Q2 20/21

Oct 30, 2020

Ladies and gentlemen, good day, and welcome to Loris Labs Q2 FY 'twenty one Results Conference Call hosted by Kotak Securities Limited. As a reminder, all participants' lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to Mr. Chirag Tarati from Kotak Securities Limited. Thank you, and over to you, sir. Good morning, everyone. On behalf of Kotak, I thank the Laurus management team for giving us opportunity to host this call today. From Laurus, we have with us today, doctor Sathya Narayan Chawah, founder and CEO Mr. V. Ravi Kumar, CV and CFO and Mr. Munisha from from the Investor Relations team. I now hand over the call to doctor Sathya for his opening remarks. Over to you, sir. Thank you, Chirag. Thank you, everyone, and a very warm welcome to our results conference call for the quarter two and H1 FY 'twenty one. I hope everyone, their family members and colleagues are safe during this pandemic. Our manufacturing units, R and D center and corporate office all functioned normally during the quarter two, FY21. At Large Labs, we are committed to protecting the health and well-being of our employees and their families and we continue to implement rigorous safety and hygiene measures across all our locations. I'm very thankful to our colleagues for rising to this challenge and ensuring business continuity as usual. Moving on to our quarter two FY 'twenty one revenues. Our revenues stood at INR $11.39 crores, showcasing a robust growth of 60% year on year for the quarter and 67% for the H1 FY 'twenty one year on year. To begin with, I would like to share my updates on our formulation business. The formulation division reported its highest revenue for the quarter of crores, showcasing a growth of over 180% year on year and a revenue of INR804 crores for the H1, showcasing a growth of over 200%. Interestingly, the revenue contributions from the FDR segment has improved to 40% of the revenues for the quarter as against 22% in the quarter two FY twenty twenty. The growth driver for the formulation business remains LMSE business in partnership with the global fund, FEPFAR and other in various in country opportunities. During the quarter, we also launched TLE 400 in the LMSE markets and we expect to generate good revenue in the coming quarters from this launch. Apart from the LMSE business, we are also seeing good growth in the developed markets of North America and Europe. During the quarter, we launched TLE in US and the demand for hydroxychloroquine remained very soft after WHO altered its global trial. We don't foresee an increase in demand for HCQ in the coming quarters as well. In other products, we continue to maintain our market share after Q1, especially in pregabalin. In order to leverage our front end operations in US, we commenced the marketing of in licensed products as well. Today, we have a eight final approvals and eight tentative approvals out of 26 ANDAs filed so far. In Canada, we have five approvals, and we will launch it three already, and we expect to launch a few two more in this financial year. As far as the European market is concerned, we're very happy to share that the contract manufacturing opportunity for certain non ARU formulations is doing very well. We have a very robust order book for f a twenty one. Besides, we are also in process of launching our own products in European markets under our own label. We launched two products, and we expect to launch one more in the current and last year. With the robust order book, we continue to invest in our FDF infrastructure to augment capacity. We have undertaken debottlenecking as well as capacity enhancement. We also expecting this debottlenecking debottlenecking will give some additional capacity partially in q three and as well as in q four. Our brownfield expansion will be available to us in phase manner over the next financial year. On r and d front, we continue to invest in our FDF business. Overall, r and d, we have spent 4% of our revenue in the h one f a twenty one. So far, we have filed 26 handouts in US, nine dossiers in Europe, 12 in Canada, and eight with WHO, and two dossiers in South Africa and several dossiers in various other markets. As we speak, we are always committed to expand the geographies or existing products, so we continue to invest in that fashion. When it comes to generic API, our end API business recorded a healthy growth of 20% quarter on quarter, and, also, we did better in our h one f a '21. The growth was led by higher volumes up for 10 of period and up average. Along with this, we also saw higher sales from our, additional customers for Dolby Vision and Land Rover. We also see healthy growth of second line AV APIs in the quarter two. As indicated earlier, we expect this segment to deliver good growth this year, and we expect to achieve ARV API sale this financial year surpassing the previous record. We are also very happy to share that our oncology API also recorded more more than 40% growth year on year and 31% for the first half of this year. The growth was led by our key product gemcitabine, and also other oncology products also shown very robust growth. As we mentioned, we have one of the largest high potent API capacities in the country. When it comes to other APIs, we have seen 18% growth, for this quarter year on year and, 80% for the h one f a 21. The growth in the segment was driven by higher volumes of existing products, contract manufacturing for our US European partner. We have also seen certain amount of dedicated capacities for the select opportunities in diabetic and cardiovascular segment, which will enable us to grow this business beyond what we are going on. We have a very healthy order book for contract manufacturing up to a generic several generic APIs. On the back of sizable order book, new product opportunities, and the expanded capacity is available gradually from this quarter onwards, we are very optimistic about the growth of our APIs. We are also planning to add several new manufacturing blocks in the existing units to meet our growing demand for our API business. Our synthesis business recorded a growth of 36% year on year and similar number for h one f a '21. Currently, we have about 50 app active projects, out of which four are commercial. As you're aware, we have incorporated a newly launched subsidiary called Lara Synthesis Private Limited. This was done in order to give the business an increased focus. And, eventually, we are also in the process of setting up a dedicated r and d and manufacturing sites. The proposal of synthesis r and d will come up at IJP, General Valley, at an investment of 60 crores and will be operational by end of next calendar year. A new manufacturing site for this division will also be a greenfield project at Vaishek, which will cater to the manufacturing needs of this division for the next several years. This site will have capabilities to handle steroids, hormones, high protein molecules apart from, our large volume products. With that, I would like to hand over to Ravi to share