Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar 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 Q2 and H1 FY 2022 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Chairman and Director, Mr. Venkatraman Sunder, Vice President, Corporate Affairs, and Mr. Subba Rao, the CFO, Suven Pharmaceuticals. 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.
Good morning to everyone and seasonal greetings to all the participants. As you could see from the results, we have a good growth in terms of the top line growth. We have a good mainly because of the specialty chemicals higher sales this quarter compared to the, I mean, earlier quarter. As you know, the results are with you, and you can see all the results. There is a pressure in the margins for this quarter.
That's mainly because in addition to the other problems we were facing in terms of the freight rates going up sky-high and non-availability of vessels, added to that there is an increase in the cost of the raw materials and which is evident this time to the 6%-7% of that has gone into the additional cost that has a pain point. The second point is the non-availability of basic raw materials itself is a little bit alarming sometimes because that can stop the manufacturing process itself rather than having a less profit margins when the price of raw material goes up and if it's available.
These are the conditions which we are now going through, and we're not sure when this will change because I don't see anything in sight at this time, at least for the next 3-4 months. Also coming up in the Chinese, already some shutdowns are happening because of the COVID. The holidays will start in January timeframe. That also will affect raw materials pricing and also the availability. Under these circumstances, we are keeping our fingers crossed. One good thing we have for the next 6 months visibility-wise, we have very good order book. If these prices remain at this level, we are certainly keep our margins above 40%, EBITDA margins.
The only worry as I was telling is non-availability, which can stifle the growth. Hope that will not come to this. Far, knock on wood on in that front. I see something may happen because of all these combination of things that is happening with the Chinese shutdowns and the holidays and also the prices spiraling effect into the domestic material also, which is very basic in nature. All these things are playing havoc. At the same time, with the good order book position, at least for the next six months, we are confident that we'll maintain the growth potential of what we have promised earlier. I think it's better for me to answer the individual questions rather than giving a excerpt of things which will give much better clarity to all the listeners.
Over to you.
Should we open with the Q&A session, sir?
Please.
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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, Mr. Venkat Jasti. Thank you for taking the question. First, can you talk little bit on the progress on our formulation business? Because this quarter there is quite a degrowth on that business. For first half also, I think we are quite flattish to single digit growth. How do you see this business going ahead?
Yes. There was. I mean, not only here and in general in the formulations there is a little bit slowness in there. I mean, the third quarter also will remain the same. Fourth quarter onwards, we expect some couple of new products being launched and the growth can come in that fourth quarter. We expect that to happen. In general, not only that, things are a little soft in this quarter with respect to formulations.
All right. Right. Do you think that the bigger picture in our formulation piece would come from the CMO opportunities from the multinational company that you have been talking about for some time now? Or would it be our own product that we would be launching?
See, as of now, it is a very minuscule amount, compared to the total cost. It's less than 10%, I mean, not even 10%. When 4%-5%. It is not a CMO thing. It is only the ANDAs we file and the profit share we generate.
It is based on that business model, but not the CMO yet because we have not done any CMO activity with the multinationals yet. As I was telling last time also, it takes a while before they come to us, the due diligence and all that stuff. Because of this COVID, there is a delay of these two years. They had to start all over again and It will delay the process. The growth we expect, whatever the growth, will be due to the ANDAs we file and the profit shares we generate.
Okay. All right. The whole strategy behind establishing a formulation unit was our own ANDA business and not necessarily the CMO business, right? Is that the right understanding?
Yes. It was never a CMO business. What I was telling is the lifecycle management of the drugs that which includes the API part of the business also. As For the multinationals when their product goes in generic, both formulations and what do you call the API itself. That's what the CMO part is. The other part, I mean, you are right, this is only mainly the ANDA-based activity. We are in process for starting our activity.
Right. Secondly, sir, I see that you have received some INR 33 crore as a dividend from Suven Pharma Inc., U.S. subsidiary. Can you point out the source of these funds? Is it that Rising has given some dividends to Suven Pharma Inc., or is it some other income that Suven has got?
No, no. This is a dividend received by the Suven Pharma Inc., which in turn has been passed on to Suven Pharma India. That's why.
Right. Yeah, that is what I was saying. I want to know the source. How Suven Pharma Inc., U.S. has earned this money?
It got a dividend from Rising Pharma Holdings.
Okay. It got dividend from Rising Pharma.
Yeah. For our investment in the Rising Pharma.
Okay. Right. Should we expect this to continue? Like, has Rising made any, like, formal announcement that they'll continue to-
You know, after two and a half years, we got the first dividend, and we hope that will continue every year at least once.
Okay. Got it. Thank you so much. I'll get back in the queue for further questions.
Thank you.
Thank you. The next question is from the line of Sudarshan Padmanabhan from JM Financial. Please go ahead.
Yeah. Thank you for taking my question, and congrats on, you know, good set of numbers and, you know, pretty challenging conditions. Sir, my question is to understand, I mean, I think we talked about transportation issues and raw material prices. If you break the business, I mean, there is campaigns and there is contracts. If you can talk a bit about, you know, because you have talked about this 14%-15% top line growth. You know, when the raw material prices go up, I'm sure that there is part of contracts and there's part of the business where you can pass it through. Given that you've already done about 18% in the first half, I mean, do we believe that we should earn, you know, do the similar kind of a run rate in the second half?
