Ladies and gentlemen, good day, and welcome to the Q2 FY2024 Earnings Conference Call of Laurus Labs Limited, hosted by Antique Stock Broking. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you, and over to you, Mr. Shah.
Thank you, Michelle. Good evening, everyone, and welcome to Laurus Labs Q2 and H1 Results Conference Call. On behalf of Antique Stock Broking, I thank the management for giving us the opportunity to host the call. Today we have with us Dr. Satyanarayana Chava, Founder and CEO, Mr. V.V. Ravi Kumar, Executive Director and CFO, and Vivek from the IR team. I will hand the call over to Dr. Satya for his opening remarks. Thank you, and over to you, sir.
Thank you, Monish, for hosting this conference call. Thank you for joining us for our Q2 and H1 FY 2024 results conference call. We are pleased to have this opportunity to update you on our progress and answer your questions. Our performance from Q2 started to see improvement, and our priorities remain consistent. By focusing on an R&D-led commercial strategy and customer-centric business orientation, we are advancing and augmenting our operational excellence to offer cutting-edge technology platforms in the manufacturing of small molecules, deliver the best external and internal opportunities, as well as bringing innovative manufacturing solutions to companies and patients. We have executed on several important business development transactions last quarter, and we are further accelerating our strategic manufacturing partnerships. We're also pleased to report that our investment into disruptive technology is progressing well.
The first one is our investment in ImmunoACT, their CAR-T lead compound, NexCAR19, which completed phase two trial for lymphoma and leukemia indication, has been granted marketing approval from CDSCO, Government of India. We feel it is a significant breakthrough and will be the India's first indigenous developed and manufactured cell therapy product for treating certain blood cancer. The second one is initiation of construction, GLP lab construction, for the manufacture of viral vectors and gene therapy products at IIT Kanpur. The third one is increase in our stake in Laurus Bio, now 88%. This is a reflection to our confidence on great potential for future developments in enzyme technology platforms.
Currently, it's an exciting time at Laurus Labs, and we are determined to build on our R&D-driven commercial excellence to deliver best quality and affordable healthcare solutions as we seek to create a long-term value for both patients and our all stakeholders. Our Q2 results in line and improved over Q1 due to recovery in customer supplies, which is driving higher revenues. While gross margins were maintained very healthy level, our EBITDA margins have clocked a modest recovery, as higher upfront expenses on growth projects have contributed to weigh on our overall operating cost. It is important to keep in mind as well as that our year-on-year growth was subdued due to particularly strong quarter we had in FY 2023.
As a result of these factors, our revenues were declined by 22% to INR 1,224 crore, and the EBITDA came at INR 188 crore, with a margin of 15.4%. Our quarter-on-quarter growth is rebounding in both our API and formulation business, supported by strong underlying demand in our segments. Our CDMO business project pipeline have continued to scale up along with the expansion of our new partnerships. Our cost improvement programs are also progressing as expected. Following the recovery we saw in Q2, we remain optimistic for a better H2, resulting from both healthy order book and strong commercial execution capabilities. To begin, I would like to share key updates on our formulation business. Our formulation division reported overall revenues of INR 333 crore for Q2, increasing over 120%.
That was because of low base last year. On sequential basis, revenues have also improved by 16%. Moreover, if you look at our H1, revenues increased by 24%. This was primarily driven by recovery in ARV business, along with growth in our developed market sales. Coming to LMIC business, overall market volumes have largely remained stable, partly supported from stable prices. We remain fully committed to stabilize our ARV franchise business through toward the FY 2024 and beyond, while navigating the pricing headwinds. We awarded with 20% recent NACO tender for a supply of key products, and this is our maiden successful bid in the Government of India tender for the supplies of HIV products in India. This was achieved primarily because of our fully backward integrated offering in ARV model.
We have successfully implemented several cost improvement measures, and we believe these measures will sufficiently ensure our market readiness and confidence of sustaining leadership position in first-line ARV treatment, both in APIs and formulations. Coming to the developed market, demand for our broader portfolio remained healthy. In U.S., we continue to get good market share on several products and also increasing volumes. During H1, we filed 1 ANDA. Cumulatively, we have filed total 38 ANDAs to date. Of this, we have 15 final approvals and 13 tentative approvals so far. We continue to have diverse portfolio and pipeline, including novel 505(b)(2) products, comprising of ARV, cardiovascular, diabetes, CNS, and gastrointestinal.
