Q1 20/21

Jul 31, 2020

Ladies and gentlemen, good day, and welcome to the Laureus Labs Q1 FY 'twenty one Earnings Conference Call hosted by Kotok Securities Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. I would now like to hand the conference over to Mr. Chirag Pilati from Kotak Securities Limited. Thank you, and over to you, sir. Good morning, everyone. On behalf of Kotak, I thank the Lawrat management team for giving us opportunity to post this call today. From Lawrat, we have with us today doctor Patel Narayan Chawat, CEO Mr. V. V. W. Kumar, CFO and Mr. Munishra from the Investor Relations team. I now hand over the call to doctor Pappler for their opening remarks. Over to you, sir. Thank you, everyone, and a very warm welcome to our results conference call for quarter one financial year twenty one. I wish everyone, their family members, and their colleagues are safe during this COVID pandemic. The national lockdown in late March and most of April 2020 has resulted in very little impact on our operations. We quickly restored operations near normalcy at our plants and our locations by April '20. At LARAS, we are committed to protecting the health and well-being of our employees and their families. We have enhanced the safety and hygiene requirements across all locations with thermal screening on a daily basis along with elaborate sanitation protocols, maintaining physical distancing norms and sanitizing all transport vehicles. With all these efforts, all our units came back to normal levels of production during April 20 itself. I'm very thankful to all our colleagues for rising up to this challenge and ensuring business continuity. Moving on to our quarter one financial year twenty twenty one revenues, we achieved INR972 crores revenues, showcasing a robust growth of 77% down year on year. When we look at our growth pattern, interestingly, anti viral APIs, we achieved 19% growth, $3.36 crores from INR $2.83 crores. Oncology, we grew our business by 13%. Interestingly, other products, we increased our revenue from INR 44 crores Q1 FY twenty twenty to INR 135 crores quarter one financial year 'twenty one. Overall, the generic KPI recorded a 40% growth, almost INR150 crores growth from INR372 crores to INR522 crores in quarter one current year. Synthesis business also recorded healthy growth, 73 crores to 100 crores, but more importantly, the generic formulations division achieved significant growth of $2.46 crores growth from INR106 crores to INR352 crores. In total, the INR551 crores we did in Q1 FY20, we did INR972 crores in Q1 FY21. As we were communicating earlier, we are on track to improve our ARV, API sales to previous digest around INR1350 crores this year itself based on the current forecast. To begin with, I would like to share key updates on our formulation business. The formulation division reported $354,000,000 revenue. The revenue contributions from the FDF segment has improved to 36% of the quarter as revenue is 29% of the whole financial year 2020. The growth driver for the formulation business remains, business in partnership with global fund, PEPFAR and also from various income free tender businesses. During the quarter, we also got approval for the two frontline products, TME 400 and TME 600 and we expect to generate revenue in the coming quarters. We continue to have good visibility for our business in FY 'twenty one and beyond. Apart from the LMS business, we also have a healthy growth in developed markets of North America and Europe. The sales growth in The U. S. Primarily because of increased volumes of existing products and the launch of Hydroxychloroquine, the partner in the March. However, with the WHO, any global price on Hydroxychloroquine and lot of controversies are on the product, we don't foresee any increase in demand in the coming quarters, but we continue to maintain our mid teen market share in Phenomenal. We have a total of eight final approvals and five thirty two approvals, a total of 26 handouts filed so far. In Canada, we have five approvals, out of which we have launched three products, and we intend to launch two more products soon. As far as EU is concerned, I'm very happy to share that the contract manufacturing opportunity for certain non EU formulation products is performing very well, and we have a very robust order book for f f '21 and beyond. Besides these current products, we are also in the process of launching two new products in various, municipal markets under our own label. So far, we have obtained approvals for five products, of which we have launched it too and we will be launching one more product in the near future. During the quarter, we acquired Aspen PharmaCare's South African subsidiary of Tekalan Pharmaceuticals and we renamed it as Laris General CFA PTY. We did this to help us to enter the South African formulation tender market from the next tender cycle. As you are aware, South African ARV market is the world's largest tender driven market. With a robust outlook and order book, we continue to invest in FBS infrastructure. As you're aware, we have undertaken debottlenecking project and the capacity expansion project in the existing building. Both will add to our existing capacities during current day itself. We have also undertaken a brownfield expansion project on the same site with similar capacities, which will become operational during the next financial year in two phases, partly by September 21 and fully by December 21. With this expansion, our FDF installed capacity will be closer to 9,000,000,000 units per year. On the r and d front, we continue to invest similar levels of expenditure, and we end to file about 8 to $10 every year. R and d as a percentage of revenue decreased because of increase in revenue to 4.3% for quarter one after twenty one. And, I'd like to share the status of our filings. 2,600 in US, nine doses in Europe, 11 in Canada, eight with the WHO for the ARV and FV products, two doses in South Africa for ARV, two doses in India for the rail business bus, and we also file 12 products in various rest of the world markets to capture the ARV opportunity. Out of the 26 handouts filed in years, we believe there are nine para four, and out of these seven, forty five opportunity having an addressable market size of over $10,000,000,000. From the beginning, our approach remains product specific, not market specific. When it comes to the division specific information, our ancillary tool business recorded an healthy growth of 19% for the quarter. The growth was led by higher volumes and uptake in TDF along with the commencement of third party sales of gold everywhere. The second line we have is now seeing good traction in terms of customer registration, and we expect to have the revenue generation from second half of this financial year. I expect this this segment to deliver good growth this year on the back of higher sales of the cost line treatment and also the stability in the apparel market and third party sale of manual. When it comes to ontology APIs, we did 51 course in the current quarter, and we recorded a 13% growth. I would like to mention that we have one of the largest high potent API manufacturing facilities in the country, and we have seen good traction on the customer front, and we expect reasonable growth in this business and confident to increase market share for three of our key products. The most important part of our API business is diversification of API revenues other than anti retro wireless. We did very