Second is, you know, when we talked about raw material pressure, I mean, I understand that usually the pass-through can also happen with a lead and lag. Would we see some kind of a pass-through happening, say, in the third quarter, and therefore, to some extent, the margins on the gross side specifically would kind of inch up?
The raw material prices pass-through is not going to happen immediately for us, unlike other business models, but we have long duration projects. That means by the time you get the business and you supply, it may take 6-9 months and all that stuff. These are all small volume products. Most of the time we cannot be able to pass on the things unless it is a substantial increase. If it's more than 10% only, we will go there and we'll share the differential in cost. Otherwise, we will not be able to pass on the costs. That's why you see there's some pressure this quarter.
Only whenever there is a new order comes in, then the new orders, which we will certainly include the new pricing, which they understand. When once the old orders, I mean, these are all 100 kilos, 200 kilos, 300 kilos, whatever it may be, on the plant side of the business, is very difficult for us to, after placing the order, purchase order, to get the pass on the costs unless there is a huge increase above 10%, then only we will be allowed to go there. As for the run rate is concerned, yes, we'll have the run rate. As I was telling you in the opening remarks that, based on the order book, yes, we'll have the same run rate.
What we have for first two quarters, same thing will be there for the next two quarters together.
Yes, sir. We should end up doing about 18%-20% as compared to what we had initially expected about 12%-15%.
What is that again?
It will be around, if we go by the guide, 18%.
Yeah, yeah.
18% approximately.
Yes.
Sure. Sir, my second question is on the capacity available, and you know, we are going ahead with this, with CapEx coming in, and I think that is, you know, very much required. I mean, both the, you know, CapEx that is required for growth as well as CapEx that is required for modernizing. At this point of time, I mean, if you take, say, for example, from the INR 310 crore run rate to say an INR 350 crore run rate, would we be having capacity? Or, you know, what is the kind of, you know, thought process? I mean, until the big capacity comes, how are we going to manage capacities and growth?
I mean, it's depending on. See, we campaign with active devices, you know. Sometimes, you may not have a balancing equipment to be there, to increase the capacity, not necessarily the whole train, because we don't know what the number of reactors will be required for that. In the new CapEx we have planned, over that, one is a replacement CapEx of INR 200 crore in 2028, replacing old blocks with the new block. There will be some additional capacity will be created, and with the modernization, as you know, compared to the 30-year-old plant. The other one is a change, I mean, location change for the R&D center. That's not a capacity utilization anyway.
Pashamylaram is the only place where we are investing about INR 150 crore for a new block. That will be for capacity enhancement. That will take another 2 years before it comes into the picture.
Until then, for the 15% growth, we have capacity by debottlenecking or whichever, you know, way we go.
Yes, yes. Always. That is always been there. I mean, we use the replacement CapEx of about INR 50-60 crores minimum every year. That's a mix and match things like what we do. Put up one reactor there and additional of this thing, all those things. These are being a very interesting. I mean, the capacity will never be a problem because we'll be having enough. Time is given for us if we need to wrap up. The business has to be there, and the wrapping up is much easier.
One final question before I wrap up. I mean, on the, you know, product going commercial, I mean, I understand that, you know, we are expecting another molecule, you know, of specialty coming in later this year or, you know, probably next year, and probably one or two more candidates on the non-specialty side. I mean, how are we in terms of on course of maintaining that? That should drive the growth, right? I mean, I think of 5%-20%-24%.
Yeah, as of now, I mean, the third specialty chemical already started this year, our revenue generation. That is why you see increase in the specialty chemical business also a little bit. The next one will be sometime in 2022 end or something like that. As far as the chem side of the business, the innovator side or the pharma side, we don't have any indication as of now when it's going to be having any commercialized opportunities that's coming, where there are few molecules in the phase III. We will know only maybe 4-6 months ahead of time. As of now, there is no indication.
Thanks a lot for answering.
Thanks.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two per participant. Should you have any follow-up, may we request you to rejoin the queue. The next question is from the line of Gokul Maheshwari from Awriga Capital. Please go ahead.
Yeah, thank you for the opportunity. My question is on the specialty chem business. Initially at the start of the year, you had guided for 5%-10% sales growth with the expectation that you would add a molecule in sometime in 2022 for an opportunity. Is this that there has been some preponement of commercialization in specialty chem, which has led to such strong growth? In that context, could you just sort of give an indication of the broader trends for the growth for this business? Thank you.
This is not preponement of any commercialization. We don't have anything. As Mr. Jasti was explaining, this is going to be only in 2022, and we may get maybe one product subject to success in the trials, field trials, whatever they're doing. Right now, it's a natural growth. Yes, you know, I mean, compared to previous year, same quarter, it was INR 68 crores. This time, you know, it is about almost doubled to INR 137 crores. Overall, for the six months, you know, it was INR 161 crores last year too. This year, about INR 222 crores. Possibly, you know, we may have a little bit of more than 5% growth there, but then we need to wait and see overall how it is going to happen for the next six months.
Okay. Clearly it's gonna be better than that 5%-10% growth. Should we be ending more like the 25%-30% kind of a growth for the full year in this particular segment?
Hello. You're talking about, the specialty chemicals growth?