In Canada, we have 21 filings with 13 product approvals, of which we have launched nine products, and we are intending to launch at least two more products during the second half of FY 2024. For E.U. markets, we have 18 filings with 14 product approvals, of which we already launched six products. We have continued to strengthen our CMO relationships and anticipate further volume increases in the coming quarters. Our FDF division continue to operate most of the total commission capacity of 10 billion units. We anticipate that the remaining brownfield capacities that we added in the last year should start to get optimally utilized by end of this year. On R&D front, overall R&D spending to sales for H1 FY 2024 was at 4.5%.
We have incurred little higher R&D expenditure in this quarter as we acquired the intellectual rights for few gene therapy products from IIT Kanpur. We continue to make good progress and invest in portfolio with product-specific approach based on complexity and scale economics. We have total 62 products in R&D pipeline with market shares of over $13 billion. I would like to share the status of our filings as of now: 38 ANDAs in U.S., 18 dossiers in Europe, 21 products in Canada, nine dossiers with WHO, eight dossiers in South Africa, one in Australia, while 20 dossiers were filed in India, while several products were filed in various ROW markets. Overall, R&D sales for the full year, say R&D to sales of the full year is expected to be around 4.5%.
While coming to generic APIs, revenue from generic APIs during the Q2 declined to 8% year-on-year to INR 629 crore. However, sequentially, it has improved by 5%. For H1, overall growth was flattish. ARV retained its volume-led steady momentum through Q2, and revenues moderated a bit attributing to an element of cyclicality in the ordering and ordering. We continue to maintain a leading market share in the first-line HIV treatment-related APIs. In the Onco API space, the sales for the quarter rebounded and delivered a strong revenue increase to over 100% year-on-year to INR 117 crore. In H1, the growth is over 50%. This is reflective of strong demand across our portfolio and favorable industry dynamics. We're augmenting the new capacity for oncology products to accommodate the increased demand.
More importantly, Laurus Labs are one of the largest HiPotent API capacities in the country, and our aim to strengthen global leadership in some of the existing products by focusing on higher volumes and adding new potent molecules. In the other API segment, which includes cardiovascular, diabetes, asthma, have slightly recovered, tracking only 2% growth quarter-over-quarter to INR 239 crore. Recovery is muted on account of temporary market dynamics and scheduling patterns from our partners. On the year-over-year basis, revenues declined by 37%. We are confident that underlying demand for our products remains strong, and our CMO order book has continued to look very healthy. In first half of this financial year, we filed three DMFs. Out of those, two are in non-ARV category. With this, company has a total of 83 DMFs.
While coming to synthesis business, during the quarter two, the company CDMO business recorded a revenues of INR 224 crore, a decline of almost 70% year-over-year. The revenues declined due to a weak year-over-year comparison, given large CDMO projects executed last year. Otherwise, the baseline business tracking healthy and project pipeline continues to scale up very well with our existing and new customers added in the last six months. We continue to execute on our scientific-led approach to customer acquisition and retention. We are further strengthening and expanding our relationship with several big pharma. We remain focused on improving our integrated CDMO-enabling technology platform to achieve diverse revenue stream, ensuring stability and resilience. We are working on over 60 projects. Out of these, there are 10 products commercial, few APIs and several intermediates.
We made good progress on new sites for CDMO division, both R&D center and manufacturing facilities under LSPL. Our animal health unit initiated commercial validations from this month and should gradually scale up. R&D center is likely to get commissioned by the end of FY 2024. Our new animal health site will have all the capabilities to handle steroids, hormones, and HiPotent molecules, apart from other large volume products. In Laurus Bio, we recorded strong growth for Q2 and H1. Q2, we grew the revenues by 44% and H1 by 56%. The growth was led by a traction in CDMO services, along with the expansion in our customer base. We are also optimizing our capacities in-house with the large scale CDMO partners and expect increased downstream capacity to come online by December 2023.
This unit will achieve its peak revenues during F.Y. 2025. Our enhanced technical expertise on biocatalysis is expanding its application in several small-molecule manufacturing, where Laurus is utilizing this expertise to service Big Pharma. Progress on our new greenfield site at R3 is on track, and we have completed the design phase. We expect expansion to happen in a phased manner. This site should further strengthen Laurus capabilities in offering CDMO services in animal origin-free proteins and growth factors, apart from large-scale fermentation. Let me share brief on quality and EHS initiatives. We have continued to implement and operate best-in-class R&D, manufacturing and quality control systems in line with the highest global standards, along with a comprehensive EHS management. This is enabled by our profound scientific team of over 2,300 people, embracing commitment to evolve to address new opportunities.
