. That's why we give you a ballpark figure of 10%-15% growth. Things can happen in a jiffy, and you can have a 35% growth also for a particular molecule or particular quarter. That I cannot give you right now because it's not a thing where I can go put salespersons and keep on selling. It is not a generic, and it has to be a success at the clinical trial before they can place an order. It's very difficult for us to give any guidance.
Okay, fine. In specialty chemicals, one development, one product is in development stage. How big, how is the potential of this product?
Which one is that?
Sure, give me those. One is in development
Yeah. One is in development. I mean, it takes time. I mean, it's taken half a year before you can see the, what do you call, any kind of a big commercialization. Even the third one which we have sold last year, it will have a gap of about 18-24 months before you get the repeat business. Just because we have commercial quantity supplies doesn't mean that it will be right away coming in. They also have the field test to be done based on that one and all that stuff. Right now things are going well, but, the third, fourth, molecule, which is a developmental one, is likely to be sometime in 2030. We don't know yet the exact timelines on that.
Is it going to be a sizable one or-
No, no. I told last time itself, it's all, INR 40 crore-INR 50 crore, kind of thing. Nothing like the one which you have that, first compound, which has a huge volume. Not that one.
Okay. Thanks, that's all from my side. All the best.
Thank you.
Thank you. The next question is from the line of Nikhil Jain from Galaxy International. Please go ahead.
Sir, I just wanted to understand, for the formulation business, the molecules, the 15 molecules that you're planning to file, are they also of the same kind, let's say small molecule, generic, with less competition or is there any different strategy?
Yeah, these things which the Casper, they are all on the right prior to Rising because the Casper facility was Rising until last month, and they have identified the molecules, and they are all novel molecules only. Whereas in former Suven, we choose those molecules with less volume and less, they're niche molecules. It will be a mix of things that will be in the future.
These would be regular generic molecules, let's say these two three molecules that are filing with you then, correct?
Yeah.
Those would be regular generic molecules.
Yeah, like that. That's right.
Right. Sure. Thank you. Thanks. Thanks.
Thank you. The next question is from the line of Neha Agarwal from SageOne Investment Managers. Please go ahead.
Thank you so much. Just one question on Casper again. Given that you mentioned that this would largely be all generic, can we expect overall some margin dilution, once numbers come from this particular asset?
Margin dilution?
Yeah.
Yeah, you know, the generics, what is the margins? Is the same margins I told earlier also. The margins will be the same as whatever we are getting here in the form, I mean, Suven also.
Okay.
It will be around 25 percentage points.
25%. In terms of overall potential from that particular asset, do we have any number in mind or?
No. Not yet. We are working on the numbers because we just got it and we have to evaluate it and, well, our concentration now mainly for the filings and to the inspection, and we'll get into those things in due course of time.
Sure. Thank you so much.
Thank you.
Thank you. The next question is from the line of B.P. Vedanathan, an individual investor. Please go ahead.
Hi. Good afternoon to you, sir. I've been with Suven for the last nearly a decade. I think, it was only a CDMO business. Then knowing, through the CEO, slowly you went into specialty and now then the ANDA programs and formulations. Now I see Suven positioned itself, this is my reading, as the next phase of growth. It is actually now with the Casper acquisition, now it's got a four-prong strategy. Its own ANDA as well as now Casper Pharma's ANDAs. Now, seeing the amount of workload, do you assume that you will be now looking forward to hire and/or maybe branch out a particular CEO for a particular business model in due course?
No. We have every division has a vice president who takes care of it. My job is only strategy and coordination. I don't look after any division for that matter. We have people, you may call it whatever it may be, but we have each unit is operated by vice president who is capable of delivering goods.
This additional workload on Casper Pharma, would it entail additional employees to be employed or will the current strength with Suven will you be like dividing it between the two companies like the two plants?
I think we are doing that already. It's formulation division, the specialty chemicals division and the CRAMS division all the time. I said I'm not doing the work day to day and people are there, each and everyone. This Casper acquisition, we got 150 people who came along with it who are running the business. We took over the business and they are capable of running it. My job is to coordinate and strategize. That's all I do.
Okay. Last question, sir. On Suven 3031, is it progressing as anticipated at least at the moment after the COVID thing has got over?
Yeah. It started picking up, but now again, you know, with this fourth stage or fourth wave or whatever it is, it is little bit slowed, but much better than last year.
Okay. The results will be like as anticipated during this year-end and, the actual results by next year before March?
Yeah, yeah. The results will be around March end. I mean, the trial will be over by March end, and the results will be in the second quarter.
Thank you very much. God bless you.
Thank you.
Next question is from the line of Hussain Kagzi from Ambit Asset Management. Please go ahead.
