Q3 23/24

Feb 14, 2024

Summary

Q3 revenue grew 25% YoY and nine-month EBITDA rose to ₹123.2 crore. Jammu capacity, Sharon integration and export growth underpin expansion, while API price pass-through and commissioning ramp-up remain key variables.

Ladies and gentlemen, good day and welcome to the Innova Captab Limited Q3 FY 2024 earnings conference call hosted by JM Financial. 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 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. Anay Charke from JM Financial. Thank you, and over to you, sir. Thank you. Good afternoon, everyone, and welcome to the first digital conference call of Innova Captab Limited. Joining us today on the call are Mr. Vinay Lohariwala, Managing Director, Mr. Gaurav Srivastava, Chief Financial Officer, Mr. Lokesh Bhasin, Deputy Chief Financial Officer. I would like to now hand over call to Mr. Vinay Lohariwala for his opening remarks. Thank you, and over to you, sir. Thank you, everyone. Good morning, everyone, and thank you for joining our first-ever earnings conference call to discuss the operational and financial performance for Q3 and nine months FY 2024. On this call, we are joined by Mr. Gaurav Srivastava, CFO, Mr. Lokesh Bhasin, Deputy CFO, and SGA, our investor relations advisor. I hope everyone has had an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchange and on our company's website. This quarter has been monumental for the company due to its listing on the stock exchange. We would like to thank all our shareholders and other market participants for their support. As some of you may be hearing us for the first time today, let me give you a brief overview of our company, and then Mr. Gaurav will take you through the operational and financial performance. About Innova Captab. Innova Captab is an integrated pharmaceutical company in India with a presence across the pharmaceutical value chain, including R&D, manufacturing, drug distribution, and marketing and export. Our journey started in 2006 with a plant in Baddi, Himachal Pradesh. In 2010, we established a new strategic facility for cephalosporin products. Both our plants cater to domestic CDMO customers, and with our quality products and efficient delivery, we keep on adding new CDMO customers. In 2013, with the receipt of our international GMP certificate, we ventured into export markets, and in 2015, we also established Univentis Medicare Limited, through which our own brand marketing operations are undertaken. This new business area helps us to diversify and cater the base for our future growth. Fueled by increased growth, we keep on expanding our manufacturing capability. We started a new general block in 2017 and further expanded it in 2021. We are setting up a new manufacturing facility in Dambra. Our company caters to the top 14 out of 50 Indian pharmaceutical companies. We have license to manufacture products through four state-of-art manufacturing facilities in Baddi, Himachal Pradesh, Dehradun, Uttarakhand, and Taloja. Manufacturing at Taloja, Maharashtra, while maintaining WHO GMP, EU GMP, UK MHRA, and other major registrations with these facilities. With the support of our world-class manufacturing facility and a reliable supply value chain, we are continuously striving to maintain highly efficient operations. The foundation of our company is our in-house R&D, which helps to focus on building complex product portfolio and address the, and retain the customer. Our company ranks third among the CDMO peers in terms of formulation manufacturing capacity in India. The company operates in four major business areas. One, CDMO, contract development and manufacturing. Our comprehensive CDMO formulation capability allows us to offer our customer multiple dosage forms, including oral solids, oral liquids, dry syrup, ointments, and injectables. The increased use of outsourcing by pharmaceutical companies has created opportunities to build more strategic relationships with customers. As on nine months FY 2024, we have more than 180 CDMO customers. Revenue contribute from this business is nearly 60%. Number two, domestic branded generic. This business consists of development, manufacturing, and distribution of generic formulation products, which are marketed and distributed in India under our own brand, named through our online and offline channels. Our domestic branded generic products are sold through our pan-India network of distribution stocks and pharmacies. Revenue contribute for this business is nearly 18%. International branded generic. Our international branded generic products business is focused on export to emerging markets while expanding our business to regulated markets as well, like United Kingdom and Canada. We had exported our branded generic to more than 20 countries, and we have 189 active registrations, out of which 16 are subject to renewal with international opportunities and more than 200 fresh registration applications in process with international authorities. We have a strong pipeline of our 41 process product portfolios for export. Revenue contribute for this business is nearly 12%. Sharon Bio-Medicine Limited. We acquired Sharon on June 30, 2023 through CIRP process. The entity has strong CDMO formulation manufacturing capability, including API manufacturing and CRO. With a specific focus on exports, it cater to both domestic as well as international markets, including the metro market like Canada, U.K., Europe, Australia, Korea, Vietnam, and