financial highlights. Thank you, doctor Satya, and very warm welcome to everyone on our q two and h one, earning call. And total income from operations for the quarter is at $11.39 crores. It's again at $7.12 crores for testing and 60% growth is growth. And for h one, we did about 2,113 crores. Again, it's $12.63 crores, a growth of 67%. With a better product mix, we have seen an improvement in the gross margin. Also, like, product mix and product efficiency on a quarter on a quarter basis. So we have an exchange gain. Our EBITDA margin came at 31% for h one, and growth in EBITDA was mainly because of operating leverage and. Our diluted EPS for the quarter is at $4.04 50 paisa, and and with the growth of three nine percent and 7 rupees 7 paisa 70 paisa not annualized for h one with a growth of 492%. Our ROCE improved to 37% on an annualized basis. This is because of the higher asset on and the the operating leverage, etcetera. On the CapEx front, we invested about 262 crores in h one. This includes the capital work in progress of the some of the production blocks which we have spent for out of this two six post will be operational in the quarter three and quarter four. We have many business opportunities for the rising demand on various all segments. So in order to meet those demand, we were saying 700 crores CapEx in FY twenty one and twenty two. We have revised our estimates to 1,200 crores for the CapEx for the both for the these two years. This includes majorities of field expansion. Apart from it, we'd also initiated as doctor Satya communicated, practices, one r and d center, one manufacturing block. We're also keep on telling for last few quarters, so we want to have a second MDF site, which will be in Hyderabad. We have identified a land, and that is in another greenfield project. And we also want to have another manufacturing plant for an API API division in in WiSAG. This is how we are expanding, and we are expecting around 1,200 crores at this juncture. And based on the performance in the company, board of directors declared a dividend, interim dividend of rupees 80 paisa per share of rupees to face value. And one more point we want to highlight here, one of our director who designed almost three year back, his name is Suhir Raju. So he requested for a reclassification of his shares of his category, you from a promoter to nonpromoter. And yesterday, BSN and SCC have an approval, and we have communicated that. So with this, we will we'll ask moderator to open for questions. Thank you. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. We have a first question from the line of Nikhil Mathur from Ambit Capital. First of all, congratulations, sir, for great set numbers again. My first question is on the API side of the business and mostly on the order visibility and in terms of pricing outlook. One of one of your last years in earnings calls, Sushee, had had indicated that the growth or or the or the sales pace in the API business can kind of stabilize in second half of this financial day. It might even decline. That's because a lot of the panic buying is still happening because globally customers are a bit wary of the second wave of lockdown or something of that sort. So do you think that the momentum can kind of subside and there might be some bit of decline in second half and going into F and L two as well? Or is it most company specific as to what this company had alluded to? We couldn't hear the question very well, Madhu. Can you repeat the question? There were a lot of disturbance in your voice. Is it better? Am I audible? Yes. Now it is better. Okay. What I'm trying to understand is the growth momentum on the API side of the business, is it sustainable into second half in FY 'twenty two? The reason I asked this is that, we are getting some indications from some of the larger peers that a lot of global customers are still stocking on to inventories, because they are very that they can be a second week of lockdown in various parts of the world. So I wanted to understand how sustainable is the sales pace that have been recorded in first half, especially on the API side of the business. Thanks, Mahal. Our sales of API, also one of the highest in the company's history. And we haven't seen our customers are stocking these APIs because of continued challenge on the COVID because our order book is also swelling. So we have highest ever order book so far in the company's history, and we have highest sales done so far. Based on this, we don't anticipate our customers are stocking our APIs. In fact, we have a lot of backorders for several APIs right now. We don't see that challenge based on the order book what we have. We expect to grow our API better than what we have done between Q1 and Q2. So Q3 and Q4, we will see more revenue coming from our API division based on the current forecast what we have, including our order book, what we have. And sir, in the opening remarks, you had alluded to that 10% of the year is seeing quite a bit of growth amongst the frontline APIs. Now for instance, if, say, supposing in FY twenty two, and that growth upside or at or or or if if in in some certain case of a decline, are are there second generation APIs like on track? The ramp up is on track to counter any sort of sales decline from the frontline APIs or lack of growth from the frontline APIs? We are seeing decline of only FR range in the next financial year. We continue to expect tenorfur, lammy wooden and gold agrivol volumes will continue to grow. In fact, we are increasing our tenorfur capacity significantly from what we have right now. And we are also planning to increase our lime wooden capacity also significantly from what we have, apart from gold digger wood. So we are increasing our capacities because we have visibility how much our customers are looking at and what is the growth in the segment. We expect to F average will decline, whereas other APIs front first line APIs will continue to grow. Okay. Sure, Another question I have on the CapEx side. So I mean, over the last couple of quarters or so, given the stellar run that the company has seen, your CapEx guidance has has been rising. I mean, a very fundamental question. So what has really changed over the last couple of quarters or so so dramatically that you are having to almost raise your CapEx guidance by 80% in FY twenty one and '22? Surely, COVID has had some role to play. Right? I mean, else why wasn't this visibility, say, a couple of quarters back? See, couple of quarters back, we were somewhat conservative in putting CapEx. Right now, all our manufacturing blocks are running at optimum capacity. And for us to grow in all these segments, both API formulations as well as customer synthesis, There is a need for us to invest more to satisfy our current customers, to service our current order books. That is the reason we increased our CapEx significantly. Okay. And just one final question before I get back into the queue. What is the pricing outlook on the ARB side in formulations? Now