Ladies and gentlemen, good day and welcome to Piramal Pharma Emmanuel Walter Earnings Conference Call. 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 and zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gagan Borana from Investor Relations. Thank you, and over to you, Mr. Borana.
Thank you, Renju. Good morning, everyone. I welcome you all to our post-results earnings conference call to discuss our Q4 and full-year FY2025 results. Our results were declared last evening, and the results material has already been uploaded on our website. You may like to download and refer to them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our business faces. On the call today, we have with us our Chairperson, Ms. Nandini Piramal; our Global Pharma CEO, Mr. Peter DeYoung; and Mr. Vivek Utture, CFO of the company. With that, I would like to hand it over to Ms. Nandini Piramal to share her thoughts on the year gone by and the outlook going forward.
Good day, everyone, and thank you for joining us today in our post-results earnings call. FY2025 has been a steady year for the company as we surpassed an important revenue milestone of $1 billion, with a year-over-year growth of 12%. This growth was primarily driven by our CDMO business, which delivered a revenue growth of 15%, with over half our revenues coming from innovation-related work. Our complex hospital generics business also crossed a $300 million top line as we maintained our number one rank in sevoflurane and intrathecal baclofen in the U.S. market, with a 44% and 75% market share, respectively. Our consumer healthcare business also exceeded an INR 1,000 crore milestone in annual revenue on the back of healthy 20% plus growth in our power brands, supported by new product launches and an expansion in our distribution network.
In terms of profitability, we reported an EBITDA margin of 17%, which translates into an EBITDA growth of 15% over the last year, despite having to incur some one-off non-recurring spends. In our CHG business, our net profit after tax also increased 5X to INR 91 crore, compared with INR 18 crore last year. To ensure future growth, we invested about $80 million in CapEx during the year, while maintaining our net debt-to-EBITDA ratio under three times to 2.7X. All of this performance was achieved in a year that was marked by an uncertain business environment, with inadequate and uneven improvement in funding for emerging biopharma companies, geopolitical disturbances, high interest rates, slow consumer demand in India, and uncertainty around the Biosecure Act and trade tariff policies.
Talking about our performance for the quarter, Q4 continues to be the biggest quarter for the company, with the highest share of full-year sales and profits coming in Q4. During Q4, FY2025, we reported 8% revenue growth with a 22% EBITDA margin. Our net profit after tax grew by 52% as we crossed INR 150 crore during the quarter. We witnessed strong traction in new order inflows during the quarter, particularly for our overseas sites, such as Grangemouth, Riverview, Sellersville, and Lexington. On quality and compliance, we continue to maintain our best-in-class track record of zero OAIs from the U.S. FDA since 2011. This year as well, we successfully cleared 36 regulatory inspections and 165 customer audits without any major observations. We remain committed to quality as a culture rather than quality as compliance.
On the sustainability front, we made significant progress during the year with the SBTI approval of our decarbonization plan. We've taken up targets to reduce our Scope 1, 2, and 3 greenhouse gas emissions by 30%-42% by FY2030. As a significant step in this direction, we converted our coal-fired boiler at Big Wells to operate on biomass briquettes, which are expected to eliminate about 24,000 tons of CO2 greenhouse gas emissions, as well as 17% of our total emissions. We also conducted comprehensive energy audits across our sites to identify energy efficiency opportunities and increase our share of renewable energy at various locations. Additionally, we conducted water use assessments across multiple sites, which led to the implementation of microprojects, resulting in savings of approximately 100 kiloliters per day. We also maintained our zero fatalities and zero hazardous waste to landfill status, reinforcing our commitment to safety and environmental stewardship.
Women now represent about 20% of our total workforce, reflecting our ongoing efforts to foster male-based gender diversity. The Piramal Foundation, our philanthropic arm, continues to work towards community welfare and upliftment of our society. As a result, we've seen a significant improvement in ESG scores by S&P Global and Equal Bias. Moving on to business-specific highlights, starting with the CDMO business. Our CDMO business has delivered a strong financial performance over the last two financial years, with a revenue growth of 19% in FY2024, followed by 15% in 2025, coupled with a significant improvement in our EBITDA margin. This performance has been mainly driven by increased traction in our innovation-related work, especially the unpatented commercial manufacturing, which grew from $52 million in FY2023 to $179 million in FY2025.