well in that front. We did the non ARV, non AMCO APIs, $1.38 crores in quarter one with the growth of almost 200% when compared to the previous year. The growth in in the segment was driven by new contract manufacturing products along with higher volumes of existing products. We also have a certain amount of dedicated capacities for select opportunities, which will enable us to grow this business further in the next financial year. This business is growing with global partners, and we are in a sweet spot to capture opportunities under the current global supply chain interruptions. On the back of sizable order book, new product introductions, and expanded capacity available, we are very optimistic about the growth prospects of generic API contract manufacturing aspect. The other business which is also, we are very bullish is our CDMO business. We did a sale of 100 crores for the quarter, with the growth of over 31% year on year. Currently, we have close to, 50 active projects, and we have the highest number of customer additions in the last two quarters with programs in various clinical stages. We have incorporated in only one subsidiary, LaraSynthesis Private Limited in May 20. This was done in order to do the business and increase the focus and eventually a dedicated R and D and manufacturing sites in the near future. I would like to inform you that the new subsidiary, Lara Synthesis Private Limited acquired assets of the pharma unit in Wijac for a consideration of 61 crores in the last quarter. This unit will be used to for the early clinical phase chemistries for the synthesis solution. With that, I would like to hand over to Ravi to share financial highlights. Thank you, doctor Satya, and very warm welcome to everyone for our quarter one FY twenty one earnings call. I wish all of you and your family members to be safe and healthy in this toughest time in the history, at least in the same time. So the total income from operations for the quarter is at $9.72 crores. Again, it's $5.54 crores within 77% growth. With better product mix, we have seen an improvement of gross margin by 4%. So this includes the the part of the ForEx gain to the extent of a couple of percentage points. Our EBITDA margin came at 29%, and this is mainly because of the operating leverage and the change in product mix. And our ROCE improved to 32%, that is because of the higher profitability. Our diluted EPS is 16.1 on on a not not angulated basis with a growth of 50%. On the CapEx front, we invested about 91 crores. Apart from that, we also invested 61 crores asset through our wholly owned subsidiary, LoRa and business private linkage. And we have many opportunities to invest in a DF and API infrastructure, and so we'll be entering CapEx close to 300 crores in this year. All the CapEx opportunities are ground field at the center, and we'll have a short payback period. We expect our CapEx program to be. But, of course, we are also looking for an alternative side for the combination, but that will take more time. With this, I will request the moderator to open the lines for the clear list. Thank you. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the restroom telephone. Questions. We take the first question from the line of Karan Rathur from AUM Advisors. Congratulations on a great set of results. So my first question is with respect to we've been hearing a lot of reports with respect to U. S. Pulling out of WHO funding, especially for stuff like AIDS and malaria, etcetera. So if you can just comment on what your view is on the sustainability of your EBITDA sales in LMIC countries as the first question, please? The major funding for HIV, TB, malaria programs comes from two organizations. One is Global Fund, and the other one is your PEPFAR, that is Patient's Emergency Plan for HIV. The Global Fund operates in 100 and countries with a three year funding cycle, and the current cycle is for twenty twenty, twenty twenty three. The current funding cycle pledges 13,000,000,000, out of which 4,000,000,000 allocated for the FY20 for fighting HIV, TB, malaria. What is also very important, Global Fund allocated a billion dollar to mitigate the impact of COVID nineteen on, treatment of HIV, TB, and malaria patients. What it shows, there are increase in the funding during this pandemic. They haven't reduced the funding. The same thing happened with the preferred. They operate in 50 countries as against one fifty countries with global fund. They from the inception, Prafula has spent $85,000,000,000 on AIDS funding itself, and 45% is spent on care and treatment. Even these under this crisis, 100,000,000 additional flexibility was given by Tafar to the countries who are using those funds. US pulling out of WHO has minimal bearing on the funding mechanism. It will have a bearing on how WHO operates in the principles and the policy, but WHO doesn't fund any of these programs. And most of the HIV funding is also coming. At least half of the HIV funding is from in country resources. So there is a little or no impact on HIV funding because of this pandemic or because of U. S. Fully loaded WHO. For that. Sir, my second question is that your API sales others are included by more than 200%. If you can throw some light, is there any sort of one off or something which can't be repeated over the next few quarters? Is there anything of that sort within this case? Or do think that this sort of growth rate can be achieved of base that you've established in Q1? The only one new product we have launched in Q4 FY 'twenty and Q1 FY 'twenty one is iGratic UroQi. That generated less than 5% of revenue and less than 5% of gross margin. So there is no one off revenue or one off gross margin or profitability in the Q1. And then my last question is if you can just talk about a little bit about the guidance in terms of CapEx for FY 'twenty one and FY 'twenty two. And with that capacity, what will be peak sales achievable as per usual renovation for Lumorus as a whole? I can talk about how much capacity CapEx we're investing, and we have to wait and see how much revenue it generates. We are increasing our API capacity by close to 20% in the next twelve months, and we are increasing our formulation capacity by 80% in the next eighteen months. So we have initiated our CapEx program already as Ravi mentioned. And earlier, our CapEx is for future requirements. Now the current CapEx, we know what products we will make and how much we will make. So these CapEx also we are doing in a ground field way rather than creating a green field size. Did you mention 80%? Was the number eight zero? Formation capacity, eight zero. 80%. You're right. Thank you. Thank you. And all the best. We take the next question from the line of Nikhil Mathur from Abbott Capital. So sir, my first question is that how much time does it take for you to get and get visibility on order book and then fulfill the order? The reason I'm asking this question is that in this particular quarter, be it other APIs, be it PRB APIs, combination of synthesis, the growth on a quarter on quarter basis is phenomenally high versus what we were in 4Q or 3Q. So what I'm trying to understand is why was the guidance a bit soft during the 4Q results? Surely this order book would have been a bit visible. Right? You're you're right. Maybe you can blame us as we are a conservative to guys giving forecast. Yeah. We were not giving, but when you're asking, we are not giving how much we will grow also. So today, we can as everybody, since we