Good day, and welcome to the Q4 FY 22 earnings conference call of Laurus Labs, hosted by Antique Stock Broking. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, Steven. Good morning, and a warm welcome to everyone to Laurus' Q4 FY 2022 results conference call. We thank the management for giving us the opportunity to host this call. Today, we have with us Dr. Satyanarayana Chava, Founder and CEO, Mr. V.V. Ravi Kumar, Executive Director and CFO, and Mr. Vivek Kumar from the investor relations team. I would like to hand the call over to Dr. Satya for his opening comments. Thank you, and over to you, sir.
Thank you for joining us for our Q4 and full year FY 2022 results conference call. I hope and wish everyone and their family members, colleagues and friends are keeping safe and healthy during these challenging times. We are pleased to have this opportunity to update you on our progress and answer your questions. During the last quarter, the industry faced some interim turbulence on the raw materials front and also availability and cost of solvents. Now, with the recent geopolitical conflicts and re-emergence of COVID cases in China and elsewhere are posing new challenges. The disruptions in the supply chain and logistics has further increased. We are trying to minimize any disruption to our commitments to customers by expanding our critical supplier base. We are also tracking all of this and would stay agile and force course correction as we execute our commitments.
The overall FY 2022 operationally has been fairly resilient, where we have stabilized on our sales and profitability was maintained closer to 30% despite headwinds in our ARV API business. We also believe that it was an important year where we witnessed, invested significantly in capacity creation, strengthen our R&D capabilities, built new partnerships in CDMO, and steadily delivered on diversification of revenues along with minimal supply chain impact. This was despite a lot of uncertainty and disruption in the business environment. During the year, we also successfully forayed into disruptive CAR T technology by way of investing in ImmunoACT for a substantial minority stake. This investment should significantly help in bringing innovative and more affordable medicine in this region. We continue to fortify our core to bring more resilience in our business operations to deliver long-term sustainable growth and enhance strategic customer value proposition in the coming years.
We remain affirmative on our aspirational sales target of $1 billion in FY 2023, and this will be supported by several approvals anticipated and good progress we made in our multi-site capacity expansion across all divisions, including CDMO. Moving on to our financial results for full year FY 2022, we achieved INR 4,936 crores with a growth of 3%. Whereas Q4, we achieved INR 1,425 crores against INR 1,412 crores in the corresponding quarter. Sequentially, we have substantially improved on our revenue numbers across major business verticals as guided in our Q3 call. To begin, I would like to share key updates on our formulation business. The formulation division reported revenues of INR 1,880 crores in FY 2022 with 13% growth, whereas INR 491 crores for the quarter with an increase of 14%.
The contribution from this division has improved during FY 2022 to 38% when compared to 35% in the previous financial year. Coming to LMIC ARV business, we started witnessing gradual stabilization in the demand from various multilateral agencies versus our previous quarter performance, which was impacted due to stocking at various channels. Dolutegravir-based regimen continues to remain preferred antiretroviral treatment, and believe its use will also increase rapidly in second line as well as pediatric treatments as a new standard of care. During quarter four, we received final approval for Lopinavir-Ritonavir combination from the US FDA, and we have launched that product recently. Additionally, we are awaiting few more products approvals, which should drive growth in the coming quarters.
Laurus is fully integrated player in ARV formulations, and we do believe we have fair ability to weather any pricing challenges in the coming quarters. Happy to share that Laurus has signed and will be part of MPP license for Pfizer's oral COVID drug Paxlovid, which will increase the broad access in LMIC markets. Coming to the developed markets, we are observing stable market share for our products. We are not seeing any pricing pressure here. We continue to leverage our front-end presence in the U.S. market for the new product launches. We have filed one product during the quarter, and a total of four ANDAs were filed during FY 2022. Our overall filing numbers have improved well versus FY 2021, and we expect filing pace to pick up during the current financial year. We have received three approvals during the quarter, and total five approvals in FY 2022.
Cumulatively, we have a total of 31 ANDAs filed. Out of these, we have a total of 11 final approvals and 11 tentative approvals so far. In Canada, we have 11 products approvals, of which we have launched five products, and we intend to launch two more products in the next two quarters. For the European markets, we have validated two products as part of our contract manufacturing partnership. We expect a significant upside in FY 2023 from this product. In Europe, we have a basket of eight approved products, of which we have already launched three products, and we will be launching more products based on the market opportunity. Based on our healthy product pipeline progress, we continue to invest in FDF infrastructure.
Our brownfield expansion at unit two is progressing as per our expectations and is expected to add significant capacity to our FDF operations, taking the capacity to 10 billion units. Currently, the brownfield expansion is under qualification and will be ready for commercial use before June 2022. On the R&D front, we continue to allocate critical resources and invest in portfolio with product-specific approach, not the market-specific approach, based on the complexity and scale economies. Additionally, we are implementing steps to bring more robustness in our overall product development processes. Besides this, we are happy to share that we should be ready to commercialize our sterile R&D unit during this quarter. This is being set up at ICS in Halol, Gujarat. The overall R&D spending to sales for this quarter and full year was at 4% of our revenues.