As a result, the contribution of the innovation-related revenue in our CDMO business has increased from 45% in FY2023 to 54% in FY2025. Over the years, we have consistently invested in our differentiated capabilities, such as ADC, HPAPI, peptide sterile cell finish hormones, and unpatented API development, which continue to witness strong demand. These strategic investments have translated into a growing share of revenue from differentiated offerings within our CDMO business, rising to 49% in FY2025 compared to 37% in FY2023. We've also recently announced a $90 million expansion investment at two of our sites, which includes the addition of commercial-scale sterile injectable capabilities in Lexington and additional development and commercial-scale capabilities in payload linkers for bioconjugates in Riverview. Both of these site expansions together play a vital role in our integrated ADC and development and manufacturing program.
Talking about the order inflows, customer inquiries and RFPs remain strong, particularly at our overseas sites such as Grangemouth, Riverview, Lexington, and Sellersville, driven by the customer's needs to de-risk and diversify their supply chains. There is a high demand for integrated service offerings and a geographically diversified facility network on account of ongoing geopolitical uncertainties. However, customer decision-making timelines are prolonged, particularly for early-stage projects due to an inconsistent recovery in the funding for emerging biopharma companies and uncertainties over tariffs and trade. As we tide over these near-term uncertainties, we believe that we are well-placed to capitalize on CDMO opportunity over the medium to long terms with our globally diversified network of facilities and differentiated capabilities. Our stellar quality track record and continuous focus on customer delight through superior execution puts us in good stead to win repeat orders and add new customers.
We stand committed to grow our CDMO revenues to $1.2 billion by FY2030 with an EBITDA margin of 25%. Moving to our complex hospital generics, FY2025 was a mixed year for the CHG business. In the U.S. inhalation anesthesia segment, while we had lower price realizations during the first half of the year, we largely offset that through new order wins and some major contract renewals, thereby maintaining our market leadership position with 44% market share. In the non-U.S. markets such as U.K., France, India, Vietnam, etc., we're seeing increased traction for inhalation anesthesia products. As per secondary sales data by IQVIA, our ROW market, which is ex-U.S. and ex-China, size for the CHG market is about $400 million.
To capitalize on this market opportunity, we have invested in setting up a new CBO manufacturing line at our Big Wells facility and increasing the KSM manufacturing in our DH facility to ensure vertical integration. We're happy to share that these capacity expansion projects tracked well on our timelines, and we have started commercial production of our sevoflurane at our Big Wells facility from last month. This should be an important driver for our CHG business over the next three to five years as we look to penetrate deeper into the ROW markets and build our market share. In the intrathecal therapy segment, we continue to hold our leading market positions in the US. Our flagship brand, Gabanofen, remains a top-brand baclofen prefill syringe and vial product in the US market with a 75% market share. Methlamorphine sulfate brand also registered a healthy growth during the year.
Talking about the progress in our specialty and differentiated pipeline, our partner Bracco Pharma received approval for NeoActricon for multiple markets such as the U.K., Germany, France, Italy, Spain, Netherlands, and a few more. We have the marketing and distribution rights for these markets. NeoActricon is the only pre-diluted, age-appropriate formulation for dopamine approved for treating children and infants with hypertension. Moving on to our India consumer healthcare business, our India consumer healthcare business still delivers steady double-digit revenue growth, crossing a strategic revenue milestone of INR 1,000 crore, anchored by a strong growth of over 20% in our power brand. The performance was delivered despite the slow consumer demand in India and one of our power brands, IPIL, seeing a regulator-mandated price cut. We continue to invest in median trade promotions to support the growth in our power brands.
Our new product launches have also played an important role in driving growth in recent times. During the year, we launched over 50 new products and SKUs. In terms of trade channels, e-commerce continues to be a major driver of growth, with 30% growth during the year. In general trade, we're increasing our penetration in smaller towns and transitioning from a pharmacy-dominant network to an omnichannel consumer healthcare network. We're continuously working on increasing our reach via new trade channels such as quick commerce, supermarkets, hypermarkets, and standalone modern trade outlets. Summarizing our performance, I'd like to say 2024 and 2025 have been two good years for the company with mid-teen revenue growth, accompanied by a 500 basis points improvement in our EBITDA margin.