During Q2, we implemented a project called Sankalp in association with DuPont Sustainable Solutions to further enhance organizational safety excellence. During the H1 FY 2024, a total of 51 quality audits were undertaken, including several customer audits. To date, since inception, we have successfully passed 91 regulatory audits, including 14 audits from major global regulatory agencies like U.S. FDA, WHO, PMDA, TGA, EMA, and MHRA. With that, I would like to hand it over to Ravi to share some of the financial highlights.
Thank you, Dr. Satya, and very well, warm welcome to everyone for quarter two and H1 FY 2024 earning call. Total income from operations for the H1, INR 2,406 crore, and again, it's INR 3,115 crore. Excluding large PO, you're all aware that we have executed a large PO last year. The underlying business delivered growth of 14% for H1, whereas for the quarter two it was 18%. As you would notice that our quarter performance have recovered, and we showed an improving momentum for majority of our business. Also, as Dr. Satya highlighted about the strong underlying demand across our growth pillars, we believe it will continue to support our outlook for the rest of the current fiscal.
Gross margin for quarter two have improved at 52.5%. If you look at EBITDA for quarter two FY 2024, is at INR 188 crore with a margin of 15.4. Whereas for the first half, it was INR 356 crore with an EBITDA margin of 14.8%. The impact is primarily due to operational deleverage, lower CDMO business, and the some of the new initiative expenditure being incurred, like CGT, et cetera. I think overall, we have done, we spent about a INR 16 crore on the new initiatives. Our diluted EPS for quarter two was 0.6, and for H1 it is 1.1 without any annualization. Our ROCE is at 11.4 due to operating deleverage and strong capital deployments for the future growth.
On the CapEx front, we invested close to INR 182 crore for the quarter and INR 388 crore for the first H1. The board of directors recommended a dividend of INR 35 per share. As you are aware, for F.Y. 2024, the majority of CapEx is for the Synthesis and Bio divisions, and most of the expansion projects are on track to support our future growth. You can refer to our I.R. presentation for more details. With this, I would request the moderator to open the lines for Q&A.
So: "one", "two". Wait, "touch-tone". "Anyone who wishes to ask questions may press star and one on their touch-tone telephone." "If you wish to remove yourself from the question queue, you may press star and two." "Participants are requested to use only handsets while asking a question." "Ladies and gentlemen, we will wait for a moment while the question queue assembles." "We'll take the first question from the line of Jeevan Patwa from Sahasrar Capital. Please go ahead." Wait, "question and answer session". "We will now begin the question-and-answer session." Is it "question-and-answer" or "questio
Hello, sir. Firstly, congratulations for the marketing authorization for the CAR-T technology. Just wanted to understand, now we have the authorization for India, what is our plan for other markets or other geographies? Is there any other geographies where we are conducting the clinical trials?
Thanks to Jeevan on this question. Currently, our associate company, ImmunoACT, has partnered with Mexican Ministry of Health, and the trials will be done in Mexico, and in the process of finalizing some licensing deals with an European company. Next year, we expect clinical trials will start in Mexico for this product, and in year 2025, clinical trials will also start in Europe. In Europe, since the licensing deal is under negotiation, I can't give you more details.
Right.
There are some licensing deals being pursued by the company. Going back to your question, since the approval is obtained, we expect to launch in the next few months in India. We are getting up to do commercial manufacturing while getting all the necessary licenses needed for India launch.
Perfect, sir. Is there any other type of cancer that you are working on, any solid tumor cancer?
There is one other clinical candidate is in pipeline, which will, which is in preclinical, will go to phase II in the next six months. That is BCMA. There is another asset which is in the early stage of research for the solid tumors. Yes, Jeevan Patwa.
Okay. Okay. Thanks a lot, sir. Just want to understand on the API and FDF side. We are talking about new CMO orders. Last quarter, we said we are tied up with few clients. This quarter, we are saying we have CMO order, a healthy pipeline. Can you just elaborate more on this? When will they are going to start? Is it going to be in the second half, and how big they are? Because our API revenue has been constant since last many quarters now, despite having expanded our capacities by more than 50%. When can we actually see this number ramping up on the API side, actually, and then on the FDF side as well? The CMO order, which it is, can you elaborate more?