historically, we have seen that in the previous generation ARB formulations, the pricing has been declining. There's a usual pricing plan that keeps happening in this previous case. So what is the current pricing outlook from a one year, two year standpoint as far as the ARB formulations are concerned? Since we became an integrated player in ARV formulations, we believe we will have ability to weather the pricing challenges. If there is a pricing challenge, if you observe our gross margin growth, we're able to grow our gross margins despite of some challenges in ARB formulation pricing because other businesses are continuing to deliver very good gross margins as we expected. Sure, sir. Thanks a lot. I'll get back in the queue. Thank you. Ladies and gentlemen, in the interest of time and fairness to all participants, please restrict questions to two per participant. If you still have more questions, kindly join the queue. Have next question from the line of Sachin Shah from MK Investment Managers. Please go ahead. Yes. Good morning, Doctor. Pawar. Good morning, Mr. Ravi Kumar. Thanks for this opportunity and congratulations for great set of numbers. At least I believe that last couple of years, everything that you have been aspiring, thinking, working hard for seems to be culminating and falling right in the place, and I would think very deservingly so. So congratulations. Sir, when I look at the more holistic set of our business mix, you know, today, say about, say, two, three years back, we were largely an API company. And if I see today, we are almost a balanced kind of API versus formulation even in terms of revenue breakup. Maybe we'll be about 50 to 60% of API, maybe 40 to 50% formulations. So we have done this transformation quite well, I would say. But there are a couple of things which I would like to get your sense that are you looking at transforming that part of the business also. So two points. One is that, say, when I if I look at our business, even today, probably 80%, roughly about 80% of our revenue probably comes from the LMIC side of the business, from the region, and maybe 20% comes from the developed market. So over the next three, four years, how do you see this mix changing? That's first. And second, even if I look at the overall, dependence on the ARV products, so even today, I think, I mean, developed markets, LMIC, all markets put together, including API formation, everything, but ARV as a product is probably giving us about maybe 75%, 80% of our revenues and the other products are about 20 odd percent. How do you see these two mixes changing over the next two, three, four years? Because what's your vision on that side? UNIDENTIFIED I'll give the journey what we have done so far that will give you a perspective. From FY 'sixteen, 82% of our revenues came from antiviral APIs, and that went down to 34% for the H1 FY 'twenty one. When you look at the LMIC driven revenue for APIs and formulation put together, it is 60%, not 80% as you mentioned. So 60% of revenue is coming from ARV, APIs and formulation put together, remaining 40% coming from non ARVs in the from the developed markets. So oncology continue to contribute 7%. Other APIs contributed 11% in the H1. And our custom synthesis business continued to generate 10%. So if you look at 30% of our revenue came from oncology, custom synthesis and other APIs. In the formulation business, 38% contributed by the formulations, the H1. Out of that, roughly 8% came from Europe and U. S. Market. So you look at that way, see, 60% is ARB driven and 40% is non ARB driven. That will change in the next two years, maybe 50% will come from ARBs and 50% from non ARBs. Okay. And sir, what about the mix of LMIC versus the developed market? How do you see that going? I would put the same number. Okay. Thank you so much, sir. All the best. Thank you. Thank you, sir. We have next question from the line of Sudarshan Patmanabhan from Sundaram Mutual Fund. Please go ahead. Thank you for taking my question and congrats on an exceptional set of numbers. Sir, two questions from my side. One is, you know, we talked about, you know, the, TLE launch both in, you know, the emerging markets as well as the, you know, US market. Yeah. One is, you know, if I look at the sales, I mean, there any kind of bunched sales in the formulations that we are seeing in terms of, you know, seeding in for the requirements for more than probably one quarter or so? I mean, just to understand whether, you know, the, you know, this kind of beaten formulations is something which is, you know, not without any one offs and something which is, you know, fair in terms of, you know, delivery is concerned. Second, sir, in terms of working capital, I mean, while the gross profit and the EBITDA has been phenomenal, we have cumulatively done about six fifty eight But of if I look at the EBITDA to cash conversion, I mean, we have done something like around, you know, a $3.36 odd crores of cash post tax. So conversion seems to be lower primarily because of higher inventory. Is that inventory primarily built for TLE 400 and that inventory should start coming down as the inventory gets liquidated? As of now, our inventory of TLE is very insignificant. They actually, we have back orders. So there is no inventory of TLE 400 for LMIC and The U. S. Market. So that you can remove from your apprehension. So there is no inventory buildup. Our overall inventory buildup is because of our capacity expansion in Dolcegravel, capacity expansion in Lamywooden and TENOFUIR. When it comes to the cash cost, maybe I'll ask Ravi to answer that question. If you look at the NWC days, which is in healthy now, like for the September ended, we have about one hundred seventy two days, which is, in fact, consistent to be maintained at quarter one and quarter two. I think it's in a better shape, actually. We are not seeing any inventory build. Then coming to the EBITDA to cash, yes, because we are in the you have to take into consideration growth also. When we are growing at a 60% level, so you are the inventory increase will be proportionate to the 60% growth. We keep at in consideration this time. And would the intensity of working capital come down as we move up the value chain? We think it can be maintained at the similar level. So if you when we are also compared with the industry, we are not worse off. We are comparable with an industry as such. And when we are when we've already moved to the forward formulations, we and we are most of our formulations are backward integrated APIs. So we'll maintain this kind of levels. Okay. And sir, on the question on formulations, I mean, sustainable is it? And as the capacity come, do we expect to see growth even from the second quarter numbers? I mean, given your visibility in terms of order book and demand. In Q3, we are getting our debottleneck capacity available only in the month of December. So we see some growth in Q3, but the capacity enhancement will be visible in Q4. So we still expect growth in Q3. And Q4, we'll see even bigger