Yes. Yes, that's right.
Yeah. I mean,
Because first half year already 35.
Yeah. When we thought of it's 5%-10% growth. What happens is something you are missing here is because this is day in, day out supplies. Sometimes because of these delays in the shipments or things can come into one quarter, and then the next quarter. I mean, what happens is in June quarter, if we would not supply two containers and they will spill over into the next quarter because of the non-availability of the vessels, those come into the next quarter. It was not the case before like that. Some aberrations will be there. Yes. 5%-10%, it will go up to maybe 10%-12% to 15% also. The things are, I mean, as I said, natural growth is there.
These are also what do you call, cyclical in nature, as you know, in the specialty chemicals. Sometimes one quarter you may not have anything. Anything means very small amounts compared to other quarters. The growth is, yes, about 10% on average.
Oh, okay, great. My second question is, I just wanted to reconfirm that we had around five intermediary products which were in the phase III,
Yes.
which perhaps you've indicated in the previous question that there has not been any progress in that, and we will come to know only 4-6 months prior to their commercial launches. Is that correct?
Yes.
Any additions to this number in phase III?
Not yet. Nothing.
Not yet. Okay, great, sir. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Venkat from Three Sigma Financials. Please go ahead.
Thanks for the opportunity and good set of numbers. Thank you. You know, one question I have is, when I look at the raw material cost, compared to, you know, several years, you know, it is not completely out of range. When I look at the operational profit, that is where we are taking a hit. Can you kindly explain?
Yes. I mean, raw material cost, as I said, 6%-7%, but the operational cost also it is there because of the raw material cost increases and the natural cost increases, the salaries and the utilities and the environmental treatment, all these things will add up. When you have the same products doing same year-on-year out, and they will remain at the same pace, but at the same time, all these costs will go up. But the new product will be able to charge the additional things, but for the existing products, we will not be able to add that cost. Yes, it's a combination of not only the raw material cost but also the manufacturing expenses, especially.
Thank you.
The third thing is, this half year, we have a huge percentage of, sorry, 1.5% on total sales is the only logistics cost increase. These are all playing a role, not in one lot, but in general, because the main thing is the raw material, but all other things also gone up.
Is this raw material cost going up? You know, this is not related to Suven, but in general, is this across the board for companies across the world, or is it specific to India? I mean, looking at it more from a competitive advantage to the country.
No, no. It is everybody, not India. Anything which we are importing from China and, especially the early stage raw materials and solvents, that is being affected not only in India but all over the world.
Okay. Thank you very much, sir. Thanks.
Thank you. The next question is from the line of Darshit Shah from Nirvana Capital. Please go ahead.
Hi, sir. Thanks for taking my questions, and congratulations for a good set of numbers, particularly during this time. So my question pertains to the five molecules which we said are in phase III, and we haven't heard anything yet. Sir, can you tell us is like any of these molecules phase III results are out or is it due anytime soon, in your knowledge?
No, not yet. That's what I was telling. It takes 4-6 months ahead of time, we'll know about it. Since we have not received any communication from our customers that should we ready for, because they may say a month before they read out and all that stuff, the opportunity may come if the results are good, so you prepare for yourself. That kind of a communication comes, and then only we will be able to guide anybody else and ourselves internally. So far we've not heard anything from that side, so we're waiting for that.
Okay. Sir, on one more thing on that. Out of these five, how many of them the trials have completed, if you can tell us?
If the trials are completed, I will know by now. They are still going on.
The trials for all of them are being completed, phase III?
No, no. They are still going on.
They're still going on. Okay. Got it. Sir, on Rising Pharma, sir, this year has been really good. I mean, we have got INR 33 crore dividend as well. Even if you look at the profitability front, first half, it's up 100% year-on-year from around INR 20 crore to INR 40 crore. Sir, any update on that? How is it performing as what you expected, or is it better than what you initially thought?
Based on the numbers we have, we are saying we are doing good. Inside I cannot tell. Whatever we get out of it, that means that the profit share or the dividends, that's what it comes to us. In general, they are doing good, but also there will be ups and downs quarter on quarter because of the launches taking place in one quarter may give you a better profitability compared to the one.
Uh, sir, we request you to please stay connected. Participants, please stay connected while we reconnect the management. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.
Yes. As I was telling that, for the Rising, the things are doing good and those which is obtained from the dividend received and also the profit share as the caller has rightly mentioned. There will also be, you have to understand that quarter-on-quarter it cannot be the same. As the year-on-year, there is a good growth potential. That is our promise.
Great, sir. Thank you so much and all the best.
Thank you.
Thank you. The next question is from the line of Abdul Kader Puranwala from Elara Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. Just one clarification on your opening remarks where you mentioned that the order book is quite good, I mean, six months good visibility. You know, any further comments on how the order book would look within the CDMO pharma space, that is within the clinics or, you know, within the commercialization side? You know, are we receiving much more inquiries on the clinic side as well with respect to the molecule addition?
See, when I said the order book is good, the inquiries is not leading to an order book right away, you know. The order book does not contain the inquiries. The inquiries comes in and it matures into a purchase order, then only it books into the order book. All segments are doing. The traction is good and based on the next 6 or 5 months, indication, revenue growth that we will have the same ramp up as the first 2 quarters put together. That is a good part of it. The only thing is fulfilling those commitments and because of the raw materials shortages we are worried. Just a cautionary thing we are telling. As of now, nothing like that has happened.