The CMO order we got from our partners for integrated manufacturing of API and formulations. If you recollect, we were talking about the 1 billion tablets CMO, that will increase to 1.5 billion-1.6 billion. We are qualifying the packaging lines also. Earlier, we used to do bulk packaging, now we are doing the secondary, third packaging as well, secondary packaging as well.
Okay. Okay.
Yeah.
That is when we start.
To your question of our 50% capacity addition, majority addition we have done for CDMO. As you're aware, our CDMO business, we have to have patience because we have to deliver phase II, phase III, and wait for the commercial launch. I can assure you, your company is in a good position to offer CDMO differentiation when compared to other CDMO companies in India.
if "sir" is a "Preserve every word i
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Just from the gross margin, firstly, on sequential basis, when the synthesis business has, in fact, there has been slight decline, and formulation business has also been quite stable. If you could just explain the reason for better gross margin this quarter compared to previous quarter.
The better gross margin in this quarter is primarily because of improvements we done earlier were commercialized. Also, we are operating our ARV facilities at full scale. That is also helping us to leverage.
safe with the "fewer than three letters" rule. Wait, "ARV-led API". Is "ARV-led" hyphenated? Yes, "ARV-led" is a standard way to write it. Wait, "CMO, CDMO side". Is it "CMO-CDMO side"? The speaker said "CMO, CDMO side". I'll use a comma. Wait, "gross margin". Is it "gross margins
The gross margin improvement, if you look at our second quarter of FY 2023, was at 55%, where our revenue was major, primarily driven by large CDMO orders.
Right.
Yeah, we expect if the CDMO revenues pick up, the margins will slightly improve better.
You mean to say it can go back to 55% gross margin?
I'm not commenting, but it will definitely, the revenue growth is primarily driven by CDMO business. The chances of increasing beyond the 52%, what we have reported, will certainly go up.
Okay, sir. Thank you, that helps.
Thank you.
Thank you. The next question is from the line of Bharat from Quest and Value Capital. Please go ahead.
Hello. Hi, sir. Recently, Andhra Pradesh Chief Minister has did groundbreaking for the-
I'm sorry to interrupt, sir. Your audio is not clear, Mr. Bharat. I would request that you use your handset, please.
Is it better now?
Yes, sir. Please continue.
Okay. Yeah, recently, Andhra Pradesh Chief Minister has did the groundbreaking for Unit 7 in Vizag. May I know what is this Unit 7?
The new groundbreaking ceremony done last week is primarily to add more capacity for CDMO. Beginning, we are making that common infrastructure for new CDMO sites.
Okay, this Unit 7 is for a specific customer, or it is for generic, I mean, it's not specific?
We are adding two. Actually, those are two sites. We are creating common infrastructure and building one block in each of those to get the necessary regulatory approvals so that that site also can be audited by Big Pharma, and we can able to service from that site as well.
Okay, thank you. May I know what is the CapEx for F.Y. 2025?
We will give you more details in the next quarter conference call about the new CapEx in those new sites.
Okay, thank you. My last question is, if you see in the presentation, you said that this year would be year of consolidation, and two quarters back, you said that year of consolidation means we don't expect any big growth. May I know what do you mean now with this year of consolidation? Do you expect any big growth now?
When we are saying this year will be year of consolidation, that means we are adding a lot of capacity. If you look at in the last three years, we have added 3 million L capacity and 5 billion tablet capacity. All those will be utilized in the next financial year onwards. There we will have a lot of leverage will come, where currently the negative leverage is happening. We have capacities, we have the people, and we are only doing trial quantities. We are spending more than what we are earning from those sites. Once we do commercial manufacturing from those sites, so you will see very healthy EBITDA margins and then return ratios.
Okay. Yeah, thanks. Thank you.
Thank you. The next question is from the line of Vivek Agrawal from Citigroup. Please go ahead.
Hi, thanks for the opportunity. Sir, in API segment, actually, we have seen a decent rebound, and it is largely led by oncology. Can you please call out what has driven this rebound? Is it a broad-based or any product-specific contribution, any milestone in coming oncology, et cetera? That would be helpful. Thank you.
Thanks, Vivek. The growth in oncology business is also a pleasant surprise for us as well. Maybe the regulatory setback for some of the companies is helping us to gain market share. As I mentioned, we have the largest capacity in oncology, so we are able to capture that opportunity. If you look at our oncology API sale in H1, we have done INR 171 crore. We have a very very good order book for H2. Looks like we'll do very well in the oncology segment.