This has been significantly driven by CDMO business, which has delivered 16% revenue growth, catered during this period, with a significant improvement in EBITDA margin on account of operating leverage and improved revenue mix. In the last two years, we have also seen a very good increase in the increase of CDMO revenues from differentiated offerings and innovation-related works, especially revenues from unpatented commercial manufacturing. While these unpatented commercial manufacturings are long-duration contracts with good growth potential and superior EBITDA margins, their contribution does vary across time periods. Especially in new product launches, it's normal to see a phase of inventory build-up at the start, followed by a brief period of inventory normalization and then steady growth over a longer period of time.
In one such case, a recently launched blockbuster unpatented commercial product by a customer, we benefited in FY2024 and 2025 as the customer built inventories to gain market share. In FY2026, we expect a brief period of inventory normalization. Post this inventory normalization, we expect the orders to pick up from FY2027 onwards. The near-term order fluctuation due to customers' inventory adjustments will have a temporary bearing on our FY2026 financial, which should reverse in FY2027. Barring this, our underlying CDMO performance is expected to grow at a mid-teens rate, reflecting a healthy demand for differentiated capabilities and integrated service offerings. We are seeing good demand at our overseas sites, especially Grangemouth, Lexington, Salisbury, and Riverview, which should help improve their capacity utilization and their profitability.
In terms of broader outlook for the CDMO industry as well, we're positive on the growth prospects over the medium to long term, given the growth in the global pharmaceutical market and increased preference for outsourcing to CDMO companies and supply chain diversification by pharma companies. Withstanding the current short-term volatility in the macro environment caused by uneven improvement in funding for emerging biopharma companies and uncertainty over trade tariffs leading to prolonged decision-making by the customers, we believe that our network of globally diversified facilities and investments in differentiated capabilities, we're well-placed in the industry to succeed with the widest possible range of outcomes when these uncertainties resolve. Also, our late-stage pipeline, which is where the client's funding remained directed in scenarios of restricted funding, remains exciting, and we're tracking well to grow this.
Talking about the outlook for the other two businesses, complex hospital generics business and consumer healthcare business, we expect them to grow well with an improvement in EBITDA margins tracking in line with our FY2030 aspirations. Hence, on an overall basis for FY2026, we expect a mid-single-digit consolidated revenue for the company, followed by significant recovery in FY2027 with mid-to-high-teen revenue growth. Accordingly, in FY2026, we expect reported EBITDA margins to moderate at mid-teen level, followed by material improvement to about 19%-20% in FY2027. On the back front, if the geography mix of revenue remains aligned to our forecast, we expect a modest year-over-year growth in FY2026, which should increase multi-fold in FY2027.
Thus, on a two-year basis, we should continue to deliver revenue growth and EBITDA margin in line with our FY2030 aspirations to become a $2 billion revenue company with a 25% EBITDA margin for the high-team thrusty. With this, I'd like to hand over back to Gagan Borana.
Yep. Monitor, can we start with the Q&A session, please?
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone 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'll wait for a moment while the question queue assembles. First question comes from the line of Amay Chalakke with GM Financial. Please go ahead.
Yes. Thank you so much for taking my question, and congrats to the management and good quarter. First question I have is on the $179 million revenues we have generated from the propagated protected commercial sales in FY2025. As I understand, during the, like while finishing your remark, you mentioned that FY2026 could be kind of a mid-new bid year on account of lowering the sales of these commercials. Where do you see this $180 million number to be in FY2026?
We're not giving a specific quantified target for that carve-out. However, I think in Nandini's remarks, she mentioned that we have a single customer, which is a large customer, which is as part of their launch program. They built a significant amount of stock to plan for success, and we benefited from that over the last two years. We don't anticipate much ordering from that customer in the upcoming year, which is what's driving the more muted growth in the FY2026 time horizon. Although we're not giving a specific carve-out for that guidance, I think what we are giving is that in that one customer for that one product, we would anticipate the inventory issue.
What we are trying to signal is that everything else in the business is healthy, and we also expect that customer to resume ordering once they've addressed their one-time inventory issue in the future.
Is it fair to say at present we don't have orders for the customer for at least the next few months?
We would anticipate that the customer will need to pause deliveries for a period of time while they adjust their inventory.
Second question I have, we have 31 projects in phase three. How many of these projects do you expect to get commercial in FY2026 and 2027?
I think that will be up to our customers. I don't think we can generally comment on regulatory timelines.