The raw material cost has increased, which we may not be able to pass on to the existing products. Even with that increase, if they stay at this level, we can maintain the EBITDA margins at these levels.
Sure, sir. The next question is on the dividend income what we have registered in the standalone entity. I feel I assume you over here this was on the basis of our income in FY 2021, what we have generated from the JV. That roughly amounts to nearly 50%-65% of the payout what we had booked in FY 2021. Are we also seeing that you know, this sort of a steady state that payout would be maintained ahead also when we say about having this one-time income you know, recurring every year in terms of the dividend coming from the JV?
As far as the re-dividend is concerned, I mean, this is the first time we received the dividend because after the maturation, I mean, what you call, the sales growth and the expenses are taken care of and all. As you could see quarter-over-quarter, you are seeing the profit share which we are getting from the things, and we hope that this will continue. This one time for the dividend thing will be once in a year naturally, like what we do in our business also, once a year dividend. Otherwise the quarter-over-quarter, but you cannot expect the same results for every quarter, but the year-on-year basis it has to be there is an increment of as you could see from now itself, where from the numbers itself.
Because this dividend is based on the previous year profitability of INR 38 crore of whatever, you know, we have got. You know, we are getting almost, you know, on the six months basis, you know, almost 80% is given in the form of dividend. Whether the same distribution ratio will be followed up or not, time will only tell. You know, we don't know how it is going to be. Based on their growth, based on their requirement of cash, and then we will know. Being a first time, you know, we reported as it is, we will not know how it is going to be in future. We expect it to be there on the more or less similar lines. That is our hope.
Sure, sir. Just, you know, couple of booking questions, you know, from here. One is on the tax rate, you know, it was substantially higher this quarter. Would it be fair to assume that it would be because of this, dividend income which would be taxed at a very high rate as compared to the normal operations? Or,
Yes.
How would
Yes.
All right. Okay. So on the second side, I think in this first half we also commercialized the Vizag plant, but the resulting, you know, increase in depreciation is still not that very much visible. Have you fully capitalized and would the depreciation, you know, on the P&L increase from here on?
No. Vizag plant is capitalized long back. Only the part of the next block is partially capitalized. Now it's fully capitalized.
Okay.
You know, the old capital CapEx program which we have indicated earlier, we are more or less it is that. In a sense it is completed. That's been capitalized. You see the increase in depreciation is basically because of that. One of the additional block also has come into picture for capitalization this year.
Sure, sir. Got it. Thank you so much.
Thank you. A reminder to the participants, please limit your questions to two per participant. The next question is from the line of Saravanan from Unifi Capital. Please go ahead.
Thanks for taking my question. Couple of questions. See, you had mentioned that there's a good order book for the next six months, and, you also called out, shortages in raw material availability. Do we have enough, inventory as well as, supply agreements for the next six months order book?
Supply agreements, no. Nobody is giving a supply agreement. I want to write for a year, six months or three months. That used to be the case. Now they are saying month to month basis or order to order basis. The prices are so dynamic, they are not giving us. Even for the local raw materials, very basic raw materials, we are not able to get the, but at the same time, you cannot put six months raw material storage because it's very difficult to store all that kind of huge volumes of those things. We are hoping that this will be available, but also it is very dynamic.
Right now, we're only giving a cautionary statement that, not only the raw material prices have gone up, but also the availability may pose a risk of, the manufacturing being, affected.
Overall, inventory holding is also, there is an increase.
Got it, sir. Got it. Last year, in the annual conference call, you had mentioned that you had not filed any new ANDAs in FY 2021. What about first half? Has there been any new ANDAs filed?
Yeah, we have filed about 5.
Okay. In the first half itself. That's good to know. The research projects inquiries, in your assessment, has it gone up to the pre-COVID stage or still there is some catch-up to do? I'm just talking about the inquiries.
Yes, still have CapEx, has to do.
Okay.
Not up to the pre-COVID level yet.
Okay. Got it. I'll join back the queue.
Thank you. The next question is from the line of Manoj Garg from White Oak YR Capital. Please go ahead.
Yeah. Very good afternoon, and thank you very much for giving us the opportunity. Congratulations, Mr. Venkat Jasti and the team, for the good set of numbers in a challenging environment. While I understand, sir, and you have made a comment that the endeavor we have is obviously to move up the value chain. Currently we are manufacturing N minus five, N minus six. We would like to go up maybe on N minus one or formulation at some point of time. You also have indicated that given because of COVID, obviously either the customer can't visit to you or you can't go and meet the customers. Now with international travels opening, are you seeing at least the willingness of customers to come and visit our plant?
As a result, probably at some point of time, maybe over the next 12-24 months, we start seeing the traction happening in terms of, you know, maybe API supply or the formulation supply.
As of now, I don't see the customers coming directly, and they are only doing those things that are necessary for their ongoing projects. The what do you call, the assessments or the audits or whatever you can call it remotely. For any new things, still there is a gap. I think unless they come and see it physically, especially because the people who deal with us directly, the R&D-based activity and the supply chain-based activity versus the fully commercialized life cycle management, they are a complete different people, even though it's the same company. They may have the knowledge based on their database, but at the same time, they would like to come and see and then only go to the next level.