America. Revenue contribute from this business is nearly 11%. Future plan. We are setting up a greenfield plant in Jammu with a project cost of approximately INR 350 million. The new project is proposed to have separate oral, penicillin, penem, and BFS block to manufacture tablet, capsule, dry powder injectable, dry syrup, and BFS and respiratory liquid products. The facility is proposed to benefit from New Central Sector Scheme for Industrial Development of Jammu & Kashmir. We expect to commence operation by FY 2025. We keep on aiming to expand our existing business by enhancing our product portfolio with new products and complex doses, bringing new customer on board, and expanding our order share with existing customers. With continued focus on R&D, we are establishing a new R&D center in Panchkula, Haryana also. We are also looking to expand our business to regulated market like the U.K., Canada by expanding our product range to meet their requirement. Also, the acquisition of Sharon, we aim to cater long-term strategies with additional product offering while supplementing our business value chain. Our current capacity utilization for nine months FY 2024 is in range of 45%-50%, and we will be operating at the optimum level in the coming years. To propel sustainable growth, the company is steaming new growth prospects and heading forward for the value-added products. The Indian pharmaceutical companies are poised to grow significantly in mid to long term as domestic and global manufacturers are looking for a sustainable supplier like us. I now request Mr. Gaurav Srivastava to take you through the operational and financial performance for the Q3 and nine months FY 2024. Over to you, Gaurav Srivastava. Thank you. Good afternoon, everyone. Q3 and nine-month FY 2024 has been a strong quarter for us. All of our key products have been in healthy demand. In terms of Q3 FY 2024 highlights, the revenue from operations stood at INR 302.5 million, with a growth of about 25% on a year-on-year basis. Business mix was as follows: CDMO contributed about 55% for this quarter. Domestic branded generics contributed 17%. International branded generics came in at 12%, and the balance 15% was contributed by Sharon. Overall exports for the quarter stood at 24% as compared to 10% in the quarter Q3 FY 2023. EBITDA came in at INR 47 million with a growth of 27% on a year-on-year basis. EBITDA margins stood at 15.5% for Q3. Profit after tax for this quarter came in at INR 25 million with a growth of 28% on a year-on-year basis. This includes an impact of INR 1.6 million of finance cost on accounting of CCPS which was included in the quarter. On a nine-month FY 2024 business, the revenue from operations came in at INR 818.7 million with a growth of 19.4% on a year-on-year basis. Business mix came in as follows: CDMO contributed 59% for the nine-month period. Domestic branded generics came in at 18%. International branded generics contributed 12%. The balance 11% came in from Sharon. Overall exports for this period stood at 21% as compared to 9% in Q3 FY 2023. EBITDA for the nine months came in at INR 123.2 million as against INR 93.4 million same period last year. EBITDA margins for nine months FY 2024 came in at 15%. Tax for nine months FY 2024 came in at INR 65.6 million with a growth of 29.4% on a year-on-year basis. Our total net proceeds of our IPO of INR 293.1 million, we have successfully deployed INR 231 million, which is 100% of our FY 2024 deployment target as of date. With this, I would like to conclude the presentation and open the floor for any question and answers that you may have. Sure. 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Jagreet Singh from Shade Capital. Please go ahead. Yes, sir, thanks for the opportunity. My first question related to the CDMO business. In the CDMO business, revenues were down from INR 687 million to INR 680 million in FY 2023. What is this number in the 9 months of CDMO business in absolute terms? Sir, could you please repeat the question? I am not sure we followed the last bit of it. Yes. CDMO business falls down compared to FY 2022 to FY 2023, INR 687 million to INR 680 million. What are the absolute numbers for 9 months in the CDMO business? Hello? The CDMO revenue number for the nine months this financial year was INR 484 million. Four hundred? INR 484.2 crores. Okay. Sir, why this business is going down? Any particular reason? The reason for that, if you understand the way our business operates. For us, we work with our customers on an open costing basis, and the revenues are the. The cost of the APIs directly influences the revenue itself. So with the declining API prices, our revenues also can take a downward intensity. However, our margins remain protected, and this is why if you see from a margins perspective, we continue to grow in spite of a decline on the revenue side. Okay. So what is the expectation for this CDMO business in the next one or 2 years? Yeah. So I think you are looking at our graphics representation of CDMO business that is down from 74% to 59%. The reason for that also that the Sharon number is being added to our top-line number. So more or less, let me have the exact numbers, last 9 months and this 9 months. As the reason was explained by Gaurav. So last year to this year, the number in CDMO is flat. The reason that has already explained by Gaurav. Now if you look at our manufacturing facility, we have the