What we would want to comment is that, back to the comment Nandini made in her earlier remarks, which is, one, that we would anticipate the issue of the one customer restocking event. We are expecting mid-teens revenue growth for the remainder of the business. The second point is that when you factor in the resumption of orders at the expected levels, given the underlying product that we are supplying is performing well on the market for our customer, FY2027 would be back on track for our LRP plans. What we are trying to signal is that, one, the overall health of the business in the next year is strong, and also the overall health is on track for FY2027 performance, looking at all in, including that customer.
Sure. Second question, or third question I have is on the setting up of these new blocks in the US where we are expanding these injectable units. Is it on any customer order we are doing this, or do you expect the orders to be kicking off for the expansion?
We already have customers at those facilities that place the work at actually both facilities and really both expansions anticipating or counting on us making these expansions. For example, in the case of the Lexington expansion, which was previously announced late last year, we did that decision when we had clarity based on customers that had already decided to place work with us at those facilities. Continuing that expansion that we announced last year, and we kind of reaffirmed that commitment earlier this week, it's really about us making sure the capacity is available for our customers that are already there so that when they succeed, we can succeed with them. In the case of the Riverview facility, that is a new announcement, and actually we already have placed work that would take advantage of that expansion.
It's largely booked out what we've already started the expansion there.
Sure. Thank you so much. I will join back with you.
Thank you. Next question comes from the line of Abdul Qadir Purandwala with ICICI Securities. Please go ahead.
Yeah. Hi. Thank you for the opportunity. My first question is with regards to your commercially non-competing products. Typically, in terms of the contracts, what you would have, I mean, could you help us understand what is the tenure of this kind of a contract, whether it spans over a couple of years or whether it's quite short-term in nature?
We do not comment on specific contracts, but what we would say is that typically when we sign up to work with clients in the commercial phase, we have multi-year contracts, and that is the case here also. We would typically expect the customers to have continuing work with us, and they would not typically invest all the time to tech transfer a project to our location and stay with us if they were not planning to stay. I would just say that for the customers that are currently in our commercial unpatented category, we are delivering on promises for them. We are meeting their expectations, and we believe that we are performing well per their expectation. Therefore, as they require more product, they will continue to make more orders.
Sure. The second question is on your discovery on patent CDMO business. If I look at the revenue contribution from this particular segment, that has come down significantly in the last two years. Any color you would like to provide on how the funding environment is and in terms of your new project events, what you would have?
I think overall, we've seen an uneven recovery in biotech funding, and that is especially targeted at the early phase discovery work. I think it's still, yeah, I would say it's early days yet for recovery of biotech funding.
Understood. One more on your inhalation anesthetic business. You added two new facilities. I believe this would be for the ROW markets. In terms of your growth, I mean, how do we look at this from the next two to three years' perspective? Any color if you could like to provide?
I think we're tracking well on our FY2013 kind of aspirations for the CHG business. I think we should see growth overall.
Got it.
We have already called out the market opportunity in our presentation. It is about $400 million opportunity, and we have already put up those two lines in the Big Wells, and we also done the backward integration by increasing our KSM capacity. As we have mentioned at press release that we have commercialized this production in the month of April. I think for the next two-three years, a large part of the growth would be coming from the sales in the ROW markets. Our current market share is about 9%, and we look to grow that.
Would it be fair to assume that the kind of market share what you have in the US is what would be on the target here?
I think that would be spectacular. I think we do not need to achieve that market share to achieve our LRP. I think the overall LRP plan requires growth in our inhalation business, our injectable pain business, and then our new pipeline. In the current year, we would expect a meaningful part of our growth to come from the inhalation expansion, which is driven by the points that Nandini and Gagan mentioned. Just to further elaborate, the first commercial supplies did happen in March for the markets that require light regulatory or limited regulatory filings. We are going to do filings over the course of the year that will allow us to bring this location in line to serve those ROW markets, which will contribute meaningfully to the growth in the current fiscal.
Understood. Finally, on the debt, I see in this year here, there is a small increase in our debt as compared to last year. Going ahead in the next two to three years, what are the kind of debt levels we should be looking forward for?