also have the vision to grow, and we have the ability to grow. We have more products. We have facilities. We have all relevant regulatory inspections done. We wish we will also grow as much as we can. We can only comment at that stage, but we are not giving any absolute number guidance for our revenue or profitability from the beginning. Sure, sir. And sir, across these segments, do you have the order book visibility over the next two, three quarters that whatever sales case has been achieved in different segments that can be replicated in the subsequent quarters? I can understand there can be quarter on quarter variations, depending on certain order, this timing or timing mismatch. But do you are you sounding confident that this particular sales business, all the segments can be replicated over the next two, three quarters? You have to compare our quarter one FY quarter one FY 'twenty one, there is a quantum jump. But when you look at our quarter two number, quarter two, we did more than 700 crores. So we will see some certainly good growth. We can assure you that we have the ability to maintain, to sustain the growth what we have demonstrated in Q1. I'm not able to give you the exact number, but we have the ability to sustain the EBITDA numbers of our PAT numbers, percentage wise. Yeah. Sure, sir. Sure. Another question I have is on the gross margin. Now I think this is very helpful, quantification of FX benefit of couple of percentage points. But if I still compare it to quarter on quarter, I think, as of FX also, the gross margin has improved almost two to two and a half percentage points. And this is despite since this contribution being lower, which is which is the yearly seasonality in your business. So can you help us understand that what is what has changed here that even with Syntylus contribution being lower, the gross margin is still better on a quarter on quarter basis? Or there were some FX loss in 4Q? The gross margin improvement, as Ravi mentioned, partly helped by price gain, by close to two possible points. The other significant reason for gross margin improvement, primarily change in product mix and, improving efficiencies in our process and also purchase efficiencies. And we can also tell you the gross margin improvement is not because we increased our API prices. It is because of our internal efficiency improvement, we're able to improve our gross margins. Okay. Just one final question, I'll just turn back in the queue again. So the employee cost has increased substantially from INR88 crores to INR111 crores in this particular quarter versus last quarter. So is it some front ending or expenses? Or or or is it a new base that we should be modeling for the middle of the quarters in FY 2021? Actually, we were fast forward looking to your lesson very carefully. So can you just repeat the question, if you don't mind? So I'm seeing I'm seeing the employee cost on a quarter basis has gone up from 88 crores in 04/2020 to 111 crores in this particular quarter. So I'm trying to understand, is this is this a new base or there was some front ending of expenses and hence in the subsequent quarters, the employee cost might be a bit lower? We have incurred close to $15.16 crores of employee cost as an incentives during the COVID pandemic in the Q1. Incentives, we have to provide an additional Additional transportation cost to our to our colleagues. So those were closer to reaching up for 15 crores in the q one. And we don't know how Q2 will behave because still we are not out of the COVID pandemic across the country and world. It all depends on how the COVID situation will vary from Q1 to Q2. Sure, sir. And then just one final question linked to employee cost. When is the usual variable payout for your employees? In this particular quarter, is that paid out? Which one? Yeah. Yeah. I'll leave it paid out. Yeah. It's all agreed. Okay. Okay. Thanks a I'll I'll be back in the queue. Thank you. Before we take the next question, I'd like to remind all participants. Please limit your question to two per participant. You may come back in the question queue if you have a follow-up. Next question is from the line of Suji Nahal from Nahal Investment. Please go ahead. Hello, sir. Thanks for the opportunity. Is my voice audible? Hello? Hello. Yes. Please go ahead. Yeah. First of all, congratulations for a great set of numbers. So my first question is, can you provide details around volume growth versus the value growth for the different segments like AIV, API oncology, and other AI in constant synthesis? We we we are not, like, you know, quantifying volume growth versus value growth. As doctor said, there is no price increase. So you need to take it as an Volume growth. Volume growth only. The whole thing is in volume growth. Okay. Okay. Fine. Thank you. And second question is, like, company has started commercial scale production for four products in custom purposes. So if you can share more details around the revenue visibility or opportunity size for this product? We are not giving the details now for revenue per product wise, which is our principle in giving back sense to information on which we are selling with the eyes commercially. But we can assure you that we we foresee volume growth in our commercial products We are in the current financial aid itself. Okay. Okay. And, like, previously, I've already sent a mail to the investor relations regarding if you can give some clarity offline or right now on the call for the NDA approval that we have received till date or something, like, that you have mentioned in this quarter results. So if you can provide that data offline or, you know, that whatever is feasible for you. Yeah. We will ask mister Manish to get back to you with details. Okay. Okay, sir. Thank you. Thank you. Thank you. We take the next question from the line of Prashant Nair from Citigroup. Please go ahead. Yeah. Hi. Good morning, everyone. Just had a couple of questions. So firstly, on the other API sales line, it is so how do we see this particular category growing from here? Is this quarter one day representative of what the ongoing business could be? And secondly, on the other API business itself, is there any element of stocking up by your customers given that you're listening and grappling with the pandemic and the lockdowns? Or is it just usual kind of product? Contract manufacturing of generic APIs is a growing segment of the company, and we expect to you have to look at contract manufacturing, year to year rather than quarter to quarter. Because of production schedules at our end and at customer end, we do make campaigns of contract manufacturing products. And, in if you take the year on year, we are very confident to grow the segment. When it comes to, you can't multiply over INR130 crores into four, can you do INR500 crores of INR100 crores manufacturing? There will be a significant growth year on year, but we can't guarantee you, you can't do the simple automatic 130 crores into four. Prashant, there is no stocking of the by the customer. Okay. So it is more a function of timing of supplies from your end then. Okay. And just one more question. Your cost of debt seems to have come down. So can you just give us a sense of what is the current cost of debt and how do you see this over the next year or two years? The current concept that is less than seven, including of everything. So but we we expect to be improved from now onwards. Okay. We can move it on for the. Yeah. We take the next question