We have a total of 62 products in the R&D pipeline, either under development or under validation with an addressable market size of $43 billion brand sales. I would like to share the status of our filings. 31 ANDAs in U.S., 11 dossiers filed in Europe, 17 in Canada, nine with Bevlage Group, four dossiers in South Africa, and seven in India, apart from 19 products filed in various ROW markets. Of the 31 ANDAs filed in U.S., we have 15 Para IV filings and 10 first to file opportunities, having a sizable market opportunity. As mentioned, our approach remains product-specific, not market-specific. During the quarter, we have successfully completed EMA inspections for our Unit 2, and brownfield expansion also was inspected by the European agency.
When we move to give you updates on the generic API, we want to update you on the antiviral ARV front. ARV business during the quarter, some improvement in procurement and sales to other generic companies have grown sequentially by 47% to almost INR 300 crore. For the full year FY 2022, the business reported negative growth of one-third, almost 33%, due to high base effect. While overall demand environment stays softer, we remain optimistic about further recovery in the coming quarters. We continue to maintain a leading market share in the product line, what we sell, and also expect to increase our developed market API supply. We are also happy to share that Onco APIs reported INR 72 crore sales during the quarter, reflecting a growth of 16%.
Laurus Labs have one of the largest high-potent API capacities in India, and we are partly adding new capacities during the next 12 months. We also added a lot of capacity in the previous 12 months as well. Our aim is to strengthen global leadership in some of the existing products by focusing on high-potent molecules, and increase our market share. In other APIs, other than ARVs and Onco, we have achieved INR 171 crore sales during the quarter. This was supported by new contracted supplies. For FY 22, while our growth was muted, we believe the segment should return to healthy growth trajectory in FY 23.
During Q4, we have filed two DMFs, both non-ARV, taking the total number of DMFs filed to 73 to date, and we filed 12 DMFs in FY22, which is maximum DMFs filed during a financial year in the company's history. We also initiated validation of a few APIs and expect to see good growth in FY 23 and 24. We continue to have higher order book visibility in this segment, and accordingly, we're adding manufacturing capacities to capture this opportunity. When it comes to CDMO business, this business has maintained its solid growth momentum and delivered robust growth, and we doubled our revenues by almost 100% to INR 360 crore in the Q4. For FY 22, CDMO business grew very strong by over 75% year-on-year.
We continue to pursue several active projects in the late-stage clinical programs and commercial supplies ongoing for four products. On our multi-year supply contract we executed in our quarter two FY 2022, the CapEx work is on fast track. Additionally, our proposed greenfield investment to set up a dedicated R&D center for our CDMO division at Genome Valley, Hyderabad, and three manufacturing units in Vizag under Laurus Synthesis is progressing as per our expectations. New sites for this division will have the capabilities to handle steroids, hormones, high-potent molecules, apart from large-scale products. The last one, division, Laurus Bio, the revenues have improved over 40% quarter-on-quarter to INR 35 crores, mainly led by new capacities getting operational.
For the full year FY 2022, the sales was INR 100 crores, which is a very significant growth, almost 70% compared to pre-acquisition annualized run rate of INR 58 crores, as we brought more operational synergies and added more capacities to this division. We are also gradually ramping up on the 180,000 L fermentation capacity with our large-scale partners. We scheduled expansion at R1, including new R&D block and installing balancing equipment to enhance capacity at R2. This expansion will be completed before September 2022. We are also in the process of acquiring additional land to further expand our manufacturing capabilities to offer CMO services for recombinant food proteins. Our focus on ESG, quality and regulatory compliance to drive sustainable growth and further accelerate on efficiency and pipeline opportunity remains our top priority.
This will aid our journey towards our vision and strengthen our core values. With that, I would like to hand it over to Ravi to share financial highlights.
Thank you, Dr. Satya, and very warm welcome to everyone on our quarter four and full year FY 2022 earnings call. The total income from operations, INR 4,936 crores, as against, with 3% growth. The quarter is INR 1,425 crores against INR 1,412 crores, reporting a similar number for both corresponding quarters. Of course, we have grown sequentially, as we indicated in quarter three. Gross margin improved full year at around 56%. Of course, quarter four, the gross margin is slightly on the lower side, because of the solvent price increase substantially in quarter three that it got affected or consumed in quarter four. There is a selling price decrease from the ARV supplies.