Yes, Abdul. The overall debt level is currently at 2.7 in line with what we guided for, which is to be less than 3. For FY2026, we shall see some increase in debt quantum because of the reasons that we spoke about while guiding for next year. As we have mentioned, our intent is to bring this down by FY2030 to 1:1, the net debt to EBITDA ratio. While we will see a temporary spike in FY2026, the long-term intent to move towards 1 remains, and that's how we'll be headed for.
Got it. Thank you. We'll join back with you.
Thank you. Next question comes from the line of Kunal Randhania with Axis Capital. Please go ahead.
Hi. Good morning. I'm not sure if you mentioned, but while I do understand the inventory correction, a normalization for FY2026, you will expect a very sharp growth in 2027. Has the customer communicated this to you, or is it your assumption that things will not normalize in FY2027?
We do not want to get into too many confidential details, but I would point to the fact that the underlying product is doing well in the market, and it is typical for a large pharma when they plan for a launch to build inventory so that there is very limited risk of not selling due to lack of inventory. Once the sales settle and the growth rate is more known, they then do a pause while they adjust inventory to match the trajectory. If you look at the underlying growth and performance of the brand, it looks and shows that it is growing very nicely. We would fully expect, being their lead supplier and with the strong OTIF and good cost position and good quality and safety track record, that this would continue in line with our expectations and discussions. It is ultimately the customer's decision.
Sure. That's helpful. Secondly, just again, sevoflurane, so it seems you may have hit a ceiling in the US now. Just wondering how easy it is to ramp up ROW because I assume there will be a lot of countries, there will be registrations, and then just to kind of get the market share. Is it a slow process, or you already are kind of registered? You just need to improve execution?
A little bit more color on this. We already sell our products across the globe, and they're already registered across the globe. In the prior years, we were actually limited in our capacity, and so we were having to prioritize the higher value, more contracted markets or regulated markets so that we could ration our available capacity to meet the areas of greatest value and benefit and also medical parameters. Now that we have the extra capacity, we can tackle the next tier of growth opportunities that we had to deprioritize. Just to further clarify, we are already selling into these markets. We are already registered.
What's going on is an additional site registration for those markets, which will happen at different time frames based on the amount of stability data required and the regulatory processing for site addition, of which, as Gagan mentioned, one already happened in the last month of the last fiscal. We would anticipate, with this new capacity coming online, that we no longer have to prioritize and ration the way we were, and we can now tackle the marginal incremental opportunities as the individual markets come online with our registrations.
Got it. Just one more if I can. It's a slightly broad-level question. The current US government is trying to ensure development and manufacturing in the US. Just wondering how this could, how the US companies are looking at CDMOs. Do they kind of, because while you are an important part of their overall supply chain, but just a small part, none of this. Just wondering how you see this panel now.
I think overall, I think we're one of the best positioned CDMOs to actually benefit from people wanting to onshore manufacturing in the U.S. I will say that given the uncertainty, I'd say people are taking time to decide because they're honestly not sure what will happen in 90 days or 180 days, etc. I'd say when people do decide, I think we're best positioned to actually onshore manufacturing, but for the rest of it, it's a bit early to say.
Sure. In case you do have to, let's say, do onshore manufacturing, you'll have to, I think, change the registration sites and everything. That also will take a bit of time.
It will. Yes.
Got it. Thank you.
Just to add on the point, if there is an uptick in confirmed customer demand for onshore production, we have capacity at our recently expanded Riverview site. We have capacity at our Sellersville site, and we discussed the expansion at our Lexington site. For those three different and distinct capabilities, while there would be time for the customer to make a decision, which would require certainty, which Nandini mentioned, and then there would be a tech transfer time for them to move it from whatever site it is currently at to that site and then to register, we would obviously then get the benefit of the revenue. We do not have to wait for significant brownfield expansions to capitalize on this in that we do have capacity available at all three sites and an expansion going underway at one of them.
We would be, that's why Nandini is saying that we are very well positioned because of our already existing site network and available capacities once customers make decisions to reshore or onshore in line with policy guidance.
Thank you. Next question comes from the line of Madhav with Fidelity. Please go ahead.
Hi. Good morning. Thank you very much for your time. I had one question on the P&L. If I look at the gross margin for the company in quarter four, they've expanded by 500 basis points. Some of the costs seem to have gone up quite a lot. If I look at the employee costs or the other expenses, both QOQ, YOY, especially other expenses moved up quite sharply. Could you give us some sense in terms of what's happening there? I think the PPD did mention certain one-offs, so if you could just quantify that as well.