from the line of Nitin Agarwal from IDSC Securities. Go ahead. Hi. Thanks for taking my questions, sir, and congratulations on a pretty solid number. So two things. One is on the formulation business, does this business contain largely does it impact does the impact of hydroxychloroquine affected in FTF or another API, sir? As I mentioned earlier, Ethan, the contribution of hydroxychloroquine in your formulation business actually both ethane formulation put together is less than 5% of our sales and less than 5% of gross margin. So our future Quantra's revenue is not dependent on any opportunistic sales related to COVID or any other onetime. Okay. And just secondly, on your finished Formulation capacities, last quarter, you indicated that you were almost running at peak capacities, and you've had a meaningful delta on that number in Q1. So there has been some volume increase in the formulation business, sir. This quarter has just been a is a value increase which have come through in this quarter for for the formulation FPA business, sir? But higher revenues come because of volume growth. We have done some operational efficiency programs internally, and we are also debottlenecking in two phases. The the first debottlenecking will come handy in September, and new line tension within the existing building will come by December. And we also building a very large capacity in the same site, mostly for non ARG products. So we are having constant capacity enhancements, within the existing building as well as we're putting it in new building. You can hear me there? Yes, sir. Yep. And sir, this is just sort of a wrap up. Just one last question. Sir, on the gross margin improvement as you alluded to in the in the past, So q o q, if you look at it, you said two percentage improvement essentially is on is on Forex. On the mix, sir, the bulk of the improvement, is it on a on any particular segments where the improvement in gross margin has come from on the API side, or is what is it really driven? Because, you know, it's been a fairly sharpish improvement even adjusted for the forex gain, sir. Majority of that gross margin improvement came from API business. You are right, Vijay. Okay. Okay. Thanks, sir. Thank you. Thank you. We'll take the next question from the line of Tushar Manotani from Motilal Oswal. Please go ahead. Yeah. From grade numbers. I'm sorry to interrupt. Your audio is not audible, sir. We are unable to hear you. Am I audible? Yes. Thank you. First of all, from grade two dot numbers. In other API segment, it consists of non ERP, non encode where we want the VM apps. And we also do contract manufacturing with generic KPIs for other customers. There is no product concentration in other APIs. It's very well spread. And in the other APIs, we are there is no ERP product or ANCO product we are doing contract manufacturing. Okay. Got it. And on the ARV API side, when should we see, you know, up to the external other, you know, on the external sales side? You're right. The increase in the early API sales primarily came from increased volumes of Tenofov and third party sale of Lamy Woodin and ZOLD Aggregates. Why I'm saying third party sale of Lamy Gold Aggregates? These are new approvals to our customers. Whereas Genoculate, we had a most of the customers were approved much earlier. So the sale improvement came from three APIs, Genoculate, Gold Aggregates, and LAMI. So on the VPG side, I mean, as of conceptually, it was like this is relatively low volume product compared to the SRM. But despite that, this but if you can just highlight what kind of market share we have now on DPC API side through sale to the coordinator? Actually, we are trying to improve our market share from for the. We started commercial sale only in the actually, q four, FY 'twenty. So we expect to to increase our market share as the Voltegra will increase its market share in the first line treatment. And when it comes to f power range, what is also interesting, f power range demand came down globally by 60%, but our revenue drop in f power range is not 60%. That means we were gaining market share of f powering even though volumes are going down. So we can say the f powering sales have stabilized. That was the reason of where we had a lower sales in the previous quarters. Now we are back on track to a true growth led by Tel Aviv, Dolby Digital and Lambda within. And next year also, we expect to grow in early APIs primarily because of second line APIs, we start selling from second half of this financial year. Got it. Got it. Got it. Just on this, why we have eight AMD approvals, but we have commercialized to maybe one. So any particular reason for not or rather postponing the commercialization of the NDA? Is it to do with the economy priority or the capacity constraints or some other products becoming more interesting? No. We we have a very different plan when we are launching. We are also getting in country approvals. So you get approval from, FDA. It's not the only criteria. You have to get the local country approvals also. We're in the process of getting these approvals, and we will launch KLV400 in Q2 itself. Thank you, Rajiv. That's it. Thank you a lot. Thank you. Thank you. We take the next question from the line of Kausu Dubna. We take the next question from the line of Amai Chalki from Hiram Securities. Please go ahead. Hello. Thanks for taking my question. And also congratulations to the management on great sort of numbers. I have two questions. First, it's related to PLD. Sir, if you can explain the PLD landscape at present in the tender market, I mean, how much which has happened from your older products to the newer therapy and who all competitors are acting in how many competitors are acting in the market? And also, if you can give some color on the the expected price movement ahead or the new entrants you expect in this product? In the first line, DLP treatment occupies maybe 70% of the market share, remaining 30% is done through TLE or TLE, and we expect that ratio will continue in the future as well. And the first line API first line ARV treatment value broadly will be $1,500,000,000. So you can say DMP as your sales could reach a billion dollar for all companies put together. And, sir, do you expect any new interest on Indian in the CND market? Because I believe there are four players currently. So There are eight approvals right now. There are eight eight approvals right now in the DLT. Four actually, five are commercially selling, And I think there is a market for everyone. We are not worried about new players coming in. It all depends on the ability to meet demand when market exists. We believe we are well prepared to take the opportunity. Okay. Second question related to the ALE and TEE. Now considering this large part of the market has already been shipped to the ALE, Do you think there is still good opportunity left in these other approvals? We strongly believe there is an opportunity in PLE 400. There are only two approvals, and we are the third one. So the market shifted from TLE 600 to TLE 400, and we believe TLE 400 will be used primarily for the women HIV patients because of significant weight gain observed on Zoltogravir treatment. So 20% to 30% market share will be abhorrent based and the remaining will be Zoltogravir based. Okay. Okay. And, sir, just to get get some comments on the recent government API scheme. How do you view it for the Indian API? And, also, are we are we looking forward to participate in this