Understood. Do you expect the current run rate can sustain in the coming quarters or in the next year as well?
We certainly believe so because we have order books well beyond, you know, Q4 this year.
Understood. Thank you. One question on FDF: how much of the business is coming from U.S. now, if you can help us understand?
I can give you a number for North America.
Yeah.
This year, all put together, it could be $40 million, $35 million-$40 million, yeah, from North America. Overall, yeah. Yeah.
Okay, understood. Just last question on synthesis business, right? Next few projects that we have in the segments are largely in the animal health region or ag chem, right? Can we also talk a bit on human health projects, so given that is a bigger market? Is there any progress out there? Has the company received any mid- or large-scale project of late? If you can throw some light. Thank you.
In the synthesis, there are several projects in the critical phase right now. We believe we are well positioned for several reasons. The one reason is we have capacity, and our regulatory track record is very good, and we have scale, and we have technical capabilities. See, nowadays, we have capabilities from biocatalysis to continuous-flow chemistry to very large-scale hydrogenation, very low-temperature reactions, very high-temperature reactions. We are capable of delivering wide variety of chemistry that is also well appreciated by our partners. We believe we are well positioned to get that opportunity.
Thanks, Dr. Satya. Thanks. That's all from my side.
Thank you.
Thank you. The next question is from the line of Madhav from Fidelity. Please, go ahead.
Yeah. Hi, sir, good evening. Thank you so much for your time. I just want to understand on the approval for the CAR-T therapy, which we have received for India, how big is the addressable market? Like, do we know how many patients there are in India which can be addressed by this drug? I was just reading some article online, they said that treatment cost is about INR 30 lakh per patient per year. Is that, like, broadly a right number that we should understand?
We can't give you the exact cost to the patients. We can only give you what is the product cost we are going to supply to the hospitals. It is between INR 30 lakh-INR 40 lakh. We don't have any control or estimation on how much it will cost to the patient. Our associate company is planning to sell between INR 30 lakh-INR 40 lakh per treatment.
Okay, how big, like, what's the patient population in India? Do we have any broad estimation for that?
I don't have the right number with us, but currently, ImmunoACT is geared up to deliver about 500 treatments per year from the current facility, and also creating facility which will be ready by March 2025, where we can deliver additional 2,500 treatments per year.
Okay, got it. Just on the CDMO business, I think you had mentioned that we have 60+ active projects in the pipeline, 62, if I got it right. Could you please help us understand, like, how many of these are phase II, phase III, and commercialized molecules? If you could share some splits, it will be very helpful.
As I mentioned in our presentation, we have about 10 commercial products for APIs and other advanced intermediates, and we have an additional 60 projects in various clinical phases.
My question is that if we have 10 commercialized projects, that should mean, like, good scale-up potential as we go into next year, right? Because we are building the capacity, and if 10 of them are commercial, is that the right understanding?
Bhavin, we have built capacity for commercial products already. The additional capacity, for example, in animal health, we just started commercial validation from this month. Our crop science facility is still under construction. While other human health projects, where we are creating capacity, we are doing either phase II or phase III quantities. Once we do those, we have to wait for certain time until we get the commercial orders. What we are envisaging, what we are also telling all our stakeholders, the company is well positioned because of our greenfield infrastructure, our quality, and our chemistry capabilities. The company is well positioned to take those opportunities.
Okay. Okay. Yeah. Thank you.
Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Thank you for taking my question. My first question is if you could provide the split between your ARV and non-ARV revenue for this quarter on a consolidated basis.
ARV is 49%.
Could you provide the split between your ARV FDF and non-ARV FDF for this quarter?
This quarter, ARV FDFs and non-ARV FDFs is, we have done about INR 110 crore of non-ARV formulations. And then-
Correct.
Yeah.
100%.
Yeah.
Okay, thank you so much.
If you look at our split there, it is slightly moving towards non-ARV products. That's what we are mentioning. The growth in formulations also in the future quarters will only come from non-ARVs.
Okay. Okay, that's helpful. Thank you.
Thank you. The next question is from the line of Ranvir Singh from Nuvama. Please go ahead.
Yeah, thank you for taking my question. Sir, on that ImmunoACT, I think we explained we see the approval there. I also want to understand what is the timeline when this product will roll out?
