Ladies and gentlemen, good day and welcome to Laurus Labs Q2 FY 2027 Earnings Conference Call hosted by DAM Capital Ltd. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is now being recorded.
I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors Limited. Please go ahead, sir.
Hi. Thank you. Hi. Good afternoon, everyone, and a very warm welcome to Laurus Labs Q2 FY 2027 earnings call hosted by DAM Capital Advisors Limited. On the call today we have representing Laurus Labs management, Dr. Satyanarayana Chava, Founder and CEO, Mr. V.V. Ravi Kumar, Executive Director and CFO, Mr. Krishna Chaitanya Chava, ED, Head CDMO, Mrs. Soumya Chava, ED, Affordable Medicines and Commercial, and Mr. Vivek Kumar, AVP Investor Relations. Before we proceed, I would like to remind you that some of the statements made during the call today could be forward-looking in nature and a safe harbor statement to this effect has been included in the press release that has been shared on the company's website.
I hand over the call to Dr. Chava to make the opening comments and then he will open the floor for questions. Please go ahead, sir.
Thanks, Nitin. Good afternoon to all our stakeholders. We are pleased with the substantial progress company making across various business segments. We continue to report strong growth in CDMO business, steady momentum in affordable medicine portfolio because of our major advancement in our partners' clinical and commercial programs. The strong performance reflects sustainable, robust demand for our specialized capabilities, integrated offerings, depth of our customer relationship, and disciplined operational execution by our team. In line with our accelerating transformation strategy, we are actively investing into building scientific capabilities and capacities across complex and new modalities. The company's total reactor volume for small molecules API in operation has now reached over 9,000 kiloliters and will continue to expand further.
We are also pleased to highlight some of the important disclosures we have made in this quarter's investor presentation on the advancements we are making in our integrated peptide CDMO capability. We commissioned commercial scale peptide manufacturing block. Our current reactor volume for solid phase peptide synthesis is over 16,000 L, and we have taken up a significant further expansions to meet diverse program requirements. We continue to strengthen the capacity of liquid phase peptide synthesis and several new technologies. We are also augmenting our capacities through disciplined business development. During the quarter, we have announced investment into two technology platform companies.
The one is an agreement to acquire majority 60% stake in Canada-based Galenvs Sciences, specializing in oligonucleotides and precision magnetic nanoparticles-based purification. By leveraging Galenvs' expertise in early-stage oligo projects, process development, conjugation, precise purification, and fill finish, along with Laurus' large-scale expertise in complex chemistry, we intend to support clients with seamless journey from complex RNA/DNA-based therapies as a one-stop solution. Together, this will expand Laurus' position to participate in emerging high-growth oligo market.
Second is an acquisition of a majority stake in SI & C Resins, a peptide resin technology-focused company based out of Hyderabad. This will allow us to enhance long-term supply security by insourcing critical solid support resins for peptide synthesis, and also chromatography stationary phases for large scale peptide purification. This will boost Laurus' manufacturing competitiveness and reliability with our current and future partners' programs. These acquisitions are aimed to advance Laurus' integrated scientific capabilities under one roof. These acquisitions are strengthened by Laurus' quality infrastructure that will cater to more complex customized projects, along with significant increase in future therapeutic demands.
Moving on to our financial results. Laurus has maintained its growth trajectory and once again delivered a record revenue and profits for quarter two. Total revenues were INR 2,206 crores, reflecting a continued strength of our CDMO platform, growing contribution from commercial phase supplies, and ongoing momentum in affordable medicines portfolio. Gross margins were also healthy and maintained around 63%, and EBITDA margins further expanded over previous quarters by 2.7 percentage points to 34.5%. Our product mix and operating leverage continue to do well, supporting healthy margins overall.
I would request Mr. Krishna Chaitanya to share key updates on our CDMO business.
Thank you. Coming to the small molecule CDMO, the business has continued to deliver robust operation execution in Q2, reporting an 86% growth with the sales of INR 875 crores. For the first half of the current financial year, the division recorded INR 1,710 crores. That equates to about 77% growth. This performance was driven by successful delivery of critical late-stage programs as well as commercial API supplies to multiple global partners. We also continue to see encouraging demand on the newly commissioned assets across both human health and animal health businesses, both in terms of the volumes and opportunities with existing partners as well as with new client engagements. The company remains focused on enhancing our core capabilities and capacities to better meet customer demand, driven by continuous expansions.
As Dr. Satya highlighted in the opening remarks, we have commissioned our peptide manufacturing facility and our investment towards other multiple large-scale API opportunities continues to take place in our Vizag site. Strategically, we are elevating client collaboration on complex new modalities, and our focus remains on securing fully integrated projects, seamlessly supporting partners from preclinical development, going all the way to finished drug product services. Driven by this end-to-end capability, our CDMO pipeline continues to expand. We are adding clinical programs across a highly diversified mix of manufacturing technologies as well as therapeutic indications. I would say with our capability expansion, deeper integration and expanding pipeline, Laurus is well-positioned to sustain a healthy business growth in the coming years.