Of course, the product mix also will matter. Our EBITDA is for quarter four at INR 398 crore, it's around 28% margin. For the full year, fourteen thirty-six crores, with 29%. We have indicated that 30% is our expected gross margin. It is close to what we have guided. Our diluted EPS for the quarter is at 4.3 and 15.4 for the full year basis. Our ROCE is at 26.3%. CapEx spend, for a cash flow, we have done about INR 950 crore CapEx in the full year. This is well within the two-year guidance. Rest of the CapEx will be incurred in this current fiscal, FY 2023 fiscal.
We also would like to update that most of the investment across key projects on track. Of course, we have provided more details in our investor presentation, you can refer to that. We remain on course to strengthen our position as a cost-effective integrated pharma player. We are investing in backward integration efforts in making intermediates, creating further API and FDF capacities in the non-ARV investments. Of course, you all are aware that we are in a most difficult challenging times, not only on the war side, but also from the COVID front in the China side. We are trying to gear up by using all the techniques to not to have any production losses. With this, I would request the moderator to open the lines for Q&A. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone 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 Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yes. Thanks for the opportunity. So just on these selling prices of ARV, if you could just throw some light in terms of how much on a relative basis over past six months, how much the prices have fallen, and what has triggered this price fall?
The FY 22 ARV sales for most companies who are in the ARV space were significantly lower, and everybody has significant inventory. That led to the price decrease both in APIs as well as in the formulations. I can't give you a specific number, but the API prices and ARV prices both were down, I would say around 10%. But I can't give you a specific number, but around 10%.
Sure. That helps. With this inventory now getting normalized, there's no, or rather limited scope of these prices recovering. Whatever 10% falls, that is what will probably continue in the going forward basis as well.
See, some improvement will come from softening of the raw material prices and solvent prices. We don't foresee the API prices and the formulation prices going up. I think this could be the new base. We haven't seen any significant price drops from FY 2021 remain constant. FY 2022 was the year where we saw a drop, but I don't think FY 2023 will have a further drop. I think this is going to the new base, and we don't see. We have seen from Q3 to Q4 and also Q1, we have order books, and the prices are at a new base right now. We don't expect our prices will go down further.
Got it. Just on your INR 1 billion target for FY 2023, so broadly, will it be like spread out across four quarters, or do you see more in H2 of FY 2023, if you throw some color on it?
I think it has to be spread out. I can't give you a very specific number, but it will be evenly spread out. Yeah.
Understood. Just lastly, with this $1 billion in FY 2023, like how much of it, you know, could, you know, build upon FY 2024 as well? Or is there any business which will be only restricted to FY 2023 out of this $1 billion?
I think we see a lot of opportunities not just in FY 2023, but FY 2024 as well. As we build capacities, we are adding a lot of customers, a lot of approvals are expected. I don't see there will be any one-off in FY 2023 for us to reach our target. Yeah.
Okay, sir. Thanks. Thanks a lot for addressing these questions.
Thank you. The next question is from the line of Harith Ahamed from Spark Capital Advisors. Please go ahead.
Good morning. Thank you for the opportunity. My first question is on Laurus Bio. The INR 35 crore revenue for the quarter, very impressive ramp-up there. Trying to understand how much of the 180 kL capacities are being used now. What is the utilization of the new capacity that's we've added as of the Q4 ? Then, slightly from a long-term perspective, from biotech ingredients that we're making now, and as we aspire to do fermentation-based drugs and maybe therapeutic proteins in the future, the current capacities that we have at Laurus Bio, can we use those capacities for these you know future products that we would be you know we would be manufacturing at Laurus Bio?
How long will that journey be as we transition from the current set of products, which are largely enzymes, to drugs and therapeutic proteins?
I'll answer your question in maybe three parts. One is our 180,000 L capacity is fully operational in Q4. We are taking up some debottlenecking exercise to add more downstream capacity so that we can utilize our fermenters much better than what we are doing today. New capacity, fermentation capacity will only come by end of 2024, FY 2024. Significant growth in revenues at Bio can come only in 2025. Despite probably some growth will come because of the debottlenecking of R1 and R2. That is one. Second, in the current plan, in the medium term, until 2025, FY 2025, we have no plans to go into therapeutic proteins. Most of our capacity utilization currently and until FY 2025 will be only in the food proteins, recombinant food proteins.
We are still having a strategy, internal discussions, when and how we will enter into therapeutic proteins.
Okay. Then the same fermenters, including the 1 million capacity that we are adding, can the same fermenters be used for you know drugs like statins or therapeutic proteins when we enter those businesses? Or those are totally different types of reactors that's needed for those kind of products.
The 1 million liter large fermentation capacity what we're creating is for CMO of food proteins.
Okay.
The fermenters for other pharmaceutical intermediates is under discussion with our bio team at Bangalore, and that capacity has to be created separately to this food protein capacity.