This COVID has derailed our thought process, and as I said, the people are not coming in yet. That is a little bit negative, but hopefully in 2022 they start coming, and we hope so that we'll be able to catch up with them and hope that things will move in the right direction. Right now, yes, it is a standstill.
Okay. Got it. That's very clear. Just to understand as a follow-on on this, sir. Like, once the customer visit and if they like the facility and all everything, then typically how much time it will take, that prospect to convert into the actual business?
Depending on the type of the molecule and all that stuff, a minimum of 2 years and up to 3.5 years.
Okay. Between 2 to 3 and 3.5 years.
Right.
Got it. Just the last question from my side, sir. While you have stopped giving in terms of the number of projects in the pipeline, but maybe qualitatively, if someone has to understand in terms of the incremental additions in the pipeline, right from pre-clinical to phase I, phase II, phase III, how are you seeing those incremental projects coming in? Is it in line with our expectations, better than our expectations? If some qualitative colors you can provide there.
I mean, the more than incremental traction on the existing products and the success in the existing products at the customer level is much better. If you are purely saying on incremental numbers, they are not as I was telling earlier caller that it's not like the previous, I mean, pre-COVID levels yet. Good thing for us is existing projects is yielding a better traction in addition to the, I would say around 75% of the pre-COVID levels are the inquiries value additions.
Got it. That's very helpful, sir. Thank you very much for answering all the questions, and I wish you all the best.
Thanks a lot, Manoj.
Thank you. The next question is from the line of Ranbir Singh from Sunidhi Securities. Please go ahead.
Thanks for taking my question, and congratulations for good numbers. Just a few clarity. On CapEx front, you said INR 200 crore replacement CapEx is planned for FY 2022?
We planned FY 2022 with that we have spent only around INR 20 crore right now. More or less it will be going into the first quarter also because it requires the civil construction also. With regard to the COVID restrictions and the number of people we have to put in, all that stuff delayed and kept it but not that much compared to others.
INR 200 crore is out of INR 600 crore we planned for a replacement CapEx. Is it right?
Yes.
Okay.
The second 200 crores is also moving the site from the Jeedimetla to outside the ring road. That's also. It's mainly for the new infrastructure for the R&D center that does not give you any, what you call, capacities. That's also replacement. The actual capacity increase is going to be in the Pashamylaram with the additional block of 150 crores which is yet to be n started.
Growth CapEx would be INR 150 crore out of INR 600 crore.
Yes.
Okay. Secondly, on a specialty chemical business, just, you mentioned 5% growth in FY 2022, and that can go up to 10%-12%.
Yes, sir.
Okay. On intermediate products, that the products we have currently under trials, any timeline if you could give when the revenue may flow?
No. Unless I get the information from the customer where they are looking at it, that I was telling earlier also, I don't have any indication as of now. Usually, we know 4-6 months ahead of time, especially when it goes into the next level, especially phase III to pre-launch. So far we have not got any indication.
Okay, fine. What was the royalty amount from Taro in this quarter?
It's very minuscule. It is minuscule. I mean, it's
Most negligible.
Negligible.
Okay. INR 33 crore we received in first half. What are other amount and out of INR 31 crore?
The other income includes, there is a kind of investment income, little bit of investment income, right? Apart from the dividends.
INR 33.2 crores is the dividend.
Dividend. It is also other.
Other.
That is included in share of profits from associates, right?
No, no. Share of profit from associate is different actually. There, you know, here the other income what we show, which is purely like INR 44.1 crore, 11 crore, is that includes about INR 33 crore of the dividend. The rest of the amount probably our FDs, just mutual funds and, you know, the interest earning investments. That's what it is. Whereas share of associate profit is shown below the line actually. If you really see that in the P&L account, that is different. For six months.
Okay.
It is about INR 44 crore actually.
Earlier you guided for a specialty in CDMO of CRAMS, the pharma CDMO business, that 10%-12% that we'll stay with this for FY 2022, the growth in CDMO of pharma business?
Yes, sir.
Okay, that's it from my side. Thank you.
Thank you. Thank you.
Thank you.
A reminder to the participants, please limit your questions to two per participant. Should you have any follow-up, may we request you to rejoin the queue. The next question is from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead.
Yeah, hi. Thanks for taking my question. Sir, is my voice audible?
Yes.
I had two questions. I just wanted to know from our raw material mix perspective, how much of our raw material comes from China today?
Close to 37% of our total imports.
About, sorry, 37 percent, is it?
Yeah.
Okay. Say over the next couple of years, are we taking any initiatives to reduce this share of the mix, either by de-risking or by backward integrating further?
We are not into raw material making. Backward integration happens only if it is the intermediate stage of the business. But when it's raw materials, the basic raw materials, we're not going to take up that part of the things. It is even though the cost increases. I mean, even though we import 37% of the raw material out of total thing, some of the local raw materials also they are sky high, like fourfold. You cannot just blame China alone. Taking that cue, we are having a better profit margin. The locals also selling into the exports, and that is increasing the prices. Moreover, we are worried some shortages also may come. These are the things.