growth than what was in Q2. Sure, sir. And from a longer term perspective, given the strong demand that you talked about, I mean, should we assume that even from these levels, annualized level, say FY 'twenty two, 'twenty three, 'twenty four, I mean, with the capacity that's also coming in, we should be able to do at least 15% to 20% CAGR in this business, the formulation side? We are creating capacity to meet that kind of growth. So I will leave at that stage. Since we are not giving any guidance, what we're doing, we are adding about 30% more capacity in APIs from now to next eighteen months. That means we're adding about 1,500 kiloliters of capacity, and we will add about 5,000,000,000 more tableting capacity from now to next eighteen months. Okay. This is the formulation side? Formulation side. And how much would that be, sir, as a percentage? We are adding maybe 80% more capacity than what we are having currently in formulations. Sure, sir. And there's no one off in this quarter as far as the formulations or APIs are concerned, one off sales or supplies? I think here, I want to make it clear, we added any new product. We haven't added any new customer. We haven't generated any revenue from new products. So we are very clear that there is no one off in Q1. There is no one off in Q2. I think this is this growth is led by increased volumes of our existing products from existing customers. Thanks a lot, sir. Thanks a lot for your commentary and congratulations for a great set of numbers once again. You, sir. We have next question from the line of Tushar Manudane from Motilal Oswal Financial Services. Please go ahead. Yeah. Congratulations on the great set of numbers. Just on this formulation side, so what would be the current gross block with this debottlenecking and all that will happen? Current grass block would INR $5.50 crores around. And INR 500 crores, gross block. Yes. And we have plans to invest about a little over INR 300 crores in the same site to expand capacity. De Bottlenecking, we are spending about INR 50 crores, and we are getting about 1,000,000,000 tablet capacity extra. Got it. So this five just to just to make it clear, so INR $550,000,000,000 is so INR $5.50 crores for the INR 5,000,000,000, and then incrementally, 60 crores for another INR 1,000,000,000, and then another INR 300 crores to double the capacity or rather increase the capacity by INR 5,000,000,000. Correct? Actually, when I said around INR 500,000,000, that includes our capital outlay for debottlenecking as well. Okay. So given this asset term of almost 3x, safe to assume that kind of an asset turn for the upcoming CapEx as well? Think when the Prashant, when the asset get matured, probably you may get that kind of a level. But when you start at 5,000,000,000 capacity, you can't get into for day one. No, no, course, of course. Over a period of two years, post commercialization. Yes. Yeah. But you have to you have to take into consideration even the API investment also. Like, today, if you our average asset turn is 1.5. Right? Right. Yeah. You know, I was specifically looking for formulation asset turn. If you are asking an incremental, probably you can take it as a two. Understood. And, sir, secondly, just on this. So currently, the formulation composition would be how much, ARV, U. S, ANDA and then specifically, European customer for the quarter? As we've mentioned, our distribution of revenue coming from LMAC and other developed markets is 75%, 25%, around that number. And that number is almost constant for the last few quarters. And we expect that will continue. Understood. Thanks a lot. That's it from me. Thanks. Thank you, sir. We have next question from the line of Sindriela Carvalho from Centrum Broking. Please go ahead. Yes. Thanks for the opportunity, and congratulations on great success on this. Sir, I just want to understand our positioning in tenofovir and lamizudine. If you could help us understand in terms of our global positioning, and is there any benefit that we are receiving today, or is there any global supply chain disruption which these two names are facing? And how do you anticipate it going ahead from our capacity expansion plan as well, if you could add? In the ARB, the preferred first line therapy is tenofovir, lamivud and dolutegravir, And we're expanding capacities of these three APIs significantly. And because of our scale and backward integration, we expect we continue to gain market share, and we continue to maintain our margins in the RV APIs because of these things. Sir, any color in terms of what could be our market share in these two names, PioVille? In the Tanafumeir, we expect we have more than onethree of market share in APIs. I'm not adding formulation what we're doing. And the Lamywooden, we don't have onethree market share, but we are aiming to get more than 30% market share once the new capacity expansion comes live. And Dolcegravir, we have 30% market share as API, yes. And sir, if you could help us understand, is there any kind of supply disruption in the global supply chain in these three API side, which could benefit us right now or going ahead? We haven't seen any supply disruption in these APIs with respect to starting materials or with respect to intermediates and API. So our growth in this segment, these APIs, is primarily because of increased access. There were 3,000,000 new patients added into treatment. And some of the nonintegrated players are getting approval using our API. So these are the two main reasons for growth in this segment, not because of any disruptions in the supply chain. Also, our own formulation also must be contributing to it. Is that correct understanding, sir? We're supplying API to our formulation, but that API is not counted in our market share. UNIDENTIFIED When I said our market share in API as a third party API sale, I didn't consider REPRESENTATIVE:] our supply to formulation unit in that Internal. Yes. Okay. Okay. Understood, sir. And sir, coming to I mean, we have seen these extraordinary numbers and the growth trajectory is on a different league altogether. So would you be able to help us understand for FY 'twenty two, 'twenty three, what kind of in terms of these segments that we operate, what should we model to understand the growth trajectory and your vision with it would be certainly helpful. We are continuously expanding our manufacturing footprint in all these segments. And we expect to grow from the current levels with good growth. And we also expect to maintain our profit margins because of operational leverage, because of manufacturing efficiencies. We expect to have good growth in our top line. We have next question from the line of Nimesh Mehta from Research Delta Advisors. Please go ahead. Yes. Thanks for the opportunity and congrats for a great set of numbers. So I'm just trying to understand from a broad perspective, you know, the growth that we have seen in the combination business. Is it because of increased demand in the countries that we are targeting, or or it is something