Thanks, sir. That's helpful. Understood that point. Second question is on the CDMO and segment, and we have talked about three new facilities which can potentially start supplies from FY 2024-2025. You know, what kind of an increase from the current capacities will happen for the CDMO business when these three new facilities come on stream?
Currently, the capacities are shared between the CDMO and generic API space. As we are seeing a lot of opportunities, we are creating dedicated capacities for CDMO. The reactor volume what we are creating for CDMO will be close to start with 500 cubic meter and maybe 600 cubic meters is right. We have the ability to add more capacity brownfield because the land parcel what we are using for these new greenfield facilities is big.
Okay. The current 7,000 kL capacity that you're talking about is overlapping between APIs and CDMO. That's the way to think about it.
Yes. You're right. The 707,000 cubic meter capacity is shared between the divisions, and whatever new capacity greenfield will create, we are creating is exclusive to the CDMO division.
Okay. Last one, with your permission. When I look at the balance sheet, there's a sharp increase in other current liabilities, and trying to understand what has led to this. You know, operating cash flows appear to have benefited from this. Is there something that you can call out here?
I think the other current liabilities because of the higher purchases in the quarter four, so we need to gear up for the higher revenues in the FY 2023.
Okay. Yeah, I'll maybe take it offline. That's all from my camp. Thanks.
Okay. Thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two per participant. For any follow-up, you may be requested to rejoin the queue. The next question is from the line of Tarang from Old Bridge Capital. Please go ahead.
Hello, sir. Good afternoon. Just a couple of questions from me. One, so the $1 billion target in the current financial year, what is driving the confidence for this? I mean, are there some products that are maybe approaching expiry or some one-off opportunities in the U.S.? That's number one. Number two, just a bookkeeping question on contract manufacturing revenues in the formulations business, and how much was ARV as a percentage of total business for FY 22?
As you've seen in FY 2022, our ARV API business is 25%, and synthesis business is close to 20%. In FY 2023, we expect all divisions will grow, but the percentages broadly will remain similar. What it means we have opportunities to grow API business back to healthy growth. Formulations in U.S., we have a few big launches ahead of us, and we are expecting approvals for two products in Europe, where our partner, we already signed a big contract manufacturing. The growth is evenly spread between APIs, formulations and CDMO. Bio will also grow, but that is not going to be a significant portion of the overall revenue base.
Okay. How much is the ARV formulations plus API as a percentage of FY 22 revenues?
ARV, APIs, and formulations are close to 55% of our revenues came from ARVs.
Thank you.
Yeah.
Thank you.
Thank you. The next question is from the line o f Krish Mehta from Enam Holdings. Please go ahead.
Hi. Thank you for taking my questions. The first one was just a clarification on the previous question on the ARV versus non-ARV business. Is 55% share of ARV business is the total ARV share in the entire revenue stream, or is it just for API FDF?
ARV API has contributed only 25% in FY 22. See, if in FY 16, the year before we went public, the ARV API contributed 82% of revenue, and it was down to 25%. The API revenues in FY 16 were INR 1,450 crores. In FY 22, ARV API revenues were INR 1,250 crores. While we remained almost constant on our revenue terms, the percentage terms went down from 82%-25%. That is the kind of diversification the company went through the last six years. Whereas our revenues for formulations were zero in FY 16, but in FY 22, we had 13.8% revenue coming from formulations.
Our formulation revenues in FY 16 were INR 20 crore, and we did almost 1,800 crore in FY 22. CDMO revenues were about INR 100 crore, and we went up to INR 917 crore in FY22. That's the kind of diversification what we were talking earlier, and we'll continue to put efforts to diversify the business further by FY 25. As we mentioned, by FY 25, our ARV sales, both APIs and formulations put together, should be maybe 1/3 of our revenues. Yeah. Not 55% as in FY 22.
Okay, thank you. My next question was on the synthesis business. Given the $1 billion target on your previous statement on you see the mix remaining broadly similar. Do you see the change in margins with the billion-dollar target coming through like a CDMO business, or would you guide your margins towards being similar to what we've seen in the last two, three years?
I think we will be very similar. We don't want to give more precise details, but it will be very similar.
Okay, thank you so much.
Thank you.
Thank you. The next question is from the line of Ritik Gupta from Guardian AMC. Please go ahead.
Yeah. Thank you, and congratulations, sir, for your numbers. I just wanted to know how are we seeing on the forecasting proportion mix for API in the next coming year? Towards API and other ARV and other onco and stuff.
Our onco APIs.
Yeah.
When our revenue base was small, it used to be about 8%. Now
Yeah.
Also, it is about 6% of revenues in FY 2022, despite the big base.
Yeah.