three block in Baddi region. So one block is like a 2006 block, and then the other cephalosporin block we have established in 2010. Then we have the general block that we established in 2017 and expanded in 2021. So if we see from our capacity utilization, out of these three blocks, two blocks, that is, the cephalosporin, our 2006 original unit one block is at a higher capacity utilization. So from the capacity point of view, we have a spare capacity in our general block, but we have a capacity constraint in cephalosporin. So that we are expanding in Jammu. So most of our growth will come from Jammu. One reason is that we have no capacity headroom in the cephalosporin. So that once we establish cephalosporin again in Jammu, then the revenue will start coming from there. And there more three blocks will be there, like a beta lactam penem and the respules and general facility. So numbers will also flow from there. Okay, sir. And sir, in the current, excluding Jammu and Kashmir, the current capacity utilization is 45%-50%, as you told in the presentation. Yes. If we exclude the Jammu facility, what kind of revenue we can do from this at the peak utilization? Yeah. From that- For any- Yeah. For any manufacturing facility like this, 45%-50% is a blended capacity utilization. If you see in the days when we have a cephalosporin facility like dry syrup or the vial powder injection, capacity utilization at 70%-75%. In general block, we have 40%. So blended is 45%-50%. Now, we estimate that a level of 70%-75% is a good volume utilization. Looking at the seasonal variation, in a peak season, we can reach up to 90%-95%, and in the lean season, it could be 60%. So we have the headroom in our general block for 20%-25% capacity still to be fulfilled. Okay. Sir, in the Sharon Bio-Medicine, we did around INR 192 crore in the FY 2023. At the peak utilization, what kind of revenue we can do from the Sharon and what kind of margins we can achieve from the Sharon Bio-Medicine? Yeah. If you look at the Sharon margin profile, we have the 45%-50% gross conversion margin. Being an IBC, before our acquisition, they make 14%-15% of EBITDA only. But after acquisition, we have a lot of synergy, and we see a margin improvement there also. If you see INR 192 crore, that is approximately capacity utilization of 50%. So we have the headroom there also for another INR 100 crore. We can say, to reach at a 70%-75% level. Then we can say by improving our debottlenecking few of the sections, the capacity can also be enhanced. Okay, sir. Sir, are we planning any CapEx also in the Sharon Bio-Medicine in the next two, three years? Not immediate future, but once we reach to, let's say, 10%-15% capacity utilization will increase, then we'll definitely look into the debottlenecking or could be a few section-wide expansion. Like changing one machine or two machines or improving the existing. Last question related to the debt. In the IPO, we raised some money for the debt payment. What kind of interest rate savings we can see in the FY 2025? Gaurav will explain to you that. Sorry, could you repeat your question, please? We raised money in the IPO for the debt repayment. After the debt repayment full year basis in FY 2025 next year, what kind of interest saving we should be ahead? If you look at it, we are looking at currently, we should be about on a full year basis should be about somewhere in the range of INR 18 crores-INR 20 crores is roughly what you should look at in terms of interest savings coming through for the next year basis. If you look at currently, in terms of post the fund raise, all our debt has been repaid. The only debt we carry on our books, which is related to the Jammu project, that is INR 235 crore debt which we have related to that project. And most of that is getting capitalized as of now. And even both in once our project commences, we will start getting the concession interest subsidy from the government. So it is 8.5% coupon rate debt. But we have a 6% interest subvention coming in too. Effectively at a cost of 2.5% for us. And that is the only debt that will continue on our books going forward. Okay. We will start the Jammu plant in the next fiscal year, FY 2025. In the FY 2026, what will be the interest cost? Roughly any idea in the FY 2026? I think FY 2026 is a bit far out. We would prefer not to give out too much of a guidance on that. Okay. Thank you very much, sir. Thank you. Thank you. Before we take the next question, a reminder to participants that you may press star and one to join the question queue. The next question is from the line of Dheeraj from Whiteoak. Please go ahead. Yeah. So congratulations, Vinayji and Gaurav for the listing, success listing. My question is on slide number 6, where you are saying the 9 months revenue EBITDA and the second one on mix. So in this CDMO, like you explained, because of pass through of the cost, the revenue is showing a decline of about missing the 9 months. From a EBITDA point of view or let's say from a volume activity point of view, what would have been the growth in that business? Hello, can you hear me? Yes. You are asking about the volume growth. No, sir. We are saying 5% to earlier question you explained, 5% will grow CDMO because cost pass through came there, right? Right. That is because of cost pass through. The volume growth- Right gross profit growth, EBITDA growth, so I have right in that business. What is that growth? Right. Okay. Dheeraj, one