else? You know, like, what is the genesis of the growth? If you can explain that in the video. The growth in formulations, there are two factors here. One is growth in our ARV formulation share, primarily because of market itself expanding with the number of millions of people accessing the ARV treatment. That is one. And second, our contract manufacturing revenue from Europe is also increased. And we're also launching our products in Canada, our products in Europe and in U. S. So the growth is coming from these two segments. The growth in patients accessing the ARVO treatment and launch of more products in more geographies. Okay. Okay. Understood. Just to dwell a little bit on that, you mentioned that growth in those areas, basically, because of the expansion in market. Generally, we would think that in times when you know, there is a pandemic like this, other treatments are generally not, you know, seeing any increase, especially the anti infective treatments or infections treatment. So is there any specific reason why more patients, you know, are getting treated, you know, for entry level I mean, for HIV? Even in a situation like this, where usually other clinics, other doctors are not operating, and most of them are actually only working for four patients. During this pandemic, there is a slight shift in dispensing pattern. More countries move to multi month dispensing rather than every month dispensing. Either they are giving three packs of 30 or they are giving a pack of 90 for the patients. So patients need not come and see the dispensary or a doctor frequently. So that shift happened. So there is basically more in a way, there is more stocking per patient, which is happening because of COVID, and that is one of the reasons driving the growth in the NTA, IRV market. Is that a fair understanding? There's no stocking up. So whenever the patient comes, instead of we get one pack of 30, he's getting two or three packs of 30, so that we may not come to the dispensary quite often during this crisis. Yes. There is no stocking of the inventory. So they started buying more of multi month dispensing right now. So there is no stocking up, I see. But in terms of the number of new patients getting added, that may be a normal factor only. It cannot be any significantly different, right? In the last twelve months, all these countries and agencies were able to add three million new patients into treatment. That was primarily because of the development goals of ninety-ninety-ninety. That is ninety percent of the people who are aware should get treatment and ninety percent should have viral reduction. That in fact, people want to revise it to ninety five percent, ninety five percent, ninety five That means more people will have access to the HIV treatment. Early the treatment, the minimum the new infections, that is the kind of the message these global agencies are propagating. We expect the number of patients will continue to increase current year and year after as well. Okay. Thank you very much. This was greatly helpful. Thank you, again. Thank you, sir. We have next question from the line of Nitin Agarwal from IGFC Securities. Please go ahead. Sir, thanks for taking my question. Sir, just continuing on the ARV business, just to help understand a little better. Sir, the market shift which is happening in the is largely a TLE to TLD market shift. We were already strong in the TLE segment earlier. So the growth which is happening in the business now, are we getting market share from on T and L in general in the ERP market versus what we were two years back? You're talking about the formulations or API, Shah? Put together, sir. Mean, because the thing is our API business has still so today, are almost give or take with the API and formulation put together, almost INR 3,000 crores of ARVs at the current run rate versus the 1,500 crore API business we used to do earlier. So obviously, the market has not expanded as much. So is it just been a very significant share shift that you've got as a regimen shifted from TLD to TLD? You're right. We have absolute leadership position in FRNG. But FRNG, the treatment moving to doltegravir, three things happened. One is earlier, we were selling more F. H. Range, less of our drugs. Now we are selling all three components of the preferred treatment, that is tenofil, lamud and doltegravir. And also, are getting formulations sale in the TLD because we are one of the first two company to get approval. We are the number three to get approval. Although there were eight approvals right now, we continue to enjoy market share because of our backward integration, because of our ability to supply on time, and we're able to price it very cost effectively. So you're right, our market share, when you club both the API as well as formulations, it is very good right now. Sir, what would be our what would be the what's your sense? What would be the market of the what share would we have with the total TLD market today from an API perspective and from a formulation perspective in both the categories put together? We are at 20 of the TLD market share access South Africa. On the formulation side? On the formulation side. And sir, on the APIs? API side, maybe you can add another 10%, 15%. So we currently have about 30%, 35% of the overall TLD market across APIs and formulations. I mean, basically of the overall we are in the 3035% of the TLD market, are present in one either through APIs or through formulations. Yes. That's a good assumption, yes. And how much can we scale this thing from here on? I think we expect to remain at that level, but what we need to consider is the number of people accessing treatment will go up. Even we remain at that percentage, the base will grow. Okay. So secondly, on The U. S. Market, when you take a three, five year view of the business, barring so how should we what are the big opportunities in The U. S. For us in terms of is it going to be the same? I mean, we obviously done a few ANDA filings, some P4 share P4 filings. But is it just market share gain in these launches? Or are there some larger sort of products where which can meaningfully impact The U. S. Business growth for us in next three to five years? We expect to see significant jump in The U. S. Because of our new product approvals will come next year. We don't have very large products we are launching this financial year. We'll have some significant launches in the next financial year. We have next question from the line of Bikash Mangani from BOI Aksa Mutual Fund. Please go ahead. Yes. Good morning, sir. Thanks for taking my question and congrats on a very good set of numbers. Couple of questions, sir, to start with, this CapEx that you highlighted of INR 1,200 odd crores, by when will this get commercialized? And by when do you expect to operate at maybe 80%, 90% or more utilizations on this expansion? The majority of the CapEx will be operational by June FY June 2022. Okay. And from my perspective, if you could reiterate the split of the CapEx within your three