In non-ARV, non-onco, were very low in FY 2016. About 4% of revenues came from non-ARV, non-onco. That went up to 10% in FY 2022. That also shows our diversification. We have validated about 10- 12 DMFs filed in FY 2022. That was the highest in our history. Majority. Not majority, all of those were, except one, all of those were non-ARVs. We see opportunities for us to do more non-ARV, non-onco revenues from FY 2024 onwards. We believe we have reached significant optimum level in both APIs and formulations and ARVs. Our predominant growth will come from non-ARVs, both in APIs as well as in the formulation space.
It's fair to say that it will be equally proportioned in the coming quarters or year?
Sir, I couldn't get your question, sir. Can you repeat?
No. Is it fair to say that the proportion will be almost equally or I mean focus will be more towards the non-onco and non-ARV, ARV?
Yes. In the coming quarters and years, we expect the revenue contribution as a percentage-wise will come down from ARVs, while we maintain the same quantum of business both in APIs and formulations for ARVs.
Okay.
Yeah.
Okay. My second question is, in the presentation I saw that we are trying to maintain the leadership pipeline in the API segment. What could be the market share as a whole in U.S., Europe as such?
Listen, maybe we can take this question offline. We can't give you the specific product share.
Gotcha.
in U.S.
Yeah.
We haven't lost any market share, and we haven't seen any pricing pressure in our products, what we are selling in Europe and U.S.
Okay. Yeah. The third, a small question, sir, an add-on on that. We are seeing a revenue growth to be seasonal in the Q4 of FY onwards for, like, three years. Do we say that the business is seasonal, or is it just because the growth of Synthesis is higher in this quarter?
Typically, for the last several years, our Q4 synthesis revenues were higher because of the bulky shipments happened in the Q4 to suit the production demand of our partners. There's no significant other than that. Yeah.
Okay.
All right.
That's it from my side. Thank you.
Thank you.
Congratulations, sir, again.
Thank you. The next question is from the line of Jeevan Patwa from Sahasrar PMS. Please go ahead.
Congratulations, sir. This is wonderful set of numbers. I just want to understand, like earlier we were saying that we have $1 billion aspirational target, and then we receive a large order from global life sciences company, and then basically in one of your interview said $1 billion is not an aspirational target anymore, we will achieve it. Just want to understand what this order earlier the part of your aspirational target or this order has come over and above the target that we were basically thinking of?
See, this relationship with the new partner is already there. We got the additional orders from that partner. It's not that we have added a new customer just to during the last financial year. See, we were talking about this aspirational number almost a year back, or maybe two years back actually, not even a year.
Correct.
This is the goal we kept, and we are adding products, we are adding capacities. Ultimately, we need two things to achieve any targets. One is, do we have capacity? The answer is yes. Do we have products? Answer is yes. Do we have the market? I'll say yes. Because of these three things, and we are prepared well, so now we are confident to reach our target.
Okay. Secondly, the CDMO quarter. This quarter CDMO sales has been very good. I think this included only one month of supply for the new order. Looks like next year can be really pretty big in fact for CDMO. How much you are expecting to close FY 2023 with for CDMO? Is it like 20%
Unfortunately, we can't give you more details, but we can assure you that our focus and commitment, conviction on the CDMO business is giving results. That's the reason we have created a separate entity. We are creating separate facilities for the division because of some long-term contracts that we have signed, some opportunities in front of us. This division is worth watching for everyone, including us. We are investing because of opportunities ahead of us.
Perfect. The last question, sir. Is there any update on the ImmunoACT they started, I think the human trials, some six months back. Any timelines when the results will be out or something?
We expect some results readout during this financial year.
Okay. Thanks a lot, sir.
Thanks.
Thanks.
Thank you. The next question is from the line of Rahul Veera from Abakkus. Please go ahead.
Hi, sir. Congratulations for the large order from the global science license company. I just wanted to understand directionally like what is the potential from this particular molecule. You know, it could be a one-off, right? Like, in the start of the call you mentioned that after $1 billion, it's not going to be any one-off in the $1 billion in FY 2023. But it seems like something like Paxlovid could be a one-off. What will be the potential for this molecule in this direction?
See, just I want to reiterate, in our aspirational target, there is no one-off revenues considered. That I want to reiterate. Yeah.
Okay.
We can't give you any specific details about the product quantities right now, because of the confidential issues. We can't give you more details.
also potentially like FY 2022, like Pfizer has mentioned that they're going to do $22 billion of sales by this quarter. Even if you consider, like
Mr. Veera, sorry to interrupt, but your voice is not good, sir. If you can speak closer.
Sure. I was just thinking that Pfizer has mentioned that in its presentation that they're going to do $22 billion of Paxlovid sales in CY 2022. If you consider 3%-4% of our total opportunity size for us, it's pretty sizable for us. Can you throw some direction in that? Like is it a $100 million+ opportunity for us or it's much bigger?
Sir, unfortunately, we can't give any details on our contract, product or pricing and the quantum of the order also. See, we gave what we can give and what we are supposed to give.