Now, moving on to Laurus Bio. The Laurus Bio division reported Q2 sales at INR 29 crores, and for the first half of this financial year, that is at INR 64 crores. The year-over-year variation is primarily due to the campaign phasing, though our underlying pipeline momentum remains strong. We are actively increasing longer-term strategic relationships with our major customers across both AOF as well as CDMO programs towards anchoring our future pipeline. On the capacity front, our commercial fermentation facility, Laurus Bio -4, is progressing as planned, and we expect this to be operational by the end of this year, and we are already advancing on customer capacity reservations for this facility.
I would request Mrs. Soumya Chava to share key updates on our affordable medicines portfolio.
Yeah. Thank you. Revenues from the affordable medicines stood at INR 1,302 crores in Q2, which represents a strong 15% year-on-year growth. For the first half of this financial year, we achieved a healthy growth of 13%. This growth was driven by continued expansion of our order book across various established portfolios, which was also supported by stable pricing in both our ARV portfolio and developed market portfolios. Looking ahead, we remain committed to investing in the business in line with evolving market requirements. The positive long-term outlook is underpinned by a robust pipeline of new product launches, integrated CMO engagements, and ongoing expansion of product registrations across key emerging markets, which is creating new business opportunities for us.
I am also pleased to report that despite the heightened global volatility, our supply chain has demonstrated exceptional agility, enabling us to maintain highly reliable delivery performance for all our global partners. With respect to our strategic KRKA joint venture, progress at the formulation facility remains firmly on track. The phase one production block are scheduled to commence operations in mid-2027, which will significantly enhance our commercial capabilities with a focus on high potent and general OSD manufacturing. On the filings front, we have cumulatively filed 92 DMFs to date. In developed market formulation business, we filed two dossiers and received two approvals during H1. Overall, we have cumulatively filed 96 products to date. Thank you.
Thanks, Krishna and Soumya for the overview on CDMO and affordable medicine segments. On the R&D front, overall spending to sales for the first half of this financial year was at 4.3%, increased by over 34% year-on-year. Which has been exceptional, primarily on account of capability development efforts for our gene therapy ADC technology infrastructure. To maintain our commitment, we invest in portfolios focusing on product complexity, scale, and sustainable technology platforms. I would also like to share a brief on quality and ESG. In the first half, Laurus underwent 59 quality audits by multiple regulatory agencies and key partners, and has been successfully cleared audit inspections without any critical findings.
On ESG front, we continue to drive sustainability initiatives with continued recognition by leading global rating agencies. Meanwhile, we are also making operational progress against our SBTi-validated near-term GHG reduction targets. You can see more in our IR slides. To conclude, we are pleased with the way we are executing our transformation strategy and the headway we are making into building a stronger foundation for future. By broadening our integrated capabilities, diversifying our pipeline, and advancing key commercial opportunities, we are well-positioned to accelerate our long-term growth trajectory.
I request Mr. Ravi Kumar, our CFO, to share overall financial highlights.
Thank you, Doctor. A very warm welcome to everyone to our quarter two and H1 earning call. Let me take quickly through the highlights. Total income from operations for H1 is at INR 4,233 crores, registering growth of 31%. We continue to deliver strong growth, mainly due to continuing strength in CDMO execution and stable performance in affordable medicine. For the quarter two, total income from operation is INR 2,206 crore, which is the highest from the beginning. Gross margin maintained at a healthy level for H1 at 62.9% and for quarter two at 63%, mainly due to better product mix and division mix, and improved operational efficiencies. EBITDA for H1 stands at INR 1,406 crore, with a margin of 33.2%. For the quarter two, EBITDA reported at ₹762 crore with a margin of 34.5%.
This profitability is on account of improved operational leverage. Profit after tax for H1 at INR 809 crores and for the quarter two at INR 441 crores. Our ROCE is moving upwards to 22.5% for the H1, versus FY 2026 of 17.7%. On the CapEx front, we invested close to INR 470 crores for the quarter and INR 864 crores for the H1. We are making good progress in executing ongoing key CapEx across diversified growth projects. Our net debt stood at INR 2,466 crores, and debt to EBITDA is around 1.02x versus 1.28x for the last quarter, on the back of strong internal cash flows.
On the capital allocation front, our strategy remains unchanged, and we will continue to prioritize investments into high-value business segments to drive near and long-term growth for all our stakeholders. You can refer our IR presentation for more details.
With this, I would request the moderator to open the lines for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Tushar from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. Firstly, on the peptide large scale manufacturing block we started. As a trajectory, how to think about the commercial level revenue coming through? Considering the customer might require certain regulatory approvals to come in place, or you will have the inventory buildup quantity, if you can just explain that business for the team.
Krishna, would you like to answer this question?
Sure. Thanks for that question, Tushar. As you rightly said, for every program, there is a certain runway towards commercialization, as you rightly identified, related to validations and regulatory approvals. With that being said, we have several programs in the pipeline, which I cannot really divulge too much about, but that are in various stages including development, scale-up validations. We already have a visibility into how we would leverage these facilities and thereby having the visibility to invest more in furthering this capacity.
For the existing capacity, can you just, considering not getting into product specific or company specific, but in terms of timeline, where we see the commercial benefit starting to? And what could be the quantum for the existing capacity, maybe in terms of asset turnover period of time, how to think about it?
For the commercial revenues, we expect somewhere around the 2029 timeframe for some of these peptide capacities that we are talking about today. With that being said, in terms of utilization, even for some of these validation campaigns also, it will be fairly high for the asset itself.