scheme? Yeah. The PLS scheme announced with the government is a good step towards your self sufficiency in certain API. And we are evaluating the opportunity, and we will participate in few of the APIs where there is a product already we have developed and we have capacities. And we are looking into it. Thank you, sir. Thank you for taking my questions. Thank you. We take the next question from the line of Kasim Bhubna from DARE Enterprise. Please go ahead. Hi. Could I please request you to give me the breakup of your generic FDF business? This $3.52 crores of revenue which you did, could you break up rest of the world tender North America and Europe, the amount of revenues in percentage terms? But as we were discussing, this is three fourth to LMIC and one fourth in advanced market. I think the revenue is broadly passed into that ratio. Okay. Great. Thanks. Thank you. Next question is from the line of Madhu from MK Ventures. Please go ahead. Lots of congratulations to you and the entire team for brilliant set of members. My question is maybe medium term with the kind of cash flow with the company generating, when do you think it will become free cash flow positive given your robust CapEx plan as well? I will ask you, Rajiv, to answer this question. Are even in the quarter one, we are at free cash flow, but with a small amount to because the end of this also increased to get up and further revenue growth in the coming quarters. So the year itself, we will have a free cash flow even after spending the CapEx. But Ravi, do you think that debt will come down substantially over the next two, three years? Debt will it all depends on the opportunity. If you have a better opportunity for investment into further CapEx and business, we will definitely will consider we'll not consider in debt reduction. We will use for the CapEx expansions. If we don't find that reason, then we'll be paid. If you look at our debt, the overall debt cost is around the 6.6% rather. So and it will further come down. It is not very significant. Even if we take a tax rate, the effective debt cost will be very small. So, Ravi, just one last question for me. What is the risk which you see, if at all, any over the next two, three years for the company? Hello, sir? The the risk, Madhuji, the risk will be the regular risk of any of any of the pharma business, the regulatory and the safety. Other than that, we don't find any major risk anticipating. But the reason, sir, I will add one point here. There is no capacity risk. We have no capacity. There is no Sir, ma'am, this is the management. We are unable to hear you. Hello, sir? There there is no capacity risk. There is no product risk. There is no you're online. We are just trying to reconnect the management back. Hello? For you, sir? Yeah. Hear me? Well, I can hear you. I can hear you. Yeah. Okay. I think, since, when it comes to the risk, there is no regulatory risk, we believe. There is no product risk. There is no customer risk. And in the therapies where we are right now, they're all chronic, and we don't see any seasonal variance in the uptake as well. So looks like we're in a good platform right now to, maintain, this growth and provide sustainability to all of you. And this is fantastic, Dashaab. Congratulations once again on all the very best. God bless. Thank you so much. You. We take the next question from the line of Sachal Kapoor from Unseen Risk Advisors. Please go ahead. Well, hi. Thanks for the opportunity, and many congratulations, Doctor. Sachal, on this fantastic set of performance, really beating all expectations. So just a couple of questions. First up, on our CDMO business, today, we have a total of 47 active projects and four new commercial supplies, which is paid. But can you also share the number of customers we serve today and how that number has changed over the years? That's one. And on the presentation slide deck, you mentioned that several late stage projects have So would you mind sharing how many molecules do we have in Phase III? Yes. Currently, Thank we are working with four out of top 10 big pharma and several small, medium and virtual biotech companies. We had success in all categories, big pharma, medium and virtual companies. We have, as we mentioned, several in the late stage. We can't quantify right now because that is the challenge with this n c one q. We don't know whether which molecule is moving to the next phase and how much market they get. But we have added significant number of customers in the last two quarters. Interestingly, a couple of customers' opportunities are very large opportunities. We can only say this. Beyond this, this has not been a problem for us to give details on the customer projects. Sure. No. I appreciate the confident confidentiality in this business. And second question, doctor Patel, is on this reported shortage of the HIV medicines in about 70 countries. So what's your take on this statement? It came from WHO, so it's credible. And, also, the we now have the market acceptability. So do we have the requisite requisite capacity? Because this shortage should mean that there should be a surge in the requirement and the restocking has to take place because it's essential medicines. Yeah, what's what's your sense of this acute shortage in the HIV medications that several countries are not reporting. Yeah. There are two aspects here. The most of the countries are going to month multi month dispensing. Every year, they used to dispense you monthly medicine. Now they move to three months. Eventually, they want to move to six months to, pack. That means they get one eighty tablets when they go and see a clinician. So that is one. And second, the supply disruption happened, especially with one drug called lopinaviritanomir, where there are lot of high flow because it is used in the COVID treatment, a lot of stocking happened in that drug. That was in the shortage for in many countries in the second line. There were alternatives for second line. So I don't think the same kind of scarcity exists today because many studies prove a lofanuir etanovir is not very effective in reducing the treatment time for COVID. So the type is lower. So we don't expect any shortage of insurance medicines right now. Yes. Sure. And very quickly, if I may, one last question on Predominant. Pfizer recently reported a significant drop in the revenue of Lyrica, which is near brand. It's down 70%, which means that we should be gaining more market share in in in the near future. What what's your take on this one? I think we are maintaining our market share. We the five year using revenue is because of, debit market share to our delivery companies. We haven't seen any increase in our share, but we are glad that we're maintaining our share right now on trade off line. Thank you so much and all the very best. Thank you. Thank you. Thank you. We take the next question from the line of Cindrella Carvaro from Centrum. Please go ahead. Thanks for the opportunity and congratulation on a great service on this. So just want to understand your thoughts. You mentioned that on the like and when you have a tutoring, we expect to see more growth. Could you help us understand any any highlighting any market share that we intend to garner there? And what kind of when we would be able to achieve that inflow coming two years or so? What's the thought of that? In the second line, we filed the DMS last year and our customers who have taken material for a good batches and we expect the approvals to