As far as raw material is concerned, backward integration will not be happening. The intermediates, if we import any for the small area beginning of the project, if we take some intermediates, it goes to the next step, we always do the backward integration, but not the raw material.
Okay. Got it, sir. This is questions from my end, yeah. Thank you.
Thank you. The next question is from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead.
Yeah, hi. Good afternoon, sir, and thanks for taking my question. Just a couple of clarifications. You mentioned 150 basis points increase in freight cost. That's so that's the main driver of the increase in other expenses and manufacturing costs year on year? I mean, like, I'm just trying to understand, like last year-
That's one of them. The COVID-related attributes a little bit. In fact, second thing is the environmental cost has gone up, sir. That's also about 100 basis points. Our total 12.5% increase, actually 2.3% of whatever it is. This is like, you know, it's shared in these three different formats.
Environmental cost increases, I mean, like, could you just explain that?
Because we have zero liquid discharge facilities for that, the operational cost has gone up, so that one increased. We also have in Vizag a third party to the environmental thing, where we have a new contract signed by the association, which has gone up a lot. Because there was no increase in the last four, five years, so the increase has come into picture. All these accumulated near 100 basis points of environmental cost increase in total.
Got it. No, because what I was just trying to also look at is like, if I look at your manufacturing plus other expenses, in the first quarter of this year, it was around INR 49 crore, which has gone to almost INR 60 crore in the second quarter. As a percentage of sales also that has gone up from 18.5% to almost 20%. Just this increase is mainly related, I mean, even on a QOQ basis, these are the main factors which have driven the increase.
Yes, sir.
Okay, sir. Great. Thank you. My second question was again, just, so you are still, I mean, the expectation on the pharma CDMO side is for a 10%-15% growth.
That's absolutely. Yes, yes.
If I got you correct, now you're saying that as a company as a whole, we should be somewhere in the 15%-18% range for the full year in terms of revenue.
Yes. Yes. Yes, sir.
Okay, sir. Great. Thank you so much, sir.
Thanks.
Thank you. The next question is from the line of Cyndrella Thomas Carvalho from Centrum Broking. Please go ahead.
Thanks for the opportunity. Congratulations, sir, on great set of numbers, and Happy Diwali to all.
Thank you.
Sir.
Yes.
Yeah, I just want to understand from you, I mean, given the raw material volatility, inflation that we are seeing, and the quarter if I look at, we have a higher contribution from the specialty side, and still we are maintaining very good set of margins. Can you help us understand what are the key drivers where we are seeing a better product mix? In which segment? Is it the core pharma, which is again giving us this kind of better product mix? Can you help us understand this in a little more details on a segment-wide basis?
Yeah. I mean, see, the product mix will be part and parcel of this profitability. Naturally, even though the growth has been there in the specialty chemicals, at the same time, we have a better product mix with respect to the, I mean, profitability-wise, with this the CRAMS side of the business also. At the same time, I mean, if you really dissect this last quarter and this quarter, the PAT is same, if you take out the one-time event inflow into the system. Otherwise, because of the growth on the top line, we should have got another 5%-6% more.
All these things affected the raw material cost and the environmental cost and the operational costs are increased. That's why you would still maintain it, but the profitability, I mean, product mix is always a part and parcel of the growth potential. It keeps changing, and that's why you don't see that every quarter will be the same trend. Year on year, yes, the trend will be a positive side.
This is very helpful, sir. Sir, if any sense that we have in terms of the entire raw material scenario from the basic commodity side, how do you see this going ahead? Do you see any ease off or do you see any kind of trend that we can, you know, put a handle on? I don't know. I mean, it's very difficult at this point in time. That's why I'm asking your opinion in terms of how do you see it from a industry perspective and for our company.
Industry and our company, the perspective is the same. We don't know where we are heading in a sense. Right now, we hope that this will stay as it is. It is a little bit increases. Our worry is the non-availability itself, especially not necessarily from China, especially in India, very basic raw materials like methanol, like caustic soda, and all these kind of things, and which can derail our production operations, no? Things can happen. Right now we are crossing our fingers and we hope with the 6%-7% increase in the raw material cost, we'll be able to maintain the what do you call the profitability.
Yeah, there is a very outside chance, not only for us, all other companies, so things can affect adversely for a few days. Which, that's what I'm talking about the industry perspective. Because so far nothing has that sort of happened, but people are giving indications saying that I may not be able to. I was telling the other caller also that we used to have at least a minimum of three months supply agreements, if not one year or six months. They don't want to give even for the basic raw material. They don't want to give. They're saying month-on-month, and sometimes they are saying even, maybe, delivery based. Every time there's changes that are happening. One side is the increase in the prices.
Second side is the non-availability of very, very basic raw materials for each and every industry that get affected in the pharma.
Right. I think we have to live with it for some more time. Sir, I mean, if I can squeeze one more. I mean, has there anything moved in terms of our core CRAMS products from phase II to phase III? Any movement that you can share with us or any changes that you're seeing? How is the growth outlook, I understand.
No, actually not much. Not much movement this quarter.
Okay. Sir, any growth outlook that you can share of over 12-24 months, from a pharma perspective, core pharma perspective?
Yeah, I mean, I can give you, as you know, I will give you two years, three years from now. I can only give you six months, which I have already mentioned, that the traction is good and we are going to maintain the run rate as of the first six months, and it will be similar. Total around 18% growth compared to last year. We hope to maintain that 15% growth, but only time will tell.