Tushar, as we mentioned in our investor presentation, we are also expanding our peptide capacity significantly. We will give you more details as and when the facilities are qualified. We have good visibility on the progress of the programs and the volumes requirement for those programs. We have visibility. One point I would like to add here is our peptide manufacturing capabilities are fully integrated. In the sense, we are not making fragments. We are doing complete synthesis of the peptide purification isolation. We are offering an API, not just fragments.
Got it. That is really helpful on peptide side. On the overall CDMO side, considering multiple projects at multiple stages, is there any, maybe in the near term, where the inventory buildup has happened at the customer end, and hence there would be some buffer before the revenue picks up on the overall basis in the CDMO segment? Or we have certain projects which are yet to scale up, and hence we will continue to have growth in this segment, maybe over, let us say, next 12 months or six-nine months?
Based on what we know at the moment, we do not anticipate such a situation. With that being said, we have several programs that are commercialized in nature. These volume changes generally tend to balance out. We are not anticipating any such sudden surprises, at least from the perspective that we have today.
Got it, sir. Thanks a lot, Dr. Chava.
Thank you.
Thank you. The next question comes from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Yeah. Congratulations. Yeah, hi. Am I audible?
Yes. You are.
Hello, am I audible?
You are audible, Sajal.
Yes, sir.
Congratulations, Dr. Satya, Ravi-ji and team. The numbers are finally catching up with the work you have been doing for years. Well deserved. I have three questions. First, Dr. Satya, if you remember in April 2023 on that NDTV Profit interaction with me, you agreed that a bigger surface area would mean better growth. Since then, CDMO has grown about 4x . What can Laurus do for customers today that it couldn't three years ago? Thank you.
As years pass by, we are not just adding reactor volume, we are also adding various technical capabilities as well. Our first commercial-scale biocatalysis happened in 2021, and then flow chemistry happened later on, flow hydrogenation happened later on, fermentation happened later on. We are adding technical capabilities over a period of time. Today, if any partner comes with a tech pack, we will not say no because we don't have capabilities. Except monoclonal antibodies and the cephalosporins and penicillins. Those are the areas we don't have right now. Other than that, we can offer any chemistry, any modality, any scale, any potency also.
We just commercialized an OEB5 facility for payload linker now. We are adding capacity and capabilities over a period of time. In 2023, we don't have this many capabilities. Now, we have capacity and capabilities.
Sorry, you're not audible.
Dr. Satya, thank you. My sense is execution. No, I am. I think there is slight delay, but I think I'm audible, so thank you. My second question is, execution to my mind is earning customer trust, and trust is bringing more complex programs, something you alluded to in a private function at the CPHI. Over the next five years, what is most likely to break this winning loop? That's my second question, and I've got one more. Thank you.
It is difficult to predict, Sajal Kapoor. We are putting our best efforts to keep our service level constant, if not increased. Our ability to take projects, we are very cautious not to compromise on our service levels. Our project abilities, we are choosing where we will add value to our customer, not deplete value to our customer. That's where we would like to maintain service level. Business will not come today, it will come tomorrow. We don't want to spoil partnerships or relationship by taking too much that we cannot handle.
That's helpful. Finally, Dr. Satya, alongside the large CapEx, you are making small bets across peptides and oligonucleotides. Which one could become a flywheel for Laurus in, let's say, five years, give or take? Thank you.
Our investment in peptide resins is not going to give so much of financial benefit, but it will strengthen our position in our peptide synthesis. Our investment in oligonucleotide startup, Galenvs in Canada, we have no customer right now in oligos. We believe that will add significant value in the near to medium-term future.
I think, Dr. Satya, is that exactly the loop that we have been playing over and over again? We try and control the full value chain integrated. I think what we did with ARV, we are kind of, in my view, and correct me if my understanding is wrong here, we are just playing the same playbook of integrated end-to-end value capture in the entire pharmaceutical space and the thinking for the new modalities is along the same playbook as we have already executed over the period of time. Is that how one should look at this transaction? Because you are not spending too much into this, but the capability that you are getting is meaningful, perhaps five years, six years out, if not immediately. Thank you.
Thank you. I would say it is not same, but maybe similar. The scale is also not same. Scale could be different. ARV is a mammoth, but I do not expect the oligos will go to ARV level in the next four to five years. We are investing because our customers are asking. It is not that we are investing, we are liking. Our customers are asking us to get there, so we invested. Yes. That is the message I can give you right now, Sajal. Yes.
Sure. Thank you. That is all. Wish you all the very best. Thank you. I am done.
Thank you. The next question comes from the line of Chirag Shah from White Pine. Please go ahead.
Yeah. Thank you for the opportunity and congratulations for the set of numbers. Sir, I have, first, a very short-term question. If I look at Q1 to Q2 on the CDMO side, can you give some color what has driven such a strong ramp-up sequentially? Is it on large size molecule which you have supplied, or is it some projects have moved from either phase I to phase II or phase II to phase III that has driven, or which number of molecules for which the supply has happened is driving it? So it would be helpful if you can give some more granular, whatever you can share on qualitative side.
I think it's like a meaningful growth between the quarter one of this year and this quarter. But as we've highlighted in the quarter one conference call, we expect this to be pretty consistent, is what we alluded to also in the last call. But to answer your question, there's no specific one-offs that we are looking at in this case.