second. I request you to speak a little closer to the mic. We can't hear you very clearly. Vinayji, did you get the question or do you want me to repeat? Can you repeat again, please? Vinayji, if you see the CDMO business, like you're explaining nine months, it is down by 5% in revenue. It is mainly to do with the cost pass through. Because you get taxes and other cycles have come down. What are, let's say, contribution profit in that business or volume growth in that business? If you can give some measure of volume activity in that business. Right. Or gross profit or EBITDA, whatever measure you have readily with you, if you can give, please. It is okay otherwise later. If you do not have it right now then That data is basically not available with me in hand. Okay. I will take it later. We can issue that offline. Sure. We can take it from Gaurav. Gaurav, excluding Sharon, EBITDA growth is like 17%-18% for 9 months. I think just to your previous question, if you want to look, a good proxy for that is also because of standalone numbers. There you would look at it, they've got about 7.5% growth, which is on an EBITDA level, from a 9-month basis. So in standalone business, obviously has the pure CDMO business being the client share of that business. That's a good proxy for the previous question that you were looking at. Similarly on the EBITDA also it will give you a similar view. Gotcha. Okay, understood. This Jammu plant if you can just explain, where are we in the construction phase? When do you expect it to commercialize and revenue, which quarter currently? In Jammu, like we have the four block that includes cephalosporin, beta lactam, penem and general block. Our two block, that is cephalosporin and general block is, civil is almost completed. Machines are being installed, and we are in a finishing phase. We expect that by the March end, we will be ready for validation to start with for these two blocks. The next two, that beta lactam and penem block is just 2 months behind that. In Q1, May or June, that physical completion could be there. We expect to start in H1 or late in the Q1 for the commercial production. Okay. So in the September quarter will be the first full quarter after the full facility is ready, right? Is that fair to say? Yes. Yeah. So the full capacity will utilize in the September quarter. Yeah. September quarter, okay. How do you expect the ramp up, sir? Sorry, just to clarify before maybe answer that question. In terms of the P&L, you will see the full quarter revenues coming in only from October, November, December, waiting quarter. Okay. The ramp up will start from the Q3. Q3, okay. But how do you expect the ramp up, like in the first six months or expect to go towards revenue run rate or what utilization level? Yeah. The benefit here is that, like we earlier also said, the GST benefits. We have 12% GST incentive on approximately, say, sale of INR 650 crore. We anticipate a good early ramp up due to this fiscal benefit, and we pass few of the percentage point margin to our customer as well. We anticipate that in Q3 we will have a good ramp up or early start of the revenue. Okay. Understood. Thank you, sir. That is my question. Thank you. The next question is from the line of Shubh Jain from Emerge Capital. Please go ahead. Shubh Jain from Emerge Capital, please go ahead with the question. Thank you for the opportunity. Just wanted to understand what would be the peak revenue potential for the Jammu facility. Yeah. Conventionally, if you see that we used to make 5 to 6 times of our invested gross block. So gross block ratio, EPS ratio is approximately 5 to 6 times. So here we have invested INR 350 crores. So the top revenue potential, if we calculate from that data point, it becomes like INR 1,800 crore top revenues from that end. Okay. And sir, what is the CapEx for nine months ending December? Nine months CapEx. We will give you this number. Shubh, the numbers are readily available with us. We will have it second hour. Did you ask about the Jammu? Sir, the CapEx number. CapEx number for Jammu? Yes. No, not Jammu. Yes, for the Yeah. For the whole company as a whole. Yeah. So it would be approximately, say, INR 250 crores. The exact number we can provide you, but approximately I think it should be INR 250. Okay. And so what So it's like a two twenty. Yes. Okay. INR 250 crores, right? INR 250 crores. So my number is safe. Right. Okay. And sir, what all dosages do we have in the Jammu facility? Pardon me. Come again. What all dosages types we have in the Jammu? Yeah. Facility. Yes. So in dosage form, if you see, we have the four blocks, or we can say it's a four factory. So in cephalosporin, we will have tablet, dry syrup, dry powder injection. In beta lactam, we will have capsule, tablet, dry syrup, and dry powder injection. In penem, we will have dry syrup, tablet, and dry powder injection. So it's a complete solution for all these three category. Then in general category, we will have four Rommelag machines. So that will produce water for injection and respules products and large volume parenteral, like 100 ml IVs for ofloxacin, metronidazole, ciprofloxacin. Then we have the dry powder injectable facility in general block also. So these are the dosage form that will enhance our existing capability and capacity also. Okay. And sir, one last question. Have you started reaching out to potential customers for the Jammu facility? Yeah. We have already in discussion with our existing customers, and we are getting a very good response from most of the customers that as once we start, we can have the business with them. Okay, sir. Thank you, sir. Thank you. Thank you. The next question is from Ankit Shah from Canara Robeco. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. Sir, firstly on the Jammu and Kashmir facility, can you give some sense on what kind of fixed cost would come as and when this facility is commercialized, and any EBITDA level would be making any kind of losses, on what would be the impact, some sense on that? So, like earlier, as I commented on the Whiteoak question that the revenue will be ramped up in Q3, and Q2 will be the quarter where the expense will be there, but the revenue should not be on that level. So we estimate that approximately, including the depreciation also. So our soft running cost will be approximately, say INR 2 crore, and then depreciation will be there. So we will try that we get a minimum eight in our calendar, but in two, three, we will be in positive operating margin. Right. You think for Q2, for the full quarter, there will be around INR 2 crore kind of cost? Per month. Like INR 6 crore. Yeah. Oh, okay. Got it. Second part is that this 5x-6x peak asset turn, by when can you reach this kind of asset turn when peak revenues be reached from the plant? So generally, that takes five years to reach to that level. It is like we have heard from 2006 that the number starts building with the two reasons. Reason one is that we keep on adding the customer in different markets. Like in export markets, we keep on adding the countries and the registration. In domestic point of view, we keep adding the customer, and then we keep adding the product. Now the story is like, we already have most of the major customers with us. That is not the issue. The issue is that we need to add the product from the general facility with our existing customers. Right. Once we keep adding the product, that has a geometrical effect on our revenue. Say, in first year, we add the 50 products, then in year two, we add the 100 products. The existing product will be there and added products keep on growing, and then the revenue ramps up. Got it, sir. My second question is related to your CDMO performance. You mentioned that revenue growth is a bit muted because of the cost pass-through. Is the cost pass-through now done? If I look at the standalone numbers, the gross margin is improving, but revenue growth has been muted year-over-year. Would the gross margins be stabilized at these levels or that cost pass-through element is still yet to play out completely? This is a mixed impact, and we expect that gross margins will continue to remain in this could move by percentage point on the downward trend also. The pass-through is mostly been done. But again, depending on how pricing keeps moving going forward, that will continue to impact our revenues going forward as well. Does that make sense? Right. Basically, you're saying now that improvement that has happened, that should stabilize now, and depending on the pricing, it will either move up or down. Yes. If you look at my last year numbers, in terms of the gross margins and then the current year numbers, within that range only the plus minus percentage point that will be impacted per product mix, which impacts our margins. From a gross perspective margin significantly has changed. Or pass-through perspective margin significantly has changed over there. Right. Got it, sir. Yeah, those were my questions. Thank you so much. Thank you. Participants who wish to ask a question, please press star and one on your touchtone telephone. The next question is from Rashmi Gosal from Nightray CP Research. Please go ahead. Thanks for the opportunity, sir. Pardon me if the question is repetitive because I joined the call little later. Sir, existing plants which you have now including Jammu, last year they were operating at 40%-50% utilization. What is the current utilization for this year, sir? If you look at slide 16 of the investor presentation, you will see the utilizations have been given for the 9-month period. They remain in similar ranges across for most of the facilities. But in terms of ointments and dry powder injection, you will see we are running close to the peak. Liquid oral is already peaked out significantly. Sharon plants are obviously new additions to us. There is an improvement over last year's numbers. And we continue to work on improving these numbers as we are working on getting in more of business which was previously not available to them while they were in IBC. Okay. Thanks for that, sir. And referring to slide 17 also in the same presentation, you have highlighted some potential at optimum utilization. These two existing plants, once they are at optimum utilization or full utilization, what kind of potential revenue can be generated, and by when can we get this? One second. Let me see once. Yeah. As I may have also explained that one, let me repeat that. We have the three facilities in Baddi. One is of 2006 and one is of 2010. Then we have the general block of 2017, and we expanded that facility in 2021. The earlier facility of 2010, there we have the utilization at a higher level. If you see like dry powder injectable in our table and even the dry syrup. Cefoperazone dry syrups and dry powder injection are at a peak. But where it is the general drug price or tablet category, we have an ample spare