segments? It's how would you be spending But you can say broadly, we are spending 40% in APIs, 40% in formulations and 20% in synthesis. That's the broad number you can take. Okay. And how will you be funding this CapEx of INR thousand crores? The internal. Okay. The entire INR thousand crores and INR thousand crores? Yes. It will be done in that is the one reason where we are not planning to reduce our current debt. And we want to invest our cash profit we get into either in funding working capital or creating more infrastructure. And in your estimate, once this gets commercialized by June 2022, it will take you, what, two, three years to utilize it completely? Out of these CapEx, majority is being done brownfield, greenfield. So we don't anticipate that much delay in generating revenue from these new capital expenditure. Okay. And what would be the sort of revenue mix that you may achieve, say, two years down the line after commercialization of this CapEx? Today, as of H1, API is 52%, formulations close to 40%. How would this look at look by FY 'twenty four or so? We expect the percentage should remain broadly the same. So 40% coming from formulations, maybe 40% and odd percent coming from APIs and remaining coming from synthesis. We don't see not percentage changes significantly, but the base will increase significantly from the current levels. Okay. So that means your profitability that you achieved in this quarter or the first half, I don't know what base should I consider. But would that be similar two years down the line? You're talking about the absolute number or personal days wise? Well, sir, the EBITDA margin, let's say, you're 32%, 33% in this quarter. If the sales mix were to remain similar for the next couple of years, I mean, would you be able to sustain this level of profitability? We hope so. Got it. And so thereby, your ROCE profile should look in what range if we put sort of guidance on that once this CapEx is commercialized and utilized at peak capacity? Current ROCE is very attractive. For H1, we had ROCE is over 37%. But that will come down because we are putting significant CapEx in the next eighteen, twenty four months. But we believe it will be industry's best, yes. Got it. And last question on the synthesis bit. I mean, you mentioned that four things molecules are commercialized and you have a lot under development. Could you give some road map as to how you want this business to shape up? Because there's a lot of potential on the CDMO side of things. What's your vision for this side of the business? See here, our growth in this division depends on how the molecules are performing in the clinical phase. We have several molecule interesting molecules in various clinical stages. We are not anticipating all those will be successful. All those will be failures, but there will be a certain amount of assumptions we did, how many will succeed in going to the next clinical phase. And we have very interesting molecules in the development right now. And that is the reason we are creating a dedicated R and D, and we are in the process of creating a dedicated manufacturing site to give them flexibility to take projects or increase the number of projects what they currently handle. Fine. Thanks for your answers. Wish you, sir. We have next question from the line of Jeevan Patva from Candy Floss Advisors. Please go ahead. Congratulations, sir. One question I have. So apart from your custom synthesis business, is there any contract manufacturing revenue in your ACI and FDF verticals? Yes, we have. See, our contract manufacturing of APIs or contract manufacturing formulations is not considered in our Customs and Business. How much would be that? Maybe 20% of our revenue coming from contract manufacturing. That includes some synthesis, right? Apart from synthesis, say, about 10% of our revenue, 10% of our overall API revenue coming from customer synthesis and custom manufacturing, I would use. 10% of APA revenue is coming from contract manufacturing. Probably similar number, 10% of our formulation is also coming from contract manufacturing. So the 20% of our revenue is coming from contract manufacturing of generic APA's and formulations and about 10% of our revenue coming from customer synthesis. If you look at our overall revenues coming from contract manufacturing and customer synthesis is close to maybe 25%, 30% of overall revenue. Great, sir. Great. So that is something similar to what Dvins also does, right? So another question I had was, see, I look at Loras Lab as a process innovator. So the LoRa has actually done it in the in the past successfully. It has done it for and then it had done it for as well. It had done it for metformin as well. So if I look at, say, next three to four years, which are the large APIs where you are basically targeting for this process innovation, and you want to be the cost leader in those API. If you don't want to disclose the names, you can just tell me what kind of size of API you're looking at. We have 25 more market share in seven APIs what we make. And we want to expand that number to 15 APIs where we would like to have 25% or more global market share in the next two, three years. How will it be those APIs, if you can ask? Are they like $1,000,000,000 plus kind of APIs? There is no API, same, which is $1,000,000,000 So there are very large volume APIs. Maybe each of these APIs will have the ability to generate $10,000,000 or more. Maybe I can give that number. When I'm saying global leadership, we are not talking about 100% leadership but generating $1,000,000 revenue. We are talking about leadership on large volume APIs. Okay. And there, you will also have the formulation also. Right? The vertical integration will have there? Majority of those will have formulation, but some of them may not have. We have next question from the line of Naresh Suthar from SBI Life Insurance. Yes, sir. Thank you for taking my question. So my question is around the CapEx plan, which you highlighted. You said your formulation facility will go up by 80%, five million tablets. So just wanted to know to utilize this facility, what are the drivers? I like are these LMIC driven ARV or these are developed markets like U. S. And Europe? So which are the key REPRESENTATIVE:] markets to utilize these facilities? The expanded capacity in formulations, majority of that will be placed for Europe and U. S. Okay. And for that, I mean, the ANDA pipeline, which you have built, that will be the key for this utilization, right? Yes. Yeah. Okay. Thank you. Thank you. Thank you, sir. We have next question from the line of Ritesh Rathore from Nippon India Mutual Fund. Please go ahead. Hello? Yes, you help me how dispensing of ERV medicines has changed in this COVID data in LMIC countries, like on ground level? The dispensing, what we believe from the reports and also commentary given by these agencies, they are gradually moving from single month dispensing to multi month dispensing. So they are moving from a bottle of 30s to a bottle of 90s and 