Okay. No, it's not about one-off, it is about the quality and the nature that is driving it. Is it more molecules getting added or it is some large molecule or some phase II, phase III movement which is driving this? So I'm just trying to understand that side.
I think if you look at the increase in quarter one, quarter two, by INR 200 crores is because of the overall revenue increase. The CDMO revenue increase only contributed by INR 40 crores, but the rest of our affordable medicine increased by INR 160 crore. It is an overall performance.
Fair point. Sir, second on the peptide side, can you just indicate the kind of capacities that we have currently and the infrastructure, what kind of capacity addition that can happen? That is one. I presume already you have soft commitments or soft confirmations from customers or that is also yet to happen. Because it is a new facility, that is why I am asking.
On the capacities for the peptides, on the only quoting the SPPS synthesizer capacities as we have captured in our investor presentation, it is a little over 16,000 L. LPPS, I do not want to quote at this point in time, but like we have always maintained, we will provide a meaningful update whenever we reach that stage. Yes, generally we tend to shy away from quoting too much information, which might not be meaningful or translate into actual numbers. Again, I think we will keep you updated on peptides as and when there is some updates there. Yes, that is something that I can share at the moment that we continue to invest extensively in enhancing the capacity further.
Is it a fair assumption the lead time are longer in peptides versus small molecules? It is a fair assumption, right, sir?
It depends. It is not a statement that is always true. It depends on the complexity of the small molecule, the number of steps involved, and also the complexity of the peptide, if you are doing the fragments, if you are doing the API. It is a question that has probably three, four follow-on questions. But yeah, I think at a high level, maybe you could say that, but it might not be always true.
Fair point. Thank you very much and all the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question comes from the line of Sekhar Kadiyala from Family Office. Please go ahead.
Hello?
Yes, sir. You are audible.
Thank you. Dr. Chava, congratulations on, just not for this quarterly numbers, but I think the journey that Laurus has been giving all of the investors quarter after quarter. My question is primarily on the peptides, although many questions were already there, but I wanted to get a broader color from you or from Mr. Krishna . In the peptides world, I think what we have been hearing about is the solid state, liquid state, hybrid, and then, of course, I also read somewhere that fermentation-based peptides are the cheapest one in terms of manufacturing. What I would like to understand from you is how do you see this whole scenario emerging in terms of how over the next three to five years, would it be the hybrid that could probably drive most of the manufacturing or could it be fermentation?
How Laurus is preparing as we are building the peptides capacities, and the fact that we also have the fermentation capabilities, how we are preparing for this three to five-year sort of a story, if you could throw some color. I do not need any numbers, but just the color around peptide manufacturing and how we are developing our capabilities. Thank you.
The use of fermentation and peptide synthesis depend on how many natural amino acids are there in sequence. If the sequence is small, nobody will go to fermentation-based. Currently, the programs what we have, mostly SPPS, LPPS or hybrid. That is where our capacity expansion is also going on.
Just to add on to that, I think every program in the peptide space is unique and comes with its own unique requirements. It is not very easy to say that five years down the road, there will only be a certain type of programs. We believe there will continue to be a space for SPPS, LPPS, hybrid, and as you have said, for the fermentation-based as well. They will continue to play a meaningful role because they offer unique characteristics depending on the peptide requirements.
Thank you. My second question and the last question is, if you could throw some light on the fermentation, in terms of our facilities, if they are GMP approved. Do they have any limitations, so to say, or they could do any type of fermentation requirements that our customers may have?
See, we have one GMP facility in Bangalore that will do up to 5,000 L fermentation. We have a food-grade, industrial-grade facility in Tumkur with 200,000 L fermentation capacity, and we are building 500,000 L facility, which will be operational in this quarter. That is also food-grade and industrial-grade, not a GMP-grade. We are also building a GMP-grade fermentation facility for some of the products in animal health. That will be operational second half of next year.
Okay, great. Thank you and all the best.
Thank you. The next question comes from the line of Foram Parekh from BOB Capital Markets. Please go ahead.
Yeah, thank you for the opportunity. My first question is on the CapEx. We have announced INR 3,000 crore CapEx over a period of 2027 to 2028, and it is across various modalities. Could you give us some color, which modalities would have higher contribution, or would the CapEx be equally distributed amongst oligo, peptides, some color there.
It is difficult to break into several segments for confidential purpose. We are investing significantly in growth CapEx. And majority into API.
Okay. My second question is on the EBITDA margin. While on a sequential basis, I see gross margin has almost flat. EBITDA has increased, EBITDA margin has increased, and I see that is largely because of R&D cost rationalization. Just wanted to understand why has R&D come down steeply on a QoQ basis, and how sustainable is it?
I think quarter one, we have filed some ANDAs, so there is a reason the cost has gone up in quarter one. It is not that we are refocusing on our R&D expenditure.
Second, there is operational leverage as well. From Q1 FY 2027 to Q2, we also achieved INR 200 crore extra revenue. Our EBITDA margin improvement, not just lower R&D cost, but higher operational leverage.
Sure. Sir, any guidance on the sustainable run rate of EBITDA margin, because 34% seems to be the highest ever. CDMO segment is also stabilizing at 40% contribution. What is the stable EBITDA margin we can expect for the year?