come in the second half of this financial year. And significant revenue will come in the next financial year. With the development of several second line API, we believe now we have a few basket of APIs covering both first line and second line, including, some pediatric products. Any comment on the YAMI wording? Where do we expect it to reach? Lamovidin primarily is used in first line. The second line APIs are Abacavir, Amazonavir, Lothenavir, Retinaavir, Darlingavir. Now we have the APIs, the new file reviewed by global regulatory authorities, and our customers will get approval soon. So Nami Wooden is not widely used in the second line. It is used in primary in the first line. Okay. And sir, any thoughts on the recent volume growth that you alluded to in the other API segment? What are the key drivers in terms of any strategic change that we are seeing here because of the disruption disruption on the supply chain or the China IP. So what are the key long term drivers that you see? And are we receiving more inquiries to add some new products to our quickly with our clients? What is the sense on these? If you could help us, sir. We haven't seen any growth coming out of the current supply chain disruptions. But we expect to more opportunities to come in the near term, and we are planning to create capacities to take those opportunities. As we mentioned, the change of an API source will take anywhere between eighteen to twenty four months. If supply deserves snapping last month and somebody's getting an opportunity, I I don't believe so. So we have some more inquiry for the contract management question, or opportunities for non AIRV APIs, which we expect to really materialize in the next two years. And we see a lot of opportunities. Okay. Thank you so much, sir. Thank you. We take the next question from the line of Sujit Pals from Prakritas Gulathar. Please go ahead. Yeah. Thanks for taking my question. I would like to ask one question is that, you know, given the kind of scenario in in in the global fund where we are seeing lot of diversion of fund going crazily for COVID nineteen, you know, r and d expenditure as well as procurement going forward when vaccine will come or when this will come more, You know, do you think in short to medium term, there could be shortage of optic as far as HIV drugs? And in long term, there could be possibility that out of the total pie allocated for HIV malaria and TB, we'll also have to give a space to this contagious disease because that could be very dangerous for the HIV patients, and that could going for a lower price for PLD? The amount of money spent on HIV drugs is 2,000,000,000 out of close to 20,000,000,000 spend on the HIV pandemic. And in the 2,000,000,000, if you take countries like South Africa, Nigeria, India, China, Thailand, Brazil, Mexico, they have a forty percent of HIV infected patients in those countries. And these countries' economies are good enough to fund on their own, even there is a challenge. So if at all there is a challenge, they will they stop giving drugs to the existing HIV patients or will they stop enrolling new patients? We believe, the money for treating HIV patients is not a challenge because so much of advancement is done in controlling and eradicating this epidemic, and this will be continued. Mate, my point is that it's it will definitely continue, ma'am. Definitely, they cannot let go the HIV patients. But the point is that either they can force the companies to reduce the, you know, PLE price portion because they also have to, you know, fund the contagious disease which currently going on. And that might be something like, say, they might be going clearly. Companies are not reducing price of TLD, or they might be reducing TLD where the commercial prospect or the attractiveness might be lower than what it is currently. We haven't seen such kind of pressure coming so far. So, but there is a possibility, but we haven't experienced that. Yeah. Sure. Sure. Here here, just to give go how the procurement mechanism works. The procurement happens for the quarter one calendar year '21 right now. So people buy for future growth of supplies, then nobody buys for the August supplies in July. So we haven't seen any pressure on pricing so far. Okay. And, could you please elaborate in terms of Forex gain this time? Yes. ForEx gain because the rupee has been depreciated. It's almost like 5 rupees when compared to the average of last quarter and this quarter. Okay. Okay. And what is the quantum in in your numbers this time? The quantum see, the the we were saying around 2% gross margin increase. That's around the around 15 to 20 crores. Okay. And any any further explanation for your huge jump in EBITDA in your in your robot front? The EBITDA is the the only because of the volume increase. We we got an operating leverage. Okay. So that is the main reason for such a jump in margin in EBITDA leverage? Yes. Correct. We take the next question from the line of Ranveer Singh from Sidoti Securities. Please go ahead. Yes. Thank you for taking my question, and congratulations to management for a great set of numbers. Sir, a few questions on like, on Europe, our contract manufacturing for that formulation business. I wanted to understand a little bit in detail. Although this is a small business right now, but if, you could give some more light of what category actually what therapeutic, category we are catering to in that camp and, how many, customers currently we have, for this business. So overall, where we see next two, three years this business going to? In the everyday contract manufacturing, right now we have one customer. We are doing up to 1,000,000,000 units in bulk for that customer per year right now. And we we have a few more product addition in the next year, and we're also adding one more customer. So we expect the 1,000,000,000 tablet contract manufacturing in the next eighteen months will go to 2,000,000,000, by which we are already creating capacities. Okay. Fine. And secondly, what we purchased from Aspen, what are the cost of, that acquisition, the unit we purchased from Aspen? We only acquired a company. We purchased the shares of the company with R75,000. R70,000? 75,000, yeah, R12,000. Yeah. It's small. Yeah. Okay. So not a big one. And just a missed on debt, what's your current debt right now? Around 1,100 crores. So the same same level of debt we are maintaining for several quarters. And we are not expecting it to go down? You said you will focus more on CapEx, right? Yes. Okay. Okay. Fine. And what's your CapEx you guided for FY 'twenty one? Around 300 crores. That's what we said. So already 150 crores we have done in this quarter, 90 plus 61, 91 and 61? No. When we when we say CapEx, it's only CapEx. That is out of 90%. So the 60 crores is an additional. Okay. Okay. Okay. Fine. Fine. And if just the last one. On the DLTs upfront, how the demand is linear every quarter? We see the demand is coming in a similar way of this system, you know, that currently the order we currently we have. So what percentage we have already gathered and what opportunity remains? Or it is difficult to quantify. So what do you assume here? It is difficult to quantify, but we are running at the optimum capacity on the product. We are also increasing capacity for the product. Okay. Okay. Okay. That's it from my side. All the rest, sir. Thank you. Thank you. We take the next question from the line of Ketan Tal Rejha from Kotak Alternative Asset Management. Please go