Sorry to interrupt, sir. Your audio is not clear. I would request you to kindly use your handset if you are using your headphones.
Is it better now?
Yes, sir. Please continue.
Yeah. My question was related to ImmunoACT. What's the timeline when we are expecting it to roll out in India?
We expect the rollout will happen in next two months.
Okay. Do we have a plan to increase our stake there from 34%?
It's too early to say anything because they have enough capital to deploy. If they get approval, and that will also give some additional cash flow for them. Yeah. We don't expect.
Okay, fine. In last quarter, we indicated that EBITDA margin, you may come back to around, you know, 25%+ kind of, you know, number going forward. Are we expecting... Because in first half, so that doesn't, that seems a distant goal. Any comment over here?
Based on the current trend of growth in all segments, we expect the margins will be better than compared to the first half, and we are very optimistic about second half of this financial year.
Overall, for a full year, the margin, can we expect in the range of 20% at least?
I can still say we'll improve beyond this 115% right now. Yeah.
Okay, fine. Third, on Bio side, have you added any more product other than trypsin in this division?
In Bio, the majority revenue is driven by our CDMO partners. Our revenue comes from trypsin and animal-origin-free ingredients is also growing, but major growth is coming from our CDMO offerings there.
On a full-year basis, what kind of potential you can see from this division?
The H1 Bio is about INR 90 crore.
H1, INR 90 crore.
H1 is INR 89 crores.
Yeah.
Second half will also be very similar to that. Yeah.
Okay. All right.
We had some decrease in Q3, but because of we are shutting down some of the facility for debottlenecking, and Q4 will rebound. That division is doing very good, as you've seen from our previous quarters. That is the reason we increased our stake in that company. We have a lot of confidence on that business segment.
Okay. Okay, that is it. Thank you. That's it from my side, and all the best. Thank you.
Thank you. The next question is from the line of Sajjan Kapur, an individual investor. Please go ahead.
Yeah, hi. Thanks for this opportunity. My first question is, there is a quote from Henry Ford that says, and I quote him, he said, "The only real mistake is the one from which we learn nothing." Do you believe, Dr. Satya, that failures can sometimes lead to new opportunities or landing strips, provided the lessons are learned and internalized? If yes, what examples from your own experience over the past year or so might you be able to share? That's my first question. Thank you.
Thank you, Mr. Kapur. We have several examples. Our conviction put us into a very leadership position. For some products where we failed to validate, some products we failed to get the right costing, but we continued to invest on those products. We enjoyed great success. There are several examples for that. See, we cannot fail every time, so we fail once, twice, but we eliminate the opportunities for failure significantly at every failure.
That's it. Thank you. My second question, Dr. Satya, is at a recent innovation conference in Cambridge, I heard a quote from a member of a pharmaceutical life sciences company that kind of keeps coming back to me. The person asserted that possibility always produces uncertainty, and fear of uncertainty is a competitive advantage or a moat that keeps their business safe from rivals or competition. They claim that if something is too simple to discover or develop, then anybody and everybody will eventually get involved in the field of delivering or developing new drugs. The uncertainty is kind of a moat that protects their business. That was their hypothesis. What's your sense on this? If you can, please. Thank you.
We can give you on our recent success, our investment in cell therapy is a lot of uncertainties around that discovery and development. Many people don't go into that. That's one way we had enjoyed success. The second is, not many people are investing in gene therapy because of lack of talent, lack of understanding of the technique. We invested there, but it will take some time for us to enjoy success in gene therapy. When it comes to the CDMO, what you said is absolutely right. How many companies in India have created 3 million L of new capacity in the last three years? Not many. How many companies have scale at which we are operating? How many companies are having a fully integrated development? That means from enzyme design, enzyme manufacturing, to biocatalysis, to large-scale fermentations, flow chemistry, and all.
We are creating competitive advantage by investing ahead of the time. That is our success mantra. That's we are seeing many a time, and you pointed out very well. The fear of failure will prevent many people to invest. Yeah.
Sure. Finally, Dr. Satya, one question on regulatory uncertainty. What else could potentially harm or disappoint shareholders in the medium term, let's say, next two-three years, when it comes to the uncertainty that we have on the regulatory front? It could be U.S. FDA audit, it could be some unexpected development. Anything on your horizon that we have to be guarded against? Thank you.