At the beginning of the year, we already indicated we were comfortable in maintaining over 60% gross margin and over 30% EBITDA. I think we still stick to our guidance. That is the number you should take in your mind.
Sure. My last question is on the, again, custom synthesis side. Sir, some color, or some dynamics, like how many molecules have we commercialized and how many molecules are there in phase III?
Unfortunately, that is not something that we are in a position to divulge, ma'am, because of various confidentiality reasons. Also, like we have alluded to in the last call as well, at least internally, we believe that number does not necessarily translate into the actual numbers, like in terms of revenue, because one program might give, let us say, $1 million versus another program could potentially give $100 million. So that number, at least from our end, we believe, does not paint a full picture, and that is why we have always refrained from quoting that number.
Okay. Sir, lastly, if you can give us the number on the CC, constant currency growth, and the percentage exports of the total sales.
Percentage exports, we will check. I think majority is there. Actually, I think domestic must be less than 20%. And the constant currency on a sequential basis is not a significant number. On a sequential basis, it is about INR 12 crores.
Sure.
Yeah. On a sequential basis.
Yeah. Thank you. Those were my questions.
Thank you. The next question comes from the line of Rahul Bhardwaj , an individual investor. Please go ahead. Sir, you are not audible.
Can you hear me?
Yes, sir.
Hi, yes. Thank you for the opportunity. My question is primarily to understand the CDMO space a little better. We probably have around 100+ active programs. Can you give us some color into what percentage of the commercial-stage supplies, say, they are originating either from, let's say, a phase I, II development versus late-stage tech transfers?
I think it is difficult to give that granular answer for this question. As Krishna mentioned, the number of projects may not give you right color of revenue coming. We have projects from $200,000 to several tens of million dollars. If we give, say, we have 200, 300 projects, whether you multiply that number by $200,000, multiply that number by $10 million. I think that may not give you a right picture to our investors, so we refrain from giving that number.
Thank you. I do not have any further questions, sir.
Thank you.
Thank you and good luck ahead.
Thank you. The next question comes from the line of Dhawal from Jefferies. Please go ahead.
Hi. Thank you for taking my question. Joining the peptide bandwagon, what is the gross block of the peptide facility that we have put up? Any very broad high-level estimate what peptide business can generate in terms of peak asset turn, whenever we achieve, but very high level?
I think after lot of deliberation internally, we agreed to give the reactor volume. I think beyond that, we are not going to give you how much of CapEx we have invested, what is the asset turnover ratio we are going to get. That's, unfortunately, we were not able to give you further details on that.
Okay, sure. In the call earlier, it was mentioned that even the validation batches will require significant capacity and will drive a good utilization. Any broad timeline when these validation batches, you think could begin for the peptide facility?
See, in the modalities like peptides, the complexity of synthesis is very high. Nobody would like to do validation at some scale and scale up later on, or move reactor, or move facility, move manufacturing block. For these modalities, the commercial scale facilities are needed for the validation itself. We have built facility not just do validation, but also meet our customer commercial demands from the same manufacturing block.
Yeah. Definitely. Got the concept. But any broad timeline you think when these validation batches could begin?
Sir, broadly speaking, 12-18 months is the number that you can take, but again, in clinical programs, things can move around, but you can assume that number.
Okay. Last question. It seems like we are trying to do some backward integration in SPPS manufacturing by investing in resin facility and resin capabilities. Approximately how large is resin cost when the peptide is getting manufactured using SPPS or hybrid? Again, it can vary a bit, I understand, depends on how large the fragment is, how much is SPPS, how many LPPS. Very broadly given you guys are doing investment, what is the typical resin cost versus the total cost of manufacturing the peptide using SPPS?
I will be able to give a range. The smaller the fragment, the cost of resin is higher. The longer the peptide, the resin contribution is less. It will take in the cost of manufacturing, raw material cost of peptide, it will vary between 10%-20%.
Yeah. Raw material cost.
Raw material cost. Not the sales price. The raw material cost to a peptide resin contribution vary between 10% to 20%, depending on the length of the fragment of the peptide.
Got it. Understood. Very helpful. Is any other major cost beyond resin involved, or is it all the regular solvents and typical raw materials, nothing specific beyond resin that one should be aware of?
We will not give you that granular answer.
Hope you are not building a model here, cost model.
I think it would be difficult for us to go that granular.
Sure. Okay. Thank you.
Thank you. The next question comes from the line of Vivek Agrawal from Citigroup. Please go ahead.
Thanks for the opportunity. One question is on CapEx. This year for this as well as the next year, you have guided INR 3,000 crore CapEx. How good you are in terms of completion of this amount, given that in the first half, the run rate is slightly on the lower side. Second, a related question. How you see investment or the overall CapEx, let's say, even beyond these two years, even 2028, and if we want to look at, let's say, another three years, so 2029, 2030, 2031?
Vivek, your voice is not clear. Can you just remove your speaker?
Should I ask this question again?
Yeah. Now it is better.
Yeah. Thanks. In terms of CapEx, right? We have guided INR 3,000 crore CapEx for this as well as the next year. Given that current run rate is slightly on the lower side, how good you are in terms of completion of this? Second, even beyond these two years, if you want to build the model, let us suppose another three, four years, what kind of the investment or the overall CapEx you are envisaging? Thank you.