Okay. Fair point, sir. Thank you.
Thank you.
The next question is from the line of Hussein Kagzi from Ambit Asset Management. Please go ahead.
Hello. Hi. Good morning. Am I audible?
Yes, sir, you are. Please proceed.
My first question was with regards to CapEx. I wanted to understand that, with the huge cost inflation going on right now. Are we seeing any inflation on that side? That was my first question.
If you look at our several quarters investor calls, the one where we are increasing is our CapEx number. We were giving lower guidance and increasing it because of the opportunities. In the last year we were saying for two years our CapEx will be between INR 1,500 crores -INR 1,700 crores. Now for next two years we say it is between INR 2,000 crores -INR 2,500 crores. That is the kind of CapEx is there in front of us. That's for next one, FY 2023 and FY 2024, we may spend anywhere between INR 2,000-INR 2,500 crores CapEx.
Okay. Understood, sir. Sir, on CDMO side or the custom synthesis side, just wanted one clarification. Is that, as far as my limited understanding goes, the innovator contracts, so our revenue is dependent on how the molecule progresses from one stage to the other and on the success of the molecule at the innovator's end. Referring to the large contract that we signed, that we announced at the end of Q2, how is that structured? As in, does it include a manufacturing component as well from which we'll be supplying? Or has the molecule already been commercialized? This is with regards to what we announced in Q2.
The molecule is commercialized, and we are supplying, so there is no uncertainty in that.
Oh, okay. All right. Got it. Thank you.
Thank you. The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, sir. This CDMO contract, would we start contributing from Q1 FY 2023 in a normalized way, or it would slowly ramp up over FY 2023?
It's already supply started, and we supply as per the partner demand. We can't give you any more details on that.
It wouldn't be like initial stage, it would be very low and then eventually second or third stage you will supply the full quantity. It would be evenly spread out, right?
It will be spread out. Yeah, yeah.
Okay. On the CapEx side, have you increased the guidance from what you were talking of last quarter?
Yes. We have increased our CapEx guidance by almost about INR 500 crores-INR 600 crores than what we were saying earlier because of the opportunities what we are seeing, and we want to be ready with capacities to take on those opportunities.
Okay. Thanks. That's all my side. Thank you.
Thank you.
Thank you. The next question is from the line of Naresh Suthar from SBI Life Insurance. Please go ahead.
Yeah, hi. Thank you for taking my question. My question is again on margins. If I look at the gross margins, will this be a new base for FY23 and going forward, for quarter four margins I'm referring to.
Quarter four margins were down when compared to the previous quarter of the corresponding quarter for multiple reasons. One is the challenges in solvent pricing, raw material pricing, logistics cost, product mix changes, energy and fuel cost. All those contributed to lower gross margins there.
I mean, like you said, ARV, the price pressure, this is a new base. Even solid prices, I don't know whether it is coming down. That way, this should be the new base for our gross margin is what my question.
See, the ARV API sales and formulations sales ARVs we expect little growth, but mostly flattish. As we increase our revenues from non-ARV, both APIs and formulations, we expect these gross margins to slightly go up, from the current base. Yeah.
Okay. One more question. Can I say quarter-over-quarter, the CDMO business, the formulation business, the margins were similar to quarter three? I'm not asking for actual numbers, but rationally, was the margin in that segment same versus last quarter three?
We can't give you segment-wise gross margins, but as I mentioned, from 52% gross margin FY quarter four, we'll put efforts to increase it further. But we can't give you more details beyond that. It will go up. We don't expect margins to go down.
I appreciate that. I mean, I ask this question because I just wanted to understand whether the raw material pressure was seen in CDMO business as well. That was my question.
No, no.
Oh, thank you.
No. Yeah.
Thank you. The next question is from the line of Tushar Bohra from MK Ventures. Please go ahead.
Yeah. Thanks for the opportunity, and congratulations to the management for a much improved set of numbers. First, just quick clarification first up. Our aspiration is for, you know, in addition to the revenue aspiration, is the margin aspiration closer to 30%? As that was mentioned earlier in the call for FY 2023.
We remain confident to achieve that kind of margins. Yeah.
Okay.
Sure.
Second, sir, the solvent pricing, have you been able to take on some price hikes to compensate, or has the pricing started to stabilize or even moderate a bit? Any color on the overall, you know, raw material pricing as a whole for this quarter and the coming trend?
We expect the prices, solvent prices and raw material prices will soften further. But currently, the weaker gross margin what we report in Q4 is because of several factors, including solvent prices and raw material prices. We expect that will soften further, and we will improve our margins from the 52% higher.
You also mentioned specifically, energy cost and logistics cost. Any color on incrementally on those items? Also if anything on the disruption emanating from China, if you can share your views on that.