We have derisked significantly, but we can't say 100%. We have multiple facilities now. We are operating in multiple regions, so we have our bio division in Bangalore, Tumkur, and Mysore. We have our R&D in Hyderabad, Telangana. We have API facilities in Vizag, Andhra Pradesh. We have our associate company in Mumbai, and we have our cell and gene therapy facility being created at Kanpur. We have diversified significantly, region-wise also. Second, when it comes to regulatory inspections, as we have seen our impeccable track record there, and we expect to maintain that.
That's very reassuring, Dr. Satya. Thank you so much. Thank you.
Uh, Mr.-
That's all. That's all. Thank you.
Thank you. We'll take the next question from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity. I said the question on the Synthesis, so the outlook for second half and 2025 looks positive. Will it be driven by more of the animal health projects or the current commercialized molecule has the scope to, you know, drive it further? Is there any large molecule or the molecule has a large opportunity in the current commercialized molecule as well?
Our optimism in second half is primarily driven by increased sales in API, ARV, increased sales in oncology, increased sales in formulations, and also increased sales in CDMO. It is driven by all segments.
Okay, and Synthesis side, will it be the animal health project only or the current commercial molecules also should have the growth this year as well as next year?
We are not expecting any new commercial sales during the second half. We're only anticipating supply of phase II, phase III quantities in the second half.
Okay, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Thanks for taking my question. Just following up, sir, on the synthesis question. The second half, you mentioned the animal health business begins to scale up. Sir, and when is the agricultural business contract likely to scale up or start scaling up?
That will be in the second half of FY 2025.
Sir, beyond these two contracts, are there any major milestones for the segment that we can sort of look forward to?
We are working on some R&D projects with partner, but we don't expect commercial sales in the next 12-18 months. Yeah.
So, sir-
No, as you are aware, we are working with one of the top leading crop science companies, so we have a lot of potential to grow, but we are also cautious not to overcommit and underdeliver. We are taking projects what we can deliver. Our current challenge is also a lot of CapEx projects going on, so we're also cautious on where to invest, how much to invest.
Right. Sir, is it understanding right that animal health will contribute this year, this second half of this year, agrochemical product will contribute in second half of next year, and I guess there is not much of incremental, you know, large contracts likely to contribute in the human health over the next at least 18 months?
Next, I said next six months.
Okay. Okay. Sir, do you expect some commercialization of human health business also in F.Y. 2025?
I can't be more specific, but there are products which will go from phase II to phase III next year.
Okay, sir. Sir, you know, this $100 million CapEx, the ongoing CapEx in synthesis, by when do you see it is reasonably utilized?
Mid of next financial year onwards.
Okay, sir. Okay. Sir, lastly, on the FDF business this quarter, what was the component of non-ARV business in that?
It is about INR 100 crore and precise, INR 105 crore is non-ARV business from formulations.
Okay, sir. Sir, lastly, on the other APIs, so how should we think about this business growth from a 12-18-month perspective?
Non-ARV formulations.
Non-ARV formulations, the potential is very high. See, in ARVs, in API as well as formulations, we will have a threshold. We will not go beyond that because the number of patients is also plateauing in the African region. We anticipate that both ARVs, APIs, and formulations will also attain its peak revenues soon, maybe. The growth in both APIs, growth in formulations will come from non-ARV APIs, non-ARV formulations.
Sir, what are the drivers for this growth? You know, any specific molecules or therapies that you are, you know, that you are, or it's gonna be broad-based growth over here?
So "APIs" (no periods). * Wait, "ARB". * Is "ARB" an acronym? Yes. * Does it have fewer than three letters? No (A, R, B). *
Just a question on last one. On this ImmunoACT business, apart from the financial stake that we have, what other role do we have in this partnership?
Yeah, we have management. We have two board membership there, and we help them in building thinking at, about scale, some strategic inputs. Beyond that, we are not involved in the day-to-day operations there.
Any role in the manufacturing?
No, no. In IIT Kanpur, we were operating our own facility there. Just on the contrary to what ImmunoACT in our gene therapy, we are going to operate our own facilities.
Okay. Thank you, sir.
Thank you. The next question is from the line of Rohit Jain from Tara Capital Partners. Please go ahead.
Yeah, hi. Can you hear me?
Yes, sir. Please proceed.
Yeah. Yeah, hi. On the last call, you said that you expect improvement in the CDMO business, the synthesis business from the next quarter onwards. This quarter that we have seen that that particular division has de-grown by 10% sequentially. Can you help us understand what changed within three months, and what is the outlook for this particular division going forward?