180s so that people will have to come to the dispensaries fewer times. Okay. And when you said three million new patients got added, was it on a base of its annual addition, ma'am, on whatever base? What was the base on which it got added? These are the new patients who were enrolled to receive antiretroviral treatment. So what would be the base? It an annual addition? When they are added into the treatment, they continue to be on treatment. So assuming 3,000,000 new patients added, that means there will be a 36,000,000 bottles of some kind of treatment is required. That means 3,000,000 into twelve months. So they will need thirty six months 36,000,000 bottles of some kind of ARV treatment. And you spoke about the target of ninety, ninety, ninety for reaching that HIV of WHO target. So where they are in the journey? Can you give us some idea according to your estimate? UNIDENTIFIED Sure. Right now, they are not at ninety, ninety, ninety. Some countries achieved the target, but some countries falling behind the target. But there is a great progress done. So if you multiply ninety percent into ninety percent into ninety percent, about seventy two odd percentage as to get to the viral load suppression, but that is about sixty two percent right now. So when you compare 62% to 72% and odd, still there is a 15% to 20% gap is there, yes. So there is enormous need of HIV medication to reach that ninety-ninety-ninety goal. But these UN, they want to revise that target to ninety five percent, ninety five ninety five percent with an aim to reduce the number of people dying because of HIV to less than zero five million per year. And since you said you were the third tier who got the approval from the as the status for the supplying this formulations, how many new players have got added till now? REPRESENTATIVE:] So there are about 10 active players in HIV. Some of them are fully integrated, some of them are partially integrated, some of them are not integrated. So there are about 10 companies active in HIV space in the LMIC markets. Thank That's all my side. Thanks. Thank you. Thank you. We have next question from the line of Harithamat from Spark Capital Advisors. Please go ahead. Hi, good morning, sir. Thank you for taking my question. Earlier, we had talked about an aspirational market share of around 15% in the LMIC first line AR reformulations market. So could you give a sense of where we are in that journey towards 15%? And then so our current market share? And then has there been an improvement versus what our share was in FY 'twenty? FY 'twenty, our formulation sale itself is not that significant. So but we expect to maintain this market share, and our base will increase as the number of people accessing the treatment will increase. So have we reached that 10% share mark already? Or we are moving towards? We are at in first line, we believe we are at 15% market share right now. Okay. And on the API front, I believe you said you are seeing strong growth in our external sales Tenno Forward Lab and other frontline APIs, excluding Ephabrants. So here again, the question is whether our our share has increased in these APIs, or is this growth being driven by an expansion in the market for these APIs? So I'm trying to understand that. We also have very good market share in these first line APIs for third party API sales. If you put both API and formulation in the first line treatment, we have very good market share. And we expect we'll continue to retain that market share despite the growing number of people accessing the treatment. Got it, sir. Thank you. Thank you, sir. We have next question from the line of Krish Mehta from Inam Holdings. Hi, congratulations on the great set of numbers. I had two questions. The first is, can you tell me how much incremental revenue this quarter we got from TLE 400 and TLE 600? And the follow-up to that is, how much of this is us just taking share? Or is this onetime stocking in the local supply chains? We're not giving back to minute details of the split between our revenues in TLE, 400, 600 and DLT. We believe our growth in these revenues is not because of stocking. As I mentioned, we also have highest order book in the company's history. That clearly demonstrate that there is no one off in our numbers in Q2. We have next question from the line of Sameer Shah from ValueQuest Investments. Please go ahead. Good morning, Thanks for taking my question. My first question is this apart from STQS, do we have any other play in any of the COVID related drugs, whether APIs or filings? We are not there in any COVID related API formulation. We are not in Bemidazvir. We are not in Favarvir. We are not in dexamethasone. We are not in any other therapy except the HCQ. But as you're aware, the treatment based out of HCQ, the COVID maintenance is negligible right now. So our revenues related to COVID treatments is negligible or close to zero. Right. And sir, second question on the custom synthesis business, if you can give some more color in terms of what are what is our target segment? What are the kind of orders that we are targeting and stuff like that? And what kind of a size in next two, three years do you want this business to become? The custom synthesis, we have specialized in one is steroids and hormones, and second one is oncology, and third one is large volume. I think we have projects in all these three, both all three, steroids, hormones. We have several molecules in clinical phase in oncology. And we are also working on molecules where the capacity requirements are very large. And, sir, if you can give some color on this, like you said, US, some significant approvals are expected next year. So what are these filings? I can't give any specific details right now. So we can only give details about the file so far, but not the future filings. So we can only give number, but not the specific names. Okay. So but these are these are in I mean, those also would be in oncology kind of segment? No. We we are not finding any ANDAs in oncology, mean, our formulations. So these are nononcology formulations. Okay. All right, sir. Thank you so much. Thank you. Thank you. We have next question from the line of C. Shihadi from BCS Securities. Please go ahead. Yes, thanks for the opportunity and congrats on a great set of numbers. My question is centered around the Dosages business mainly. It's going to be the volume growth data both the Y o Y and sequentially, overall LMIC and the power range? And secondly, on this part of sales, I mean, how do you look at the per unit realization going down the line over the next two to three years? Siri, can you repeat your question? Your voice is not very audible. Yes. Basically, I wanted to know on the basis front, the volume growth, both new and Y o Y, overall, LMIC and for FRWRNG. LMIC and FRWRNG, you're talking? Yes, the volume growth, dosages. In F Range, actually, there was a degrowth. If recollect to our investor accounts several quarters, I think most of the questions were related to F Power Range, the