Although the first half the number is less, most of the investments are going on track. As we guided INR 3,000 crore CapEx for 2027, 2028 is the right number. Second, we expect the investments will continue to at that range in the years to come. Around INR 1,500 crore per year capital expenditure, based on the current understanding. It may go up if the opportunities come, but otherwise it will be in that range.
Understood. If I look at asset turns, you are consistently saying that asset turns are moving up. What is a fair level of asset turns, let's say, you are expected to reach in the next couple of years? At what level you think that overall asset turns can stabilize?
The average asset turn even for six years is 1.1x. We are at one. Definitely, we can move up to 1.1x. You know our peak asset turn was 1.4x. We also wish we should go there, but somewhere in between we will go. It is over a period of time based on the maturity of the projects, so it depends.
Understood. One question on peptide. When you are expecting the commercial revenues to kick in of this 15,000 L capacity? How much, in your view, it has already been committed? What percentage of the capacity has already been committed by the customer?
Unfortunately, Vivek, for both of those questions, we will not be able to give you an answer, primarily because of confidentiality reasons and also for strategic reasons. I am sorry about that.
No problem. You also talked about that you are also looking to expand the peptide capacities, right? Is it an aspirational statement or do you already have some visibility from some of the customers that you are looking to expand the capacity? Or is it like that it depends on the execution in the existing capacity projects, et cetera. You are expecting more products and that can drive the expansion. I am just trying to understand the thought process behind this statement that you are looking to expand the peptide capacity.
Current capacities we foresee may not be enough for us to cater to the requirements in the near to mid-term. We are significantly increasing capacities because we see some of the programs in the early clinical phases. When they move to validation phase, we wanted to move those programs to a commercial manufacturing block. That is the intention we are building new capacities.
Are you also involved or, let us say, do you sense any opportunity to be involved in some of the existing GLP-1 products or through peptide GLP-1 products?
We don't want to comment. We reserve all our.
No problem at all. Just digging here a bit more. In terms of backward integration, how important it is, right? You are building the reagents, et cetera. But in terms of building blocks and amino acids, how backward integrate you are on these aspects, or are you also looking to add capacities in building blocks, amino acids, et cetera?
See, these programs will have multiple sources of amino acid suppliers, including us. These partners' programs are so large, they don't want to depend on one vendor for any of the key amino acid derivatives also. We have programs where our derivatives will go into the validation. Like, we buy some amino acid derivative from the other party, third vendors also.
Understood. One question I have on affordable medicines. This quarter you have logged a decent number and for half around. What drove the sharp uptick this time around, how sustainable it is, and how you think that this finished goods formulation revenue can pan out, let's say, in the next one to two years once this KRKA project becomes live?
F or the formulation revenue, as mentioned earlier, we are doing product registrations in multiple countries. We see our formulation revenues will continue to grow in the upcoming quarters as well. Regarding the pricing for the APIs, they have stabilized. Though there is a lot of geopolitical pressures, our supply chain resilience has helped us stabilize those prices.
Thank you. That is all, my side.
Thank you.
Thank you. The next question comes from the line of Nayan Padsala , an individual investor. Please go ahead.
Hello. Hello, am I audible?
Yes, you are audible, Nayan.
Good evening, sir. Regarding the KRKA joint venture, how is the business progressing and when can we expect it to make a meaningful contribution to Laurus Labs revenue and profit?
The KRKA formulation facility is getting ready, and we will start the validations for products mid-2027. We are already working towards validations. Once the validations are done, we will do the filings. 2028 , 2029, we should see meaningful revenues.
Thank you, ma'am. Secondly, you mentioned around 125 active CDMO projects. What is the current number?
That number is a very dated number, but we do not want to say further. But you could assume 125 even today. But we do not want to expand further on that.
Okay. No problem. Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question comes from the line of Shrikant Akolkar from Nuvama. Please go ahead.
Yeah, thanks for taking my questions and congratulations to the management for the good set of numbers. I have two questions. Firstly, on the peptides, is it possible for the management to quantify ballpark number that they have invested in solid phase, liquid phase, isolation, purification, and amino acids, total investment in this?
Unfortunately, we would not like to divulge that information due to strategic reasons.
Understood, but any ballpark number or any quantification like a percentage of total investment that we have incurred so far without giving any proper number?
I am sorry, but we are not able to provide that color. As Dr. Satya mentioned and Ravi mentioned, even this peptide capacity that we have created, we have shared after a lot of deliberation and feedback from a lot of investor community. But even beyond that, we are not in a position to share at this point in time.
If we can share, we will share to all investors, not the selective. So p lease bear with us.
Okay. No problem. On peptides, I know that you do not want to talk on any GLP-1 opportunity in the near term. Do you think that in next five years there will be a right for us to get any peptide GLP-1 related contract?
Yes. I think given the capabilities and the capacities that the company is investing in, I think we certainly expect to play a very meaningful role in that whole business.
Understood. The last question is now recently. This is broader industry level question. Recently China has banned the export of any technologies outside China, and U.S. has also banned some of the investment that will happen in Chinese biotech. What kind of opportunities or any industry trends that will emerge because of this?
From a geopolitical standpoint, I would not want to comment on this call at the moment.