See, CDMO, the supplies, timelines, all depends on what our partner is requesting. Sometimes if the partner asks deliveries in the next quarter, we have to deliver when he needs. Those kind of uncertainties will be on the CDMO. Our customer list is increasing, our project list is increasing. That's the reason we are also very confident on this segment.
No, I understand. The reason I ask that is on the last call you said that there was some deferment, and that's why the first quarter number was lower, and you expect improvement sequentially. Should we understand that there was some further deferral?
Yeah, that's the reason where we.
Hello?
That's the reason.
Okay.
We didn't have any sequential growth.
Yeah, just this was asked earlier on the call. Just wanted to confirm that. You said that this is a year of consolidation, which earlier sort of indicated that you expected flat EPS year-over-year. Given the performance in 1H, that seems like a, you know, difficult task. How should we think of that qualitative guidance of this year being consolidated, year of consolidation in terms of financials?
We're not giving guidance. But we are reiterating our... As we mentioned, this is an exciting times for us in the company, and this we have many prospects, many exciting projects, and things are in a good shape. That is the reason we are investing into the future. That's my answer for this. Yeah. We can't give you guidance right now.
Understood. One last question from me, and thanks for your time. For the CDMO capa, you know, CapEx and for the size that you are preparing, what sort of asset turns should we think of, the broad range, like the high and the low?
I will give you a very broad number. It varies between one and two turns. Yeah. Between one and two.
Okay.
Yeah. All depends on the project. Yeah.
Okay, fair enough. Thanks for your time. All the best.
Thank you. The next question is from the line of Abhijit K. from PCL. Please go ahead.
Hello? Hello.
Yes, sir. Please proceed.
You can hear me?
Yes.
Yeah, hi. Firstly, I'd like to congratulate everybody on the lot of things. I've been following the company since 2020. It's an impressive growth. What you guys have been doing with all the divisions is fantastic. Mr. Chava, you're personally an inspiration to many people I know, and great to do, great in whatever you guys are doing. First, I'd like to ask a question with regards to the revenue base. I see, I'm looking at the presentation, I see that there is a sequential increase in the revenue, reminding the FDF business of, yeah, sorry, your CDMO base of the previous contract, which is tax-related of course. How do you see the revenues growing over the next two quarters and also the next one year?
In the Synthesis, if you look at the overall year, last year was a lot of commercial supplies happened. This year we don't have any commercial supplies, but we hope next year will be again a good year for our CDMO. Some of the projects are moving into the late clinical phase or commercial. Things will be in a good shape next year. Yeah.
Okay. Next part of, with regards to the CDMO, you've mentioned that one is going to be the animal API business that is going to come into play, and the other is the agrochemicals. Do you see that this is going to be a structural change in the company, where you're going to be diversifying not only from a pharma-based thing and diversifying into other revenue streams like agri and also alternative sectors?
The animal health is a contract signed with one customer for good chunk of products. In crop sciences, we have signed one commercial agreement, one development agreement, and we'll also sign a second commercial agreement soon. Our CDMO comprises of human health, animal health, some cosmetic ingredients that we're doing, and crop sciences. That way, our CDMO division is well diversified when compared to the many other CDMOs. Yeah.
All right. Thank you so much. Thank you. Thank you.
Thank you. We'll take the next question from the line of Aditya Singh from RoboCapital. Please go ahead.
Hi, thank you for the opportunity. My question is on the EBITDA. Once we start utilizing our new facilities, let's say by late F.Y. 2025 or even F.Y. 2026, then will we be able to get back to the previous high range of EBITDA, that is, +25% range of EBITDA?
Yeah, this is a very interesting question, but we can promise you we'll get to closer to 30%, but I will not tell you which year. We will get to there. Yeah.
Okay. Okay, then.
Our growth, our revenue contribution significantly tilt towards CDMO. I'm sure we have an opportunity to take our EBITDA back to around 30% level.
Okay, okay. That promise itself works for us. Thank you.
Thank you.
Yeah.
Thank you. Ladies and gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.
Thank you, Monish, for organizing this call, and thank you our stakeholders who have a lot of confidence on us. I'm sure we will meet your expectations as we continue to commit ourselves to bring cutting-edge technologies and servicing customers with our wide range of industry offerings. Thank you.
Okay, thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.