capacity that recently expanded in 2021. If you see that the number can ramp up from, say, 45%-50% overall utilization to 70%-75% as a peak utilization. That we have shown in the slide number 17. If you see the revenue number from Baddi, that come around INR 1,000 crores. We have filled the room of INR 300, INR 400 crore revenue ramping Baddi facility. Okay. I was going through last quarter, two quarters are earned, it is around INR 290, INR 300 crores, which gives an annualized figure of INR 1,200 crores. From INR 1,200 crores, if you go to optimum full utilization, can we go to a revenue of around INR 1,650, INR 1,700 crores from these two plants, Baddi and Jammu? Yes, you can say. At each level, we can easily reach to that level. Okay. At the inflation of 65%-70%, we can get that number. Okay. Next question, sir, you said if you take 5 to 6 asset turn, you can go to INR 1,700 crore-INR 1,800 crore of revenue in Jammu over a period of 5 years. First year will be second half of FY 2025. I just want to understand, FY 2026 will be the full first year running operation. What kind of revenue you are expecting in the Jammu plant in FY 2026? As I said, 5 times asset turn make the INR 1,800 crore approximately value. Initial, we can say 15%-20% utilization. That number could be easily achieved in FY 2026. Okay. That is helpful, sir. The last question, sir, is we were at operating margins of around 12% in FY 2023. Now this year, we have moved around 14%-15%. Will this be the steady state or do we see Jammu contributing more or less, or how do you see the operating margins in FY 2025 and FY 2026 going forward? Because your utilization will also go up in the existing two plants. Sure. If you see our margin evolution, there are two things at play. One is, we have had Sharon, which is coming into the business. Sharon as a controller, this is a higher gross margin business, and therefore that is improving our margin profile because it will focus more on the regulated markets. That is one lever which is helping us grow our margins. Similarly, Jammu will also help us grow our margins because Jammu, we have a GST benefit which is coming through to us. We have a 12% GST reimbursement coming in there, which means even if 50% of it is retained onto our P&L, that will increase the margin profile for both business. As the mix of the Jammu keeps increasing, the margin will continue to move on positively. Okay. So the blended margins in FY 2026, once we operate in Jammu and a better utilization in the existing plants, will it be above 15% that the current operating forward margin, or how do you see that? That would be the target we would want to move it. Okay. That is helpful, sir. That is it from my side. Thank you so much. Thank you. Thank you. The next question is from the line of Aditya Sen from RoboCapital. Please go ahead. Aditya Sen from RoboCapital, you may go ahead with your question. Hi. Am I audible now? I was on mute. Yes, you are audible. In your initial comment, you mentioned that the Jammu branch in the Jammu facility is going to get some benefit from the government. What exactly is this benefit? The 12% GST that we just talked about? There are two benefits that are available to us in Jammu. One is, essentially the way the notification is of the environment is. Of our total investment in Jammu, we are doing about roughly INR 350 crore project, out of which there is a qualified plant and machinery definition which roughly amounts to about INR 250 crores. Five times of that is the total GST benefit that is available to us. Sorry, three times that. That is INR 750 crores, which is available to us over a period of 10 years, so INR 75 crore each year. In order to achieve INR 75 crores, I have to do INR 75 crores divided by 12%, so about INR 625 crores of domestic turnover, which I get in the form of reimbursement from the government. Within the first three years, carry forward is allowed. Thereafter, it is not allowed. Our target is to achieve that threshold of revenue within three years of starting operations within Jammu. That reimbursement is the benefit we were talking about. When we said that 50% of that, we feel confident to be able to retain onto our P&L. Some of it we may want to pass to our customers to help with the initial ramp-up and attracting new business. The other benefit that I mentioned previously was, we have a 6% interest cost subvention available there. We have a INR 235 crore loan, which is being used to fund the Jammu project. The coupon rate on that loan is about 8.5%. We get 6% interest subvention. So 2.5% is the effective cost for us on that loan. Okay. Two and a half is the effective cost. All right. All right, sir. Thank you. That was my question. Thank you. Thank you. The next question is from Ritesh Dutt from Bourbon Capital. Please go ahead. Hi, thank you for taking my question. I want to understand the thought process behind the Jammu plant in a bit more detail. As I understand, there are four blocks, right? One block is common, cefoperazone, and there are three new blocks. Two questions there. Number one, is your cefoperazone utilization in the existing Baddi plant already reaching at saturation levels? Is that the reason you are putting up a new block there? Second, for these three new blocks, do we have visibility on sales in terms of defined customer contracts, et cetera? Because these are entirely new kinds of chemistry, new areas for us. Yeah. So you rightly identified