Hi. Good afternoon. Sir, my question was with regards to specialty chem. I believe you have given that you would like to grow 10%-15% in this quarter in the CRAMS, pharma CRAMS business. What's the outlook on specialty chem? Because if I understand correctly, we do have a better visibility over there from the client side. And given that, last year, FY 2022, we had a molecule being commercialized, so that's why we saw 50% growth. From here on, what's the visibility that you have in the near term on this business?
Yes. In specialty chemicals, there will not be much growth. As a matter of fact, your understanding is wrong also. Not the volume is not gonna because of the one launching which you have done. That's only a small part of it. The old molecule which lapsed in some countries, and now they have a combination product they have done. They have increased the volumes because of that. The volume growth is mainly because of the original molecule, not because of the launch molecule. The growth potential on that is not much because the one that is launched last year, they will not have any requirement for the next 12-18 months. We can say it's a flat growth.
Understood. Just one clarification was that our employee expenses in this quarter did shoot up quite much compared to, you know, quarter-on-quarter and year-on-year. Is this attributed to the CapEx and we hired additional staff over there, or is it the increments that we've given out?
It's. Yeah, I mean, it's a combination of additional staff and also additional increments due. Combination.
Okay. Understood. Like, as in, since I just wanted to understand that, by the time our new CapEx comes online, we will have some incremental expenses on our below the gross profit line. Is that fair to understand? Like if our-
Incremental expenses and incremental revenue also will happen, no? It's a combination. Without the revenue, there's no expense. Without the expense, there is no revenue. It will happen.
Understood. I meant since by the time the facilities come online, till that time we have-
The preparation, pre-operative expense is always there, no, sir? Because even though the facility will be up and running, say suppose in January, I need to have people to do the validations and checking on those things and then three to four months ahead of time, right? All those pre-operative expense also will come to picture. That will be offset by the revenues we're going to generate later part of the start of the operation.
Understood, that's it from my side.
I don't have an offer right now.
Okay. That's fine. I understand. Thank you. Thank you so much. Thank you.
Thank you. The next question is from the line of Vedika Singh from Monarch Networth Capital. Please go ahead.
Hi, sir. It's Vineet Bala here from Monarch. Sir, just one question. You mentioned that the margins that we'll do on the generic business, the formulations business will be at par with the current plants business. That would include a huge element of profit share, right?
No, you didn't hear me properly. I said the current formulation, the margin, which is 25%, the same thing will be there for the generic business.
Okay. 25% EBITDA margin is what we are assuming for U.S. generic business. Is that right?
The EBITDA margins on the formulations will be around 25% compared to 40% of the brand files business.
Correct. Like overall, most of our CapEx is related to a formulation. As and when, you know, this profit pool from formulation keeps on increasing, won't it be margin dilutive over, say, like four-five years?
What again? I couldn't hear you properly.
Overall, if we are investing significantly on the U.S. generic business, and if this business is going to contribute, say like 25% margin versus, you know, 45% margin on CDMO over the next four-five years, won't our overall margin dilute from our current base right now?
We are not investing on the formulations significantly. We invested only INR 20 million now. No, what he's saying is in four-five years' time, this is 25% and 40%, so the total mix will be less.
There's going to be a dilution.
As you know, you have to go by our track record and things are changing. Even in the brand itself, it can come down, right? If the product mix is such that they are not high value add. We hope so that it will not be that much of a dilution.
Okay. Also, sir, what would be the element of profit share that we have? Because initially, I mean, we were engaging on a profit share basis with Rising Pharma. What would be that element beyond the 25% that we are earning?
Actually, whatever the value that is, coming as a profit share and the sales, both put together, right? The margins will be based on the total put together. It will be 25%.
Okay. Got it. Got it, sir. That's it from my side. Thank you.
Thank you. The next question is from the line of Shiva Kumar, an individual investor. Please go ahead.
Hi. Hello?
Yes, sir.
Yeah.
Just want to know the status of the succession plan. Is it the right forum to raise question about the Suven Life Sciences?
Yeah.
Yeah, sir, we have been into the research for the Alzheimer's for almost more than a decade, but not much breakthrough has been achieved. Just want to know, as part of the research, are we also referring to the Indian medical system like Ayurveda, Siddha for a possible solution, or we still go purely by the Western medical system?
We are going into the central nervous system disorders. That is our target area. We are not deviating out of it. From the beginning, we keep telling it is a zero to one. There is no guarantees in this business. Since 2002-2003, there is no new drugs developed in the CNS area where we are working. It's not only us, it's globally the same scenario. This is a huge unmet medical need. We are working. That is the only capabilities we have. We're not going to Unani or Siddha, and we continue to do this. You have to be very careful that this is a zero to one. There is no in between, either success or a failure. It can take years, two decades, three decades, anything can happen.