Yeah. So Madhav, firstly, to address the question on gross margin. As we've maintained, the full year gross margin is more representative of what the GC for the business stands. In quarter four, particularly larger in quarter four, we had higher inventory depletion causing a higher overhead charge to the P&L last year. On a normalized basis, the 64%-65% is a correct representation of the gross margin. Coming to expenses, again, a full year look at expenses of how we have delivered is more representative. Our business, as you are aware, tends to get very lumpy. When it comes to employee expenses specifically, last year we had a case where certain performance incentive provisions had to be reversed because we did not meet our internal targets.
This year, we've actually delivered or outperformed internal targets due to which there is a performance pay provision which has been made. Because we tend to have a more lumpier quarter four where a large quantum of sales gets delivered in quarter four, the true-up for some of these provisions actually happened during quarter four, causing this kind of a lumpiness. Similarly, in case of the other expenses as well, things like sales promotion expenses, logistics, freight, distribution, a lot of these variable elements of cost tend to be more prone towards quarter four versus the other quarters. As I said, true-ups happen towards quarter four. Therefore, going by the full year number is a more reasonable way to look at how the expenses stack up. You also referred to certain one-off expenses.
That's in the depreciation line item towards provision for an intangible asset that is considered financially unviable.
Even for the CHG business, we have been flagging certain costs related to, I guess, the new site. Is there any sort of cost sitting there in FY 2025, which was for a new site or new registrations, which probably does not occur?
Correct. There's about $4 million-$5 million of that cost, which is sitting in the expenses, the one-off expenses that we alluded to. That is there in the FY2020, FYP and all.
Okay. Got it. Got it. Understood. No, that sounds good. Yeah. Thank you.
Thank you. Thank you. Next question comes from the line of Shyam Srinivasan with Goldman Sachs. Please go ahead.
Yeah. Good morning. Thank you for the opportunity. Just the first on the margin guidance for fiscal 2026 and the margin walk, right? I'm just trying to see there are multiple moving parts. If you could help us. Seventeen percent fiscal 2025, I think it was said going to mid-teen. If you could just reconfirm that. I'm just trying to see the moving parts, right? One, we obviously have a recovery in the CHG business. If one-off expenses, some of this goes away, there should be some improvement, it going back to its closer to its historical level. CDMO business, going by the revenue guidance, seems to be no growth, I'm just implying. The other two, I'm just assuming that they're growing at whatever, 10-12%, right?
Just want to understand how's the margin walk for us to go from 17% to mid-teen. What are the push and pulls here?
Firstly, let me begin by saying that both the complex hospital generics and the consumer products business is growing in line with and will grow in line with our aspirations of whatever we have said we would move towards FY2030. Whatever is the impact on the margin is largely coming in the CDMO business, which happens to be 60% of what our total business is. That is where the correction in the margin is happening. What is important to note is that this is a one-time impact that is happening for FY2026 to come back to what we believe will be close to 19%-20% margin overall for the company. The push, which is coming right now, is largely coming from the CDMO part of the business, but to get corrected back in FY2027.
Yeah. Sorry, Vivek. We are just looking at consolidated margin, 17. Clearly, CDMO is lower than that. You have said it significantly improved, so I do not know where it was before. Maybe it was low double-digit. I do not know. Now we are seeing this, whatever, 15, 16, 17, whatever the number is, is going back again. What is driving that? We still are having some, okay, there is no growth. Is it negative operating leverage in the CDMO business that is the drag?
That's right.
Understood. Okay. When we go back to 2019 to 2020 next year, which is 2027, you are expecting a huge uptick in CDMO for fiscal 2027?
Correct. You're spot on. There would be an uptick in that one large customer business in FY 2027, followed by our base business that continues to do well. We said the other two businesses continue to be more consistent growth driver over FY 2026 and FY 2027. 17% EBITDA margin in FY 2025 will eventually become closer to 19-20% EBITDA margin in FY 2027.
Helpful, Gagan. Just my second question is just on the $90 million, and I may have missed your mentioning, the $90 million at Lexington and the additional CapEx for bioconjugates at Riverview. Just want to understand what is the current utilization for both Lexington and Riverview, and what is driving this CapEx? Is it that the current facilities in the utilization—I thought utilization was low. It's not very high. Is it that we need new capacities for catering to demand? The existing capacities are probably legacy. If you could kind of give us a qualitative color on the additional CapEx. Thank you.