that only we are repeating the cefoperazone block from our existing capability and the three new blocks, the new block is identified where we currently do not have any capability and capacity to manufacture all these products. Yes, cefoperazone, if you see, we are at a peak utilization other than capsules. We are not putting the cefoperazone capsule facility there in the Jammu. We are extending only the three dosage forms, that is, tablets, dry powder injection, and vials. So there our utilization is at 75%, 80% or more than that, even in few like 90%. So that's the reason that we are repeating cefoperazone block. And then three new blocks. If you see the three new blocks, they are the similar products and we are entering into the BFS category of the products as well. We already cover 14 out of the top 15 pharmaceutical companies of India. We have that established relationship with the customer and we have the tracking also. If you see our historical number, in 2017 when we put our general facility, that originally we put the general facility in 2006. Then when we come out with the general block with the added dosage form of liquid oral. We ramped up the sale in the 2 years' time. In 2019, we come out with approximately INR 200 crore sales from this new general block. We have already experienced that once we put the new facility, new dosage form with the existing established relationship with our customers, we get a good response because of our good infrastructure, up-to-date infrastructure, quality compliance infrastructure. We ramped up the sales. Got it. And sir, have you signed any trial quantities yet? Or are you planning to sign once two blocks are active in March? And how much time will customer approvals and other stuff take? Yeah All kinds of approvals before commercial quantities? Yeah. So, as we have already have the DSIR approved R&D center. Cefoperazone section is like we already have the established formulation product in our existing block. So that can be activated through the tech transfer route, and we can easily ramp up the commercial production for cefoperazone. In the other dosage forms, we have already established the R&D stability and the product development. That is already over. We have developed approximately 25, 30 products in that category, like benzetanile or fenamore in general product or respules products. So we have already developed that product and established our stability. So once the block is ready, we will start immediately the commercial production in that category also. Understood. Next part is the customer approval. So that takes 2-3 months time. Once we start the commercial production, they audit our facility, and once the audit is being done, they share the report and then the business can be started. Got it. Also for these three new facilities, right, as these are new facilities with new chemistry, right, and new products, can the asset turns and margin profile be different from the existing 5-6x and 12%-15% kind of margin range? So we estimated that the blended will be like the pain and the GST will be the anode. Got it. Last question on competition. I want to understand when these pharma companies decide to do more outsourcing and they have multiple options to choose, how exactly does Innova differentiate from other competitors? That's the question. Yeah. If you see the pharmaceutical contract manufacturing conventionally was a fragmented landscape. There are many small players. We have also started our journey early 2016, the same category. But with the burden of quality compliance and increasing the cost of plant and operation, a good player or you can say more organized or the revenue is INR 500 crore plus, INR 400 crore plus revenue player emerged in the market. There are five, six players who have emerged from all these small-scale players. There is a big push from the government as well. Like recently, the government has revised the Schedule M that is a good manufacturing practice regulation. So now it is at par with the EU GMP standard. On one side, three years back, the government came with a regulation that the marketing company will be equally responsible for the product quality. These are the key factors for consolidating the market from the well-fragmented industry to the large players. All the large players will benefit from these issues. But within the large players central side, other players in your league, when a company decides to outsource, how does it decide between an Innova or let's say, Akums or any other player? So say, if somebody would like to outsource one product, they come out to all their CDMO players. One is the availability of product, then the availability of the dossier, that is the technical data, and then of course the price. Based on that, they take the action as to whom they would like to go. Got it. Thanks. I will come back. Thank you. The next question is from the line of Jenil Shah from JM Financial. Please go ahead. Yeah. Hi, thanks for the opportunity. My first question is on cephalosporin. So how much does cephalosporin contribute to our portfolio, and how much incremental peak revenues can Jammu offer over here? Currently, we can say approximately 22% is the revenue for the cephalosporin. As I say, we have the one dry powder injectable line, and we are putting two more lines in Jammu. Our facilities, we have the approval from all ROW countries like Tanzania, Ethiopia, and we are now able to even