Okay. Thank you so much, sir. All the very best.
Thank you.
Thank you. The next question is from the line of Rahul from Multi-Act. Please go ahead.
Yeah, thank you. On specialty chemicals, I wanted to confirm a few things. Firstly, we haven't launched any new molecule in this year, right? In H1?
No.
Okay. The entire growth has been entirely organic. This growth that we have seen in H1, has this been led by volume growth or there is an element of price increase also included here?
No. There is nothing like a new product coming in, going because we don't have our own product. These are all obviously mix and match. Except for specialty chemicals, all the other things are mix and match. These are all the value-added products and the volume growth in the specialty chemicals. It's a mix of both.
No. Sir, I was asking specifically on the specialty chemical segment itself. In that, strong growth that we have seen in H1 of this year, has this been on the back of volume growth or we have also taken price increases considering raw material costs are also?
No, volume growth only, not price increase. There is no change in the pricings.
Okay. In terms of the launch that we expect in 2022, that is calendar year 2022 or financial year 2022?
Calendar.
Calendar year.
Calendar.
Okay. Sir, beyond that, any other visibility that we have, like future launches beyond the one that is expected in calendar?
No. I'm not even saying launches. This is a possibility, okay? Because still things are going off the feeds. If everything goes well, that's what they were saying, you know, end 2022, calendar rather. It can be maybe 3 months ahead or maybe 6 months delay. We don't know. This is a hope that we have. Certainly in very 3-4 months ahead, we will not be able to pinpoint. This is only indication.
Got it. Sir, any similar anticipation in the pharma segment?
The same thing. Only successful the molecule at the clinical trials will give us the change from stage to stage. That means phase I to phase II, phase II to phase III. So far, as I was telling earlier also, there is not. The big growth comes in only when it moves from the phase III to pre-launch quantities. So far no indication has been received, so we cannot tell.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Keshav from RakSan Investors. Please go ahead.
Hi. Good afternoon, sir. Thanks a lot for taking my question. Sir, in one of the calls, you had mentioned that whatever the new additions that happen to the NCE CDMO pipeline happen at phase I. Is that the correct understanding?
Not necessarily. Sometimes they come at phase II also. After phase II it will not come. I mean, the new additions will not happen. Only the ones that are in the phase II. Because phase I is not on the patients. So there can be some additional requirement. They come in, people can come to the new addition, new customer additions in the phase II stage, where it starts with the patients. Once the patient is started, 99% of the time they don't change the sources other than the two or three or four of them that are there existing because the impurity profile will affect the side effects of the patients. So usually, early stage will get in phase II, sometimes phase I and most.
Sometimes you also get them based on the molecules in phase II also. 90% in phase I.
Sir, in addition to what you mentioned, is it also working with big pharma also a factor in this? Sir, why I ask this is because one of our peers in the NCE API CDMO space, who works predominantly with small and mid-sized players, has added a few APIs as well as intermediates to the very late-stage pipeline without going through the entire cycle. Wanted to understand if this is also a factor that we are working with the bigger players as compared to yeah.
Yeah, API means there's already a mature product, right? That is, that's a different matter. When you're starting early in the clinical trial phase, usually it is phase I. Sometimes you can get in phase III, but not in phase II, I mean, but not in phase III usually never happens.
Sure, sir. A recent report by IQVIA on CNS claimed that this decade is poised to be for CNS what the past two have been for oncology. Would love to have your point of view on what factors can lead to such growth and what gray areas are being explored now which weren't earlier to sort of facilitate our road towards potential future successes.
No, you know, we will not be able to comment on that. We don't have information about those in proper manner. The one what they talk about is the one actually which is still in the review by FDA. We are still waiting for the final information from them. Based on the public information, what they can say more.
Sir, I was not asking particularly for Suven Life. I was just trying to gauge what your generalistic view on the CNS space is. Like, we are seeing a lot of late stage early stage disease-modifying therapies as compared to what we were seeing earlier. Like, are we seeing an increase in more of biomarkers like we did in oncology and that led to a lot of growth in that space? Any generalistic viewpoint on the market itself?
No, I mean, this all depends on the areas when you're talking about the CNS versus the oncology. We don't have much knowledge about the oncology because we only do the CNS. CNS also, there are small molecules and there are new biomarkers that have been developed even for this one and also the disease-modifying activity. There's a number of programs are going on, so it's very difficult for us to tell at this time which one to concentrate or whatever.
I do have one question. Are you talking about our CRAMS offering in pharmaceutical or you're talking about our CNS portfolio of drugs, the overall market outlook, what you're trying to say?
Sir, the CNS portfolio, not the CRAMS.
Yeah. Correct. Yeah. There, you know, still it is too far-fetched to give right now.
Sure, sir. Sure. Thanks a lot.
Thank you.
Thank you. The next question is from the line of M. S. Rajasekhar, an individual investor. Please go ahead.
No. My questions have been answered. Thank you.
Thank you. The next question is from the line of Vaidyanathan BT, an individual investor. Please go ahead.
Hi. Good afternoon to you, sir. Am I allowed to ask you a question on the progress of 3031 molecule, please?
Yes.