ahead. Yeah. Good morning. Can I hear you? Yes. Yeah. So the first question around the gross margins. A lot of API companies seem to have, you know, an expansion in gross margins in the last two quarters. I presume key starting ingredient prices have come down. Would you also have experienced a drop in key starting ingredient prices? And would if so, what would have been the contribution of that in your gross margin expansion? We can't quantify, but there is a softening of some raw material. See, overall, I would say, the gross margin improvement primarily attributed the product mix, process efficiency, raw material purchase efficiencies and as Mr. Rajiv mentioned, it also becomes also price gains, price gains because of price gains. So the impact of a drop in KSN is negligible? Yes, yes, very negligible. Okay. And the fixed gain that you have had in your gross margins, eventually, do you do you feel that might have to be passed on? Or you feel that, you know, the gross margins as they stand in 1QR are fairly sustainable for you going ahead? No, we are not passing on that. Actually, we probably it will be sustained if the exchange rate is at 75 in the similar level. If your rupee appreciates, so this will come down. Okay, okay. Second question around your formulation sales. Can you give the the growth for the LMIC formulations and the regulated market formulation separately? What would have been the growth in both of these? We are not giving that classification, but broadly, we as I mentioned in the previous questions, we are being three fourth of our population revenues in LMIC, market and then one fourth in the advanced markets of North America and Europe. Okay. And the LMIC formulation sales would entirely be coming from dolutegravir combination as of now? No. It's with Dolby Vision and other formulations as well. And the majority is Dolby Vision. How much is coming from the TLE combinations out of the total ballpark? Any any idea of TME 400 and TME 600, we are going to launch only in this quarter. So revenue will only come in q two. We're not we haven't generated any revenue in q one from TME. And and given that that, you know, you you you are running at full capacity and clearly presents a a very good opportunity for you in the TME 400 bracket, you know, with your with your debottlenecking, you know, by September, be able to address your need of capacity to to service the d n e 400 market? Yes. Yes. Okay. And since since this is a three player market, you see the possibility of significantly higher market shares where vis a vis the dollar type of market? The TL, dollar type of market is much bigger than TLV market. So even we may get to higher market share in TME, but the quantum of revenue coming from voltage based formulations will be much higher than the power based formulations. At optimal, could you could you give us some idea, you know, at optimal MMIC formulation sales, what could the combination be between the and the kind of and the p h TLE combinations? Will it be seventy, thirty? Will it be eighty, twenty? Any ballpark number? No. No. We we are not giving that kind of minute details right now. Yeah. Okay. And and the formulation capacity, you are expanding by 80%, if I got it correctly. Is that going to improve entirely for for the NYC market, or or is it also to address, you know, the other opportunities? And by what time frame do you feel you'll be able optimally utilize that? Our new green brownfield capacity is coming in two phases, partly by September 21 and fully by December 2021, and we expect about 4,000,000,000 tablet capacity. That additional capacity, which will come next year, will be primarily used for non ARUs. Nothing will be used for ARUs there. Okay. And South Africa, you always maintain that is is a bigger PLE market, which are the double tender combination. How that you you prepared for for the new tender site in there. Can you give us an idea of what's the ratio of to kind of the PEE combinations in South Africa? And when does the new tender cycle happen? New tender cycle will start from 02/2022. Right now, it is evenly divided between Afouranil, Zoltegravir treatment in South Africa. And by the time next tender cycle starts, we expect it will be 70 five-twenty five in favor of Zoltegravir. Okay. And and within ten o four d, there is also some talk of shift from PDF to ES, which is the alphanomide formulation of of. Do you do you see that happening in 2021? We don't expect. We don't expect that which will happen. Okay. Sir, request you to rejoin the question queue for your follow-up as we have people waiting for the turn. Okay. Thank you. We take the next question from the line of Kunal Mehta from Valem Capital. Please go ahead. Sir, I have a question, sir. For the benefit of all the participants on this call, can you just explain us the whole cycle of procurement for the credit fund? I mean, you mentioned it's a three year cycle, and after three years, you would have different set of contracts which will be removed based on the interest on the fees paid at that time. So could you please, Prakash, what is how how does the contract work on a senior basis, and how are the revenues allocated for how are the how is it being allocated for a year? And then once the contract ends, how how does the renewal process work? Actually, your wife is not very audible. Maybe can you repeat your question? Sure, sir. Sir, I wanted to understand, how the prices for the previous one procurement would work? So you mentioned that the current contract is available since 2023. So can you please explain to us how how would the renewal of the contract take place from Vodafone's? Would it be bidding all over again once the contract when this period expires? The the global fund What? Based on, they will allocate a certain percentage of their purchases during this period. They may not give you the exact number. Companies will get certain percentage of their purchases. So that is the contract they signed. And, typically, they honor the contract, and the prices will be negotiated for every set of orders. I will not say every other set of orders. They only commit percentage of their purchases, and they generally buy more than that. They don't commit to 100% of what they will buy. So they commit maybe between 60% to 80% of their purchases, to the established players and keep certain percentage of the new entrants. And that mechanism is working very well for the previous cycles also. Sir, sir, and just a follow-up on this one. Sir, you mentioned that you have strong visibility in FY 2021, which is till the end of this financial year. And the additional capacity which you are planning to add, it it is mainly non here, non non entry into Guarage. So I just wanted to understand, so what visibility do you have for the LMIT business in FY twenty twenty two? And did you question right on this? See, if you look at our API journey, and we also mentioned in our investor presentation, how the diversification happened from 80% of our revenue coming from the ARV APIs in 2015 to 33% of revenue coming from ARV APIs in quarter one FY 'twenty one. Lot of diversification happened, and we expect the similar diversification will happen in formulation business, where majority revenues are coming from ARV, right now. So the diversification will take its own time, and we started taking steps towards that by building capacity, mostly for non ARV products. And coming back to the question, will the company will have enough capacity to take more