offer our products for domestic figure product. By putting all these two lines, we expect a good ramp-up there in cephalosporin. Our fair estimation is the INR 300 crore or INR 400 crore revenue could easily be achieved in cephalosporin in a time span of, say, three to four years. Got it. How is our current order book looking like, and what kind of visibility do we have in our domestic CDMO segment? Pardon, come again. How is the order book looking like? What kind of visibility? Yeah do we have for the domestic CDMO segment? Generally, we have the confirmed order book for, say, one and a half months or two months max. We have a yearly visibility that the companies generally share yearly plans with us. Based on that plan, they negotiate based on the current API price. They close the order, and generally, our order book is approximately INR 140-150 crores, one and a half month. We are trending at about INR 70 crores revenue in the year and fourth quarter. That is this order book I am telling is their own. Say, in IPL, we do IPL plus U.S., we do INR 90 crores. Our order book stands at INR 150 crores approx. Okay. On Sharon, how is our integration going, and have we started observing any synergistic benefits on the API side? So yeah. If you see in formulation and API both are getting improvement after our integration. We have the common customer as well in formulation. In API also, majorly the API business is based on the export, and there also we have the improvement. Okay. Just one on capital allocation. We have done Sharon acquisition, we are expanding in Jammu. So how are we managing management bandwidth, and what is our capital allocation strategy over the next 2, 3 years? Mitrik, in terms of let me take the easy one first. In terms of capital allocation. See, as of now, for the next 2, 3 years, we do not have a plan for any major CapEx or expansion apart from Jammu. We have maintained that Sharon and Jammu remain a priority for us, and we want to double down on this in terms of getting them scaled up and running on autopilot over the next 18 months. That is how we are looking at it. Thereafter, we will look at further other growth strategies, whether it is through acquisition route or through new plants setting something up. In terms of management bandwidth, I think we are anyways looking to strengthen our management structure, but we do not see any large gap either small, middle management hires that we are looking at doing. Which is part and parcel of the course. We also anyways have invested a very strong team through Sharon, which was already running as an independent entity. The existing business in UML is being run separately by its own management team. So there also we are pretty much on track. Key drivers for us right now is to look at how we can bring together synergies across the group and bring some operating synergies at a corporate level to optimize the growth and scale. Fair enough. Just one last bookkeeping question. Can you call out the one-off expenses probably related to acquisition and IPO that will be there in this particular business? In terms of specific one-off item services, the amount relates to the CCPS. Like I mentioned, it is about INR 1.6 crore in this quarter and about INR 8.5 crore run of nine-month figures. That is related to the CCPS. The INR 1.6 crores is within finance cost and in terms of INR 8.5 crores, the split is I think INR 6 crores is sitting in finance cost, the rest is in other expenses. Okay. This will be nothing. Going forward, none of this would be there obviously because the CCPS has been averted within the new quarters. Okay. Got it. Okay. Thank you so much. Thank you. Thank you. The next question is from Shubh Jain from Emerge Capital. Please go ahead. Shubh, what will be our product mix over the next three years, split between CDMO domestic, international, and challenge? More or less, we see the healthy growth in all of our four verticals at the same pace. Because we will start export business from Jammu as well. We feel like the mix will be the same. There could be the 2%, 3%, 4% change, like the 60% CDMO could come down to 50% or 62%. But more or less the range should remain the same. Okay. As every business is growing on pace and the growth rate we also expect the same. Jammu of course will be on top of it. Yeah. Okay. And, sir, what will be your strategy for branded and domestic and international branded generics business? Domestic. Sorry, could you just repeat that question, please? Yeah, sir. What will be your strategy for the branded generics business? Univentis business. That is our domestic branded generic business you are asking about? Yes. Yeah. This year we will have this business approximately, say INR 200 crores and we expect the same growth rate in the future also. Okay. Thank you, sir. Yeah. Thank you very much. Due to time constraints, we will have to take that as the last question. I would now like to hand the conference back to the management team for closing comments. Thank you everyone for joining us in the earning call. We appreciate your time and showing interest in our company. Thank you JM Financial team for hosting the earning call. In case of any queries, you can get in touch with us or SGA, our investor relation advisor. We look forward to meeting all of you over the next call. Thank you. Thank you once again. Thank you very much. On behalf of JM Financial, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your-