The energy cost will be transient. We don't expect that cost to be there for several quarters. We may see that challenge for only Q1. Then onwards, we don't see any energy cost escalation. The other factors, freight costs are higher for not just pharma business, for any other business as well. We have no visibility on how and when the logistics will be improved.
Okay. It would be fair to say, sir, that specifically energy costs would have impacted maybe by at least 100 basis points, maybe slightly more on the margin front?
We can't quantify, Tushar.
Okay. Sure.
What Dr. Satya is talking about is the quarter one of the FY 23 on the energy cost, except the coal cost increase which got impacted last year.
Okay. Sure.
The energy cost is not going into our gross margin. That is below that. Our gross margin is raw material, same price point as raw material cost. Our energy cost will impact our EBITDA, but not our gross margin. Yeah.
Right. Actually, sir, the overall gross margin, if we see, year-over-year, the gross margin has actually been flattish only. Our overall EBITDA margins have come down. Certainly these line items have got impacted, right?
Because of the scale effect.
Operational deleverage, if you look at what happened, our revenue numbers are similar numbers of last year. You have an escalation of the costs. Those costs, their need has to be absorbed into the EBITDA. That is the reason you will find the difference on a yearly basis, Tushar.
Sure, sir. Second, on the strategy side, one, if we could share more color on the sterile R&D, and also when we had done this minority acquisition in the ImmunoACT, you know, startup, at that time, we had mentioned this as being only in, you know, sort of an investment. But our commentary in this conference call has been that this is a significant foray for us. Is there a plan to consolidate the stake further in ImmunoACT or maybe develop this line of business further?
I'll answer our first question in the sterile R&D space. In the sterile space, ours is a R&D first approach. We're putting up R&D center for our sterile, and then we have land to set up a manufacturing facility for sterile manufacturing product. Coming back to ImmunoACT, this is an investment and we have no plans to consolidate. Certain part of our profits we wanted to invest in technologies where we don't have expertise, like this, and we continue to identify such opportunities. But that's not our core strength. You know, we, our core strength is manufacturing and ImmunoACT core strength is drug discovery. They will do their portion and we have no ideas to consolidate them or invest in similar lines.
It will be fair to
Mr. Bohra, so sorry to interrupt, but for any follow-up, may we request you to rejoin the queue, please? Thank you. The next question is from the line of Dipen Sheth from Buoyant Capital. Please go ahead.
Yeah, thanks for the opportunity. Sir, I want to, you know, kind of raise this question about gross margin change over Q3-Q 4. In an effort to understand how much of that happened because of business mix change, how much of that was happening because of price erosions, and how much of that happened because of maybe a pull up from the higher mix of the synthesis business in the Q4 . Because I think the outstanding feature of the Q4 is that you've delivered more than INR 150 crores incremental quarterly revenues on the synthesis business. Now, normally, I would expect that that's a very high gross margin business. I don't know the specifics of your business.
With this kind of a boost, if sequentially gross margins fell from 59% or 58.8%- 52%, despite a huge boost from the synthesis business, there's something about the relative movement of your margins across the four segments that we are missing here. I think Naresh did ask this question, but I'm not sure whether I could understand your response. How would you interpret this for us? That synthesis goes up by, you know, from INR 207 crores to INR 360 crores sequentially, and there is a reasonably higher contribution from APIs as well, another INR 100 crores in incremental contribution. Was it that margins fell sharply in the API segment, the gross margins, I guess? How do you reconcile this for us?
In the generics, you have to consider both API, ARV APIs, and ARV formulations.
Right.
We have been to a new base, so there's the price reduction in both APIs and formulations happened. In non-ARVs, we haven't seen pricing pressure.
Okay.
As we increase our non-ARV revenues, not just synthesis, but also non-ARV APIs, non-ARV formulation sales goes up, so our margins level will improve further. We're at a new base in ARVs and, but the ARV price reduction is the major contributor to drop in gross margins, and then solvent prices.
Right.
These are the two major reasons for drop in gross margins.
Would it not be fair on my part to expect a pull up, a countervailing effect, as it were, from the synthesis business ramp up? Is that a fair assumption to make, that synthesis is a very good gross margin business and should have pulled up a little bit the overall gross margins in the quarter?
As we mentioned, the margins will move up because the revenue contribution from non-ARV business will go up. That is the reason we expect the 52%. From 52% we expect improvement. We can't give you how much it will improve.
Sure.
There will be improvement possible.
All right, sir. Understood.
Yeah. Thank you.
Thank you. The next question is from the line of Surjit Pal from BOB Capital Markets. Please go ahead.
Thank you for the opportunity. I have just one question about that CDMO business where you have started supplying product which has been commercialized, as stated in the presentation. If you throw some light about your client's product in terms of therapeutic area or market where it has been launched, and how much sales we could expect in, say, next two-three years, and how many supplier will be there along with you initially, you know, two-three years?