opportunity in ARV? Answer is yes. So just wanted to understand this better. You just think that once we reach a certain level in ARV, it's supposed to be reached INR 300 crores by the end of this year. So next for the leg of growth the next leg of growth will come from non ARV products rather than ARV on the the LMIC side. Is that understanding correct, sir? We have lot of scope to grow in ARV also, but the capacity we have enough capacity for ARV growth, but we know how many products we have filed in non ARV when we are getting approval. Based on the timeline, we are increasing capacity non ARB. Understood, sir. Understood. Thank you for taking my question. Thank you. We take the next question from the line of Sangeetha Prashotam from Cochiro Advisors. I'm Andre Purutoto. Sangeetha is partner here. We are relatively new to your stock. So I just want to understand the FTS business has exploded in the last two years. Can you explain to us what has led to this spectacular success? What are the drivers of the success? And how do you see these drivers sustaining in the next, let's say, year or two? Okay. In the formulation business, our growth family came from the early eleven to market, and growth from Europe came from contract manufacturing. And in the year two, from our own products. We expect to all these three will grow, the RV, LMST as well as the European business because we are also launching new products in Europe on our own label and also contract manufacturing expansion to other customers. And in US and Canada, we are launching in Canada two new products with Financially, and in US, we expect to launch at least 12 products with Financially. So our growth trajectory is very healthy in all these markets. Sir, this is Sangeetha Purushotan. I had a question on your numbers. You mentioned that there has been an exceptional two basis points benefit that you got because of exchange this quarter. So that would account for roughly, say INR 18 crores to INR 20 crores. At the same time, you also had some extra expenses, which you incurred because of incentives and COVID, right, which I think you mentioned the number was again in the in the mid teens, like, 15. Would that be right? Yeah. You're right. Okay. And so, broadly, the benefit would, in some sense, have got netted off by the extra expenses that you're having. And you have some 5% of your businesses come from which is in the form of one off. Now if you sort of net this out from your total performance, then we're really looking at maybe a part of somewhere in the region of 155 crores to INR 160 crores, if we were to net out all these impacts. My question is, sir, is there a seasonality to your business? Or when we are looking at the company, can we expect some I'm trying to project for this year. For the remaining quarter, should we expect a similar or can we expect a similar performance? So there would be you know, some seasons which would be impacting the performance of the company? There is no seasonality in our product portfolio. And as you mentioned, the iDACIC were actually contributed less than 5%. Right. And less than 5% of our sales and gross margins in q one. But that doesn't mean we are not selling anything in q two. So Right. We we continue to sell iBack support in q two, q three also. But we expect the revenue will remain in the same level. So there's no one off. You can make it out in q two. Right. Except you calculated very well the COVID related expenses to and finance your ForEx gain. So other than that, there's no nothing to subtract our given number for QD. Yeah. Right. Okay. And, sir, the COVID related expenses, I'm assuming would continue for a few more months, right, because the situation has not really changed too much, or would that be not a right assumption? Probably, we'll continue, but to a lesser extent, in the quarter one, we also incurred almost $1,000,000 on the extra freight. Right. But that was not there in Q2 for sure. Right. Okay. Okay. Fine. Thank you very much, and congratulations on a great performance. Thank you. We take the last question from the line of Ashwinani from BOIXA. Please go ahead. Yes. Thanks for taking my question. Can you help me understand the strategy behind the Simplicio business as of last financial year, you have grown and grown revenue? Can you talk about the next three to five years, how do you expect this business to shape up given that a lot of the products are going into it currently within So what's the thought process in this segment? How would you like to talk to that? Thanks. Since this is business, the gestation is very, very long, But it is also very interesting business because the the there is no development risk because customer will give you the product basic process and you optimize and start giving. And the the result price pressure, volume will only go up if molecule move from early clinical phase to advanced phase and commercial. We have lot of hope, opportunities, and we are also putting best efforts to grow this division. And we are also confident because of the, product pipeline, what we are working with our partners. So this division will definitely grow, but you can't quantify this division based on quarter on quarter because of the supplies do happen in one last. As you have seen in q four, our revenue for this division was almost INR 150 crores because of the supplies of the commercial product. And we will have similar supplies in q four of FY twenty one also because the customer will date between January and mid March come up in supply. And because of the opportunities we see, we have created a 100% subsidy for this division. We acquired a asset of the facility to give more focus and flexible to do it. We feel we are in a right position and we are moving in the right direction. Could you could you talk about what is the profitability in this segment? Some of your listed peers report profitability in excess of 50% in that, for that in that range. We do run profitable due to dividend, but but we cannot share those details. Yeah. Okay. So it will be the most profitable segment by far? Pardon? It would be the most profitable segment for you by far? Yes. Yeah. So if the corporate average is 29% in this, in this quarter, I mean, this would be the higher margin. Yeah. Absolutely. Right. Yeah. Okay. And should one assume that this is an opportunity and the commercialization of the products that we are looking at of the 47 products. I mean, it could be in the vicinity of 800 to 2,000 crores of revenue in the next three to four years in this this vertical, you said? We're not giving guidance, but products have a lot of scope to generate significant revenues if they move from early access to commercial space. Got it. And any focus you have between biologics or the patent inside of the regular pharma or it's nothing of that sort? That segment is we have molecules in different therapies. Yeah. Okay. Okay. Alright. Thanks a lot for showing this. Thank you. Thank you. Well, ladies and gentlemen, due to time constraint, we take that as the last question for today. I would now like to hand the conference back to the management for their closing comments. Thanks, everyone, for the very interesting questions on the gross margin EBITDA and future growth area opportunity. Thanks to Chirag and Kotak team for organizing this conference call. Thank you. Thank you. Thank you. On behalf of Kodak Securities Limited, we conclude today's conference. Thank you for joining. You may now disconnect your lines.