Okay, understood. Thank you so much.
Thank you. The next question comes from the line of Krish Mehta from Enam Holdings. Please go ahead.
Thank you for taking my questions. I have two questions. The first is on understanding the sustainability of this quarter's revenue and EBITDA margins run rate. If I were to look out, say, to FY 2028, would it be a fair assumption to assume that what we've done this quarter can be repeatable in terms of looking at, say, something like a broad INR 10,000 crore revenue at 35% EBITDA margin, or should we normalize this current quarter's run rate? That's my first question.
The one we are always answering without giving any guidance. Two things we are committing. One is we will be able to maintain 60+ percentage of gross margin and 30+ percentage of EBITDA. We are comfortable to guide all our investors. Beyond that, it's very difficult to give any guidance at this point.
Sure. Thank you. My second question is on if you could provide the breakup of your ARV API and ARV FDF for this quarter.
ARV API for this quarter is INR 625 crore and FDF is INR 677 crore .
Okay. Thank you so much.
Thank you. The next question comes from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.
Hi, good evening, everyone. Sir, first question on peptides. Within peptides, how important do you think will be purification as your programs move from clinical to commercial over the next two years? This is particularly for the longer peptides.
I think, yeah, purification is similar to synthesis, the downstream, which includes the isolation. Purification and isolation are equally important as complex.
Just to give you a break, the complexity, synthesis, purification, isolation, all three will be equally important, maybe 1/3, kind of situation. Yeah.
From a complexity?
Complexity point of view. Yes.
Understood, sir. Where are we in that journey when it comes to scaling up both, say, downstream purification or isolation capacity in parallel to creating the overall reactor capacity?
Like we've mentioned in our investor presentation, when we say we've created peptide capacity, that includes the entire value chain of synthesis, purification and isolation.
Got it. Just one follow-up there. From, say, 2,000 L currently, are there any plans to move to 3,000 L synthesizers? If yes, possible to give any timeline for that?
I would not like to answer this question at this point in time.
Fair enough. Got it. No problem. Just one final question. Given that you have been working on various modalities, as Dr. Satya mentioned, pretty much all capabilities except maybe mAbs and cephalosporin, penicillin. In terms of talent availability, how would you assess the current situation? There are multiple companies working on multiple modalities, adding capacities. Just from an industry standpoint and your own talent hiring standpoint, do you assess any challenges? Where are we in that journey?
As you have seen in this quarter earnings presentation, we signed a different agreement to invest in oligonucleotide company because we believe talent is there, whereas we can manufacture because oligonucleotides manufacturing, purification, isolations are similar to peptides. We have that expertise. But synthesis-wise, we do not have R&D-wise, we invested there. Like that, we invested in a solid support resins company because we do not have talent right now. We are trying to build the gaps in our technology development by investment in these companies. Like we invested in Laurus Bio to get expertise in enzymes and fermentation.
Our investments are to build the capabilities where we do not have right now. Otherwise, we are not investing in capacities if you have seen for the last several years. We build capacities, we bridge the gaps by acquiring technology-based companies.
Understood, sir. That is very helpful. That is it from my side. Thank you and all the best.
Thank you.
Thank you. The next question comes from the line of Yasser Lakdawala from M3. Please go ahead.
Hi. Good evening team, and before that, wish you all a Happy Diwali in advance. My question was on the CDMO side. Is there any color you could give in terms of for H1, our mix between animal health, crop science, and human pharma?
Firstly, Happy Diwali. Advance it to you as well. Coming to the breakup, while we've not given a split between our human health and animal health side of things, what I can say is crop science, we continue to discuss with several partners and hope to have meaningful contribution from that, but that's still minuscule compared to our human health and animal health initiatives.
As you said, we've got more than 100, 120 odd customers. Could you perhaps give us some sort of color on, is there any customer concentration, like say, are there five or 10 customers who are responsible for a larger pool of the CDMO revenue? The reason I just ask that is in case there is some destocking event or there is a competitive program that replaces the dominant customer. Would that have sort of a material impact on our revenues going forward? Just to understand the concentration of the CDMO business. I think that'd be helpful.
Currently, we don't have a significant concentration of customers or programs. Actually, we're not managing. We were lucky that the projects are coming like that. I'll put it that way. Second, we don't foresee any significant supplies for launch and then destocking events. We don't have that problem because we have visibility for next 18 to 24 months.
In addition, fortunately, in the space that we have been in, we are not necessarily looking at any patent cliff for any of the programs that we support. There is a fair bit of good visibility for some of these programs that we have successfully commercialized.
That is very helpful. Thank you for that. I think lastly, as we look at some of these newer modalities, be it peptides, ADCs, in terms of when we sort of look to announce these capacity additions, how do you weigh that? Because a lot of these new modalities do not tend to be very high volume products, right? If I have got the understanding right. So how are you balancing on one side capability addition and on the other side capacity addition? If you could sort of help us understand that would be great.
Let us say from an ADC perspective, like you rightly said, these might not be large volume. It will not be in multi-metric ton scales. But from a value point of view, it will be quite significant from a general value point of view in the commercial side of things.
Absolutely.
From an investment point of view, can also be sizable given the type of modality and how complex it can get.
Fair enough. Thanks a lot. Appreciate it.
Thank you.