growth, how the shift to dolutegravir and all, at least to I'm happy that you asked this FR range question. Now FR range revenues in the overall company's revenues are less than 10%. It is a single digit. It used to be 50% earlier. Now it is a single digit. There is a degrowth in volume, but our market share has gone up in FRH because many people are not manufacturing it. We became the preferred supplier. Still, it is an interesting product for us, but other molecules are growing. So the percentage of revenues coming from FR is going down. But as an absolute number, still, it is an interesting product for us. Sir, I wanted the in your overall growth, what has been the volume growth? That is what I was asking. As far as there is volume degrowth, in fact. Yes. I'm asking about overall business and LMID business. The volume, in the sense you were talking about you're talking API or formulations, Suhari? I'm talking primarily about foundations. If I didn't have this capacity that you have. Okay. Formulations, the current capacity, majority utilized for LMIC markets. For new capacity, what we're setting up will be majority used for Europe and U. S. Yes, sir. I mean, I understand that. I mean, wanted to know what is the volume growth for the Segil Y o Y and Q o Q? Maybe can you send an e mail to our Monish, and then we'll able to respond? Because we're unable to hear you properly, and we're unable to answer you straight away to the query what we had. Maybe you can take it offline with Monish. Yes, sure. I'll do that. Thank you. Thank you. We have next question from the line of Andrey Pooshuddam from Cogito Advisors. Please go ahead. Congratulations for a great set of numbers, sir. I had basically a question regarding one sustainability of margins, which are very high, right, at 323322% EBITDA and PAT margins. And going forward, I think you said somewhere during the call that the mix that we currently have of what fifty-forty-ten between these businesses is likely to remain similar in the near future. But if I misunderstood that, please correct me. And I also want to know, so how should we look at the growth rates in these three segments over, let's say, a two or three year period? And if you could advise me as to whether the Formulations business is essentially more profitable than the API business? And if that is so, and if that share is going to increase, can we look forward to enhanced margin on account of that? All three divisions will continue to grow. In API division, the new growth primarily will come from non ARV, Onco APIs. And in formulations, the growth will come from both LMIC ARV and non ARVs in Europe and U. S. The Synthesis business is, as I mentioned, we are specialized in large volume in oncology and steroids and hormones. All those will grow. I think if you look at the where we generate significant margins is in Synthesis business, oncology, nononcology APIs. And when it comes to the ARV, APC and formulations, I think because of the volume is very large, we generate much asset turnover ratio. And even though the margins are a little lower, but we generate very good EBITDA number there, yes. So will these margins sustain, sir? We expect so. The revenue growth will continue, and that will help us to have operational leverage. And also, our R and D spend in absolute term will remain around 160 crores, INR 170 crores. But as a percentage terms, we'll go down. And also our manpower cost will not grow proportionally to our revenue. So these will help us to maintain our EBITDA margins. Ladies and gentlemen, we take the last question from the line of Ranveer Singh from Sunnead Securities. Please go ahead. Thanks for taking my question. Sir, just a few clarity on LMIC market, what you are selling is purely a tender business or we have some product outside tender also? In the LMIC, these are on the tender based. And as we clarified in the previous calls, these tenders are not onetime tenders. These tenders are multi month tenders. So for example, we have visibility what product we supply to which country in June 2020. That means that is the kind of visibility these agencies will give. And tenders are not meant for next month sales. So these are very long term, more sustainable tenders. And in many a case, these tenders are not winner takes all. So even the L1 will not get 100%. So there is a sustainability built in, in the tendering process. So we evenly divided across the players based on their performance, quality, their capacity, their ability to meet short term demands. So there are many factors influence these attendance. And we are very comfortable right now with the order book and visibility what we have in the LMAC markets. Yes. So LMAC market, you said 75% of our formulation is from LMAC, right? You're right. You're right. Okay. Okay. And on CapEx side, you said INR 1,200 crore CapEx will be in two years. So this is from FY 'twenty one to 'twenty two or 'twenty '2 to 'twenty three? How this is It's FY 'twenty one and 'twenty two. Okay. Okay. And like in ARB market, because dispensing is moving from single month to multiple months, does it anything imply that some bunching of demand happens because the multi month dispensing and multi month requirements are accrued at one time? So is there anything to do with that bunching of things? Yes, if you could clarify. We couldn't hear your last question because there was a lot of disturbance in your voice and also here. So we couldn't hear your last question, Shah. Yes. So what I am asking that because we are moving from single month dispensing to multi month dispensing, does it anyway imply that we the clients would procure more at once means that there would be bunching of orders or bunching of demand for that ARV prescriptions? The shift is gradual. We also started supplying multi month dispensing right now. So I think there is no bulging of orders, yes. The orders what we have for the future is more for 90s and 180s rather than 30s. But currently, we are still supplying large volume of 30s. So there is no bulging of orders, Yeah. Okay. And and customer and since this business, what would be the contribution of supply to Aspen? We can't give you specifically, but that's attained a peak level of our steroids and hormones. So the growth is coming from non aspirin business. That much I can make that statement. So aspirin business is level from here? Or it has already reached its peak? Aspen business reached its peak, and the growth in synthesis business is coming from non Aspen business. Okay. Okay. That's it from my side. Thanks a lot, sir. Thank you. Thank you very much, sir. Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir. Thanks, everyone, for your interest in the company and also very insightful questions you are asking. Some of these questions will help us to realign our priorities and interest to keep the entire stakeholders' value continuously growing. Thank you. RAMAKRISHNAN Thank you very much, sir. Ladies and gentlemen, on behalf of Kotak Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.