Can you kindly update us on the timeframe where the results or the final data will be delivered from this molecule?
If everything goes well, it will be the end of 2022.
Oh.
Every time there is some or other problem with the enrollment because of the COVID situation, not necessarily from our site point of view, but also from the customer point of view. I mean, the patient point of view also. I mean, we should have the results by now and, unfortunately this is delayed by 18 months. Now the new target date is end 2022, December timeframe.
Is there any, like we had for the previous molecule, 75, 512, this one, the extended course which was given to the patients, is there anything like this also in this particular molecule, please?
That will happen when the study is closed and then, depending on the requests we get, then we'll take a call on that timeframe.
I think, you know, this being a short-term study, we don't foresee any such kind of extension actually in relation to 502. 502, you know, we had to go and approach FDA for additional, for those patients who have completed six months and then to continue the drug on a compassionate basis where the data is not collected. Such things are not there in 3031.
Thank you, sir. Thank you very much indeed. That was all my queries.
Thank you.
Have a nice time. Thanks.
The next question is from the line of Agraj Shah from Tata AIA Life. Please go ahead.
Thanks for taking the question and congratulations on the good set of numbers. The question is on the balance sheet side, we've seen a sharp increase in receivables from INR 61 crores to INR 64 crores.
Mr. Shah.
I'm sorry, please.
Sir, if you can speak closer to the handset, please. Your voice is not clearly audible.
Sure. Is this better?
Your voice is breaking.
Is this better?
Mr. Shah, your voice is breaking up. May we request you to move to a better reception area?
Better now?
Uh, sir, may we request you to rejoin the queue, please?
Sure, I'll rejoin. Sure.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Thank you for the follow-up. Just a data-keeping question, on, like, can you tell me how many ANDAs you have filed, how many commercial, how many have approved, and how many are under development?
Total filed are 15, approved are 7, launched are 7. Additional filing is 5, has happened.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Darshit Shah from Nirvana Capital. Please go ahead.
Yeah. Thanks for the follow-up, sir. I just wanna know of these five phase III molecules, just to understand for the investor community, I mean, what could be the opportunity size? I mean, can you let us know in which therapeutic areas broadly are those present?
See, opportunity is, you cannot tell based on the sales figure. It used to be like that. Maybe if it's $1 billion sales, they expect at the maturity, and you'll get for an API about 8%-6%, and then the intermediate is this much percent. Now the price of the formulation is so high you cannot correlate between those things. These are all includes, it could be, what do you call? RA and pain and oncology.
Yeah.
There are for some.
Sometimes in the indications also, it will not be very.
Yeah. Also, some of them are being even tried while they are doing this. Even COVID-related repurposing also being tried, which we do not know until it is published to us.
Yeah.
I mean, it was known to us.
Okay. Got it, sir. There can be a COVID kind of opportunity as well if they repurpose it, and probably that's being successfully approved by FDA and all.
Yes.
Okay. Cool, sir. Good. Thank you.
Thank you. The next question is from the line of Agraj Shah from Tata AIA Life. Please go ahead. Mr. Shah, please proceed with your question. Mr. Shah, we are unable to hear you. As there is no response from the current participant, we move to the next question from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead.
This is Anirudh Shetty here. Thanks for taking my follow-up question. I just wanna understand if you take a look at, you know, your company from a more medium- to long-term kind of time horizon, and given, you know, the backdrop that we're seeing is there's more and more business coming from this entire China Plus One theme and, you know, global customers are looking to de-risk. India is well-positioned. Can there be an upside possibility to our, you know, 15% top-line growth guidance that we give, you know, if one takes, say, a more 3- to 5-year kind of time horizon?
China Plus One does not apply to Suven Pharma because we are not into generics and we're not into the APIs primarily. We are into the innovation-based supply chain starting at phase I, phase II, phase III. There's not much change in that part, so there will not be any effect on that for us, China Plus One. The growth 10%-15% then go to 30%-40% in 1 year itself if couple of molecules in the pipeline goes to the next level, like phase II to launch stage. Then the growth will certainly double. Right now, based on the existing base only, we're giving 10%-15% growth. Anything can happen in a six months' time. The same growth can be doubled at that time for that year.
Things can happen like that, but the China Plus One is not really a big factor for Suven Pharma.
Just wanted to clarify. The business that we are in, like you mentioned, the phase I to III innovation-based models, how big would China be in this particular category of ours?
Not much. I mean, because, see, the other thing you need to understand is, if we get a project, in India, Suven is the only one that gets it. Not that the innovator will give to two or three people in India. Similarly, they go to China, they get only one, Europe one, like that. This is already taken care of. Out of that, not much is happening. The raw material side, API side, yes. They want to do other than China. But whatever, in the innovation supply chain, I think they are okay. I think whatever the players, three or four players, they are there, that they are maintaining it. Based on that, I don't expect anything to come to us.
Got it, sir. Thank you for taking my question.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments. Over to you, sir.
Thank you and all for tuning in. As you know, I mean, we are in a good position. At the same time, it's a lot of problems we are facing unlike before. In spite of that, we hope to maintain this run rate and the profitability and hope to see you all in the coming conference calls. Thank you. Thank you for your patience.
Thank you. Ladies and gentlemen, on behalf of Suven Pharmaceuticals Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.