This is the caution you have to take when you are investing into this kind of activity.
Okay, sir. Regarding my first question, what is the status of the succession plan, sir?
Thank you. We lost the client, so we'll move to the next question, which is from the line of Ranvir Singh from Sunidhi Securities. Please go ahead.
Yeah. Thanks for the follow-up. Just one more clarification I wanted. In this quarterly result, we see that the gross margin is very similar to your sequential previous quarter in Q3 or even Q2 also we had a similar level of margin. Although in that three quarter the input cost for most of chemicals and basic materials has gone up significantly. We wanted to understand that how we have been able to maintain this gross margin or is it built in our you know revenue contract with our customers. My question was related to gross margin. For last three quarter our gross margin has been you know in a similar level. Despite recent three quarter the input cost has you know gone up significantly for most of you know basic chemicals and the inputs.
How we have been able to maintain this? Is it any escalation clause or anything in our revenue agreement with our client?
No, not the escalation clause. As you know, as I have been telling all the time, these margins can differ from quarter to quarter or sometimes year to year also. These are all the product mix that is available. If what stage of the molecules we are supplying is it early stage? The values will be less, margins will be less. If it's a phase III and phase IV, phase II, phase III and commercial quantities, then the values will be more. It's a product mix effect. As I said, I mean, when the new projects are there, when we know that project prices are going up, we'll actually take those new prices into consideration and quote it.
When once you got the price, I mean, the purchase order, we cannot change it because it's a one-off kind of things unlike a regular product which we sell day in, day out, then we can have it passing on the costs. It has an effect on it, still because of the products which are high margin in this quarter in this year. That's why you see the good profit margin, not because of anything else. We're not passed up. Some of them we have told them when we're quoting, and they have accepted the prices.
Maybe I think it's just a coincidence because in the last three quarters we have 69.2%, 69.5%, 69.7%. That number looks very exactly similar. Going forward also can we expect this kind of?
No. I think that's, it's a very difficult question.
We should have some kind of standard, but we don't, we really don't know. Based on the product mix.
It's based on the product mix itself.
Okay.
It can be better also, but it can also come down. That's why we said EBITDA will be around 40%.
Okay. That clarifies. Thank you.
Thank you.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, sir. Thank you for the follow-up. Can you just give us the numbers on the ANDA filings, total approved commercials and all that?
Yeah. We have filed about 17, nine approved, eight launched, but not all of the eight are really active. That's why you don't see much growth in there. We hope to file another seven-eight during this calendar year in the existing formulation facility. When it comes to the Casper, which is not yet commercialized, the two are already filed waiting for the U.S. FDA approval. 15 products are under development and those phase preparations which will be filed before the end of this fiscal.
Okay. Great. Lastly, sir, a qualitative comment on next six months visibility?
Which one, sir?
Any comment on the next six months visibility on the CRAMS business, which is typically good?
It's going in the similar run rate.
Similar run rate.
Yes, sir.
Okay. Got it. Thank you.
Thank you.
Thank you. The next question is from the line of Nikhil Jain from Galaxy International. Please go ahead.
Yeah. Just some follow-up questions. I just wanted to understand if we are planning to offer the formulation development services also, are we building up an organization or planning for that as of now?
We started as a formulation development division only, then forward integrated into the generic, I mean, ANDA preparations and leveraging the experience we have. We don't need to create any more. We have enough capacity and capability. Only whenever that comes in, we'll take it up happily.
Right. Okay. Just a second question. Any plans or thoughts on biotechnology or oncology at this point of time for the CRAMS site?
No, this CRAMS site, there is no differentiation. Only small molecule, not biotechnology.
Oh, oncology may need some special facility, right? Which, at this point of time we don't have, right?
Oncology need not be biotechnology. There is chemistry. Chemistry can be oncology also. We have also oncology product. We are not doing the final product, but we are doing intermediate for the oncology products already. That is always there.
Okay. Okay, fine. Thank you.
Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question at this time. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you, everyone, for tuning in for this quarter ended March 31st and also for the year ended March 31st results. During these challenging times, so we could do good and with good profit margins and with a good product mix. As I said, the visibility, sir, is very less, and we hope to achieve 10%-15% growth, our normal growth. If something happens positive, that will be good for everyone. Hope things will stay the same, and we get more opportunities to bid on the new projects and the new activity will start with the global pharma, which will increase our bandwidth also, and also the effects of the molecules in the clinical trial. Based on that, our revenues and the will accrue.
With this, I thank each and everyone, and hope to catch up with you during ours.
Thank you. On behalf of Suven Pharmaceuticals Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.