Thank you. The next question comes from the line of Arindam Mukherjee, an individual investor. Please go ahead.
Good evening. Am I audible?
Yes.
Good evening, team. Firstly, congratulations on the fabulous set of numbers. My first question is, H1 operating cash flow fell 26% on strategic inventory, and free cash flow after INR 864 crores of CapEx was slightly negative, and the net debt rose a bit. What are those inventories? When do they convert to cash? Is FY 2027 free cash flow positive after CapEx and the investments you have announced?
The inventory is a regular inventory. We are not saying the extra inventory, though there is some additional absolute number inventory as of 30th September . That will be, what you call, utilized in the current quarter and the coming quarter. Coming to the free cash flow. Yes, last year only we have a free cash flow. When you are making that kind of a CapEx investment, we have taken a call between the free cash flow versus the growth capital, and then we are investing growth CapEx. I think we may not be worried on the free cash flow front because if you look at our net debt by EBITDA is still at a very healthy level of 1x, around 1x. I think we will manage. We will see how it can move.
Got it. Thank you for the clarification. I just have one more question. Laurus Bio did INR 64 crores in H1, and it is down 16% against the roughly INR 200 crore base you cited in July. With LB-4 commissioning this quarter and customers reserving capacity, what are the reservation terms, take or pay or advances, and what does H2 look like? If you can throw some color on that.
We expect Laurus Bio will be on good track from quarter one next financial year. Although facility will be qualified this quarter, we will only do trials in the Q4 of this financial year. The actual commercial supplies may start in Q1 of FY 2028. Although there is a reduction in the revenues, that is as part of our some customer allocations or projects scale-up from the customer side, from our side. The prospect looks good.
Hello, Arindam?
Hello. Yeah. Sorry, I think there was some connection issue. Just one more follow-up. The minority losses suggest that Laurus Bio's net loss is around INR 50 crores for H1. Is that about right? What is the EBITDA break-even?
I think we will provide offline.
Please write to Vivek, our investor relations. We will get back to you on that.
Okay. Sure. Thank you. Thanks a lot.
Thank you. The next question comes from the line of Tushar Manudhane from Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Thanks for the opportunity again. Just to understand how the asset turn would improve from, say, 1.1x to 1.4x, what are the major key factors that would drive this scale-up?
I think that is one year we achieved 1.4x. That is actually based on the large purchase order. I think in future, I think the lot of u nlocked assets are there, we are not generating it to the full extent. Once every asset is being generated, I think there is a possibility. I'm not saying that we will reach a 1.4x, but we will inch towards it.
But given the ongoing CapEx, we will continue to have certain assets or, let's say, certain investments in the gross block, which will then sort of suppress this asset turn, which is why I was trying to ask that how or, let's say, over what period we think that even if the incremental investment that happens, still we'll be able to do the asset turn of 1.4x.
You are right, but we also have in greenfield and brownfield CapEx. Like now we are investing a lot of investment in our Unit 4 that is a brownfield CapEx, and then our Unit 2 investments are a brownfield CapEx, which are going to do better. But we will see. But as I said, our first target is 1.1x, which is our average of last six years.
Got it. And just lastly, while many questions on peptide, just one last from my side. Unlike in other set of products, is the validation batch also similar to that of a commercial-sized batch in what we are manufacturing in the peptide block?
That is generally the case, Tushar. But generally, you could say that, yes.
All good. That is what I see. Thank you.
Thank you. The next question comes from the line of Dhawal Khut from Jefferies. Please go ahead.
Hi, thanks for the opportunity. Last quarter, you guys had mentioned about a small molecule project about to go commercial. What is the status on it? Do you think it will be a meaningful growth driver given, generally in first year, there is a significant supply that happens? Is that a growth driver in the CDMO business, given now we have a really large base? Or is it more like a typical smaller project that we work on?
I think there are several programs at NDA filing stage, NDA filed stage even now. We feel comfortable with the projects at various scales we have right now. We are not able to give you more granular than this.
Sure. No problem. Second question, maybe it could be a bit technical, but just want to understand the concept behind it. You guys emphasized quite a lot that you are doing API, not just fragment, and you have full API capability. Let us say, there is an API, whatever is the chain length, let us say 10 is the chain length. How does the realization vary, API versus a fragment, which is half the size? Let us say a five amino acid fragment versus a full 10 length API. Just ballpark range, just to understand the significance of having a full API capability.
It can be small or it can be quite drastic, but while I know the answer, I do not want to go into too much details as to in our cost model and all that, but--
It is difficult to give. The reason is, if five fragments uses all unnatural amino acids, cost could be very significant. That is it. If the 15 amino acids are all natural, then cost is very significant lower. It gives a wrong signal. Any answer, it is project-specific. As you mentioned, your question was very technical. We do not want to give a very generalized answer for such a complex question.
Okay, sure. Thank you.
Thank you.
Thank you. Ladies and gentlemen, we will take this as the last question for today. I now hand over to the management for closing comments. Over to you, sir.
Thank you, ma'am, all the stakeholders for your active participation in the call. Thanks for asking very interesting detailed questions. In advance, we wish you Happy Diwali for all the stakeholders. Thank you.
Thank you.
Thank you. On behalf of Laurus Labs, that concludes this conference. Thank you for joining us. You may now disconnect your lines.