See, unfortunately, we can't give you any more details on that. Pricing our product or quantities, we can't give you because of the confidentiality. See, that is one reason why people like us, we maintain confidentiality with our partners' products. Generic, we have given enough details because we're able to give. In the CDMO, we can't give you any details. It is not our product, it's their product. We are bound to confidentiality agreement. We were giving gross margins, price reductions, all possible facts in our generic business. We can't give you in our CDMO business.
Yeah, I'm not asking you tell the name of the product or the company or the things, but I need to understand, you know, or we need to understand is that, you know, the kind of therapeutic area or, the kind of, you know, number of people who are supplying this API currently to him, you know.
Unfortunately, we don't know how many suppliers are there. We don't know.
Generally, two-three suppliers will be there in the initial three years post-launch.
No.
If it is a big product.
We don't know. We don't know.
Okay. Thank you.
Thank you. Next question is from the line of Ranvir Singh from Sunidhi Securities. Please go ahead.
Yeah, thanks for the opportunity, and congrats for a good set of numbers. Just on revenue aspiration, $1 billion, I wanted to understand, you know, in better perspective. The growth in FY 2023 we are talking about is more than over 50% on year-on-year. That could be built mostly on synthesis business, API or formulation. Can you give some indication?
See, one thing all of us need to understand, did this company ever achieve 50% growth in revenues earlier? We have done that couple of times. Even if you look at FY 2020 to 2021, we have grown more than 50%. In FY, actually, we have grown in FY 2020, FY 2012, FY 2013, FY 2014, our growth is more than 50%. That means we have the ability to create a base and then grow significantly. If you believe that we have delivered multiple times earlier, and we will also deliver this time because of our capacity, what we have created, because of the products what we have, because of the order book, what we have, we will achieve those.
You are right, we have to grow more than 50% to achieve our target of $1 billion, and we are fairly confident on achieving that.
It is more towards formulation business or.
It's all. All segments will grow. All formulation will grow. API. Except ARV APIs and some formulations, all the rest of the divisions will have significant growth.
For FY 2024, can we see a growth over FY 2023?
We can't comment right now. Maybe we can ask this question in Q4 FY 23, we'll be able to give you some answer.
Just on formulation side, what is our level of integration? How much business is integrated with our own API?
Except one ANDA where we have filed by using third-party API, all other ANDAs commercialized or under development are based out of in-house API. In fact, the one which we use third-party API, we don't have any market share.
Okay. I think balance sheet.
Sorry to interrupt, but for any follow-up, may we request you to rejoin the queue, please.
Oh, sure. Thanks.
The next question is from the line of Alisha Mahawla from Envision Capital. Please go ahead.
Hi, sir. Good afternoon, and thank you for taking my question. Just with respect to what the earlier participant was asking with respect to $1 billion revenue target. I do believe that we're expecting the two formulations that were to be launched in Europe to contribute. Is it possible to say, are we expecting that in H2, or will we start seeing some of that contribution from H1? What is the opportunity size that we're targeting?
I can't give the size of opportunity, but those products will be commercially launched in Q3.
In Q3?
Yeah.
Okay. Apart from that, on the CDMO side also, apart from the one contract that did start some marginal contribution in Q4, the other one for which we're doing the fast track CapEx, is that also expected to start contributing from 2023?
The capacity what we are adding currently is also about 15% of API capacity we're adding, but that will not contribute to revenue in FY 2023. This. We have to grow in FY 2024 as well, for which we need to create capacity. Unless we create capacity, how the pharma company will grow? Either we have to do acquisitions, or create capacity. You know, most of our growth is coming organically by creating capacities in-house. We are putting capacities for our future growth.
I'm referring to the multi-year contract that was signed in Q2.
Sorry. That we are creating capacity at greenfield new site being created that will be qualified mid of next year. That is, sometime Q2, Q3 next year, will go commercial. Yeah.
We are saying mid of 2024?
Yes.
Sure.
Mid-
Sorry.
Mid of calendar year in 2023. That's what I mean. Yeah.
On the onco API side, so on or rather in the non-ARV API side, do we have capacity to continue to grow in that space also?
Yes. We have capacities. We are creating more capacities in high potent.
That will come towards the end of 2023, the new capacity in API?
Yes. Yes.
Okay. Maybe you can just tell me what is the current utilization level in the API segment?
Full. Actually, we are running optimum capacity.
Okay. Maybe on the non-ARV side, growth will come towards the end of the year once new capacity comes.
Yes. Yeah.
Okay. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for their closing comments. Over to you, sir.
Thank you all of you for giving outside-in view what we're doing. These questions will certainly improve our thinking and our strategy to create long-term stakeholder value for everyone. Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.