The qualitative cover is that we have a number of customers at Lexington that placed to work with us that are not currently in commercial production or recurring production, that are in the, let's say, development/registration phase, that when they succeed, and we believe that there's a high chance that a number of them would succeed, that if we didn't have the expansion, they wouldn't have the capacity to meet their mid-range forecasts. In order to meet the customer expectation that if they check transfer to our site and they succeed with the regulator, we can meet their production volume requirements. That would be what's driving the Lexington expansion decision, which was really a recommunication of what was communicated late last year.
Riverview is a little bit more different, where what we've seen is with the overall uptick in antibody drug conjugates and the real excitement in that sector, we've seen now a lot of demand for the full package. As you know, our history is in conjugation where we began, and then we did a lot of, let's say, fill-finish as our first experiment into integration. As you know, we've now demonstrated with the antibodies in Yapan in Hyderabad and the linker payloads in Riverview. What we realized was that that requires a particular set of dedicated kit and a particular dedicated suite, and we had pretty much sold out our existing suite and kit for linker payloads.
What we realized is that there was a lot of demand out there, and we were going to be losing projects if we did not increase that capacity. We have a, it is a very small, modest CapEx. It is fitting out a room that is already built to add the kit needed to do additional linker payload volume, and frankly, we have already sold it. Not all of it, but a lot of it.
Thank you, Peter. All the best.
Thank you. Next question comes from the line of Tushar Mahendutani with Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Thanks for the opportunity. Just in terms of the order book for the CDMO side, if you could give some more color in terms of these incremental orders coming on which specific segment for us? Is it peptides? Is it ADCs? If you could share your thoughts on that.
We had a strong quarter-ending March with order booking. We largely booked what we had expected or hoped to book in that quarter within the quarter, which is what we are using to base our revenue growth guidance for the year, excluding the one-off discussion that we already had. If you look at some sites that have had some particularly strong results, we have had a significant number of new program additions in ADCs. It has been a very hot area for us, and some have been conjugation only, whereas others have been integrated programs involving multiple capabilities. Just to touch on that, because it is one of the stronger areas for us, significant new large pharma and emerging biopharma wins at Grangemouth. We have also had integrated projects touching Lexington and Riverview, linker payload. We have discussed the expansions going on at those two sites.
Obviously, we had the prior wins at Yapan in the MAB area. What's also not mentioned is that we're doing a lot of interesting bioconjugates that are more novel. We actually had a case where a client worked with us first at PDS in Ahmedabad, and we could do some very difficult chemistry with them for a less traditional ADC bioconjugate. We won a multi-site project there. Another case was where we were doing some work with peptides at our Turbine facility. In those two cases, these are very prominent, I guess, ADC or bioconjugate startups. Our secret sauce was the other capabilities that then got us the whole integrated project. I'd say ADCs would be one big wave.
I think the second area is that our Digwall site and our Pitts and Port site continue to get very strong order inflows. That is great because it is our India advantage, and we have a good track record there and really good growth prospects coming in from new project additions. If we flip it over to the Americas, we have had a significant number of new program additions at Riverview. Now, they are in the earlier stages, and they are not all going to be late-stage, but it is significant we have a few late-stage additions there. The last bit I would say is from a drug product facility perspective, when you get the subsidiary financials, you will see it later, but we had significant growth in Lexington revenue year-on-year in the LTM basis. We see strong order flows there.
Sellersville, with all of the onshoring discussion, we're getting a lot of RFP inflow and a significant number of conversions and a lot of interesting RFPs out there. It's a bit of a long answer, but I'd say if you look at it, it really aligns to our differentiated capabilities. I wanted to give a significant shout-out to both the offshore large-size sites and the onshore differentiated sites and ADCs.
Sure. That is helpful. Just on ADCs, one more if I may, right? Typically, the success rate for the molecule from clinical to commercial is relatively much less compared to the other segments. Given that scenario, still we are sort of investing considerably as far as the manufacturing sites are concerned. That confidence is coming because of the certain products of innovators sort of moving towards the commercial phase, or this is more to do for already commercialized products where the customer has asked for additional volume from us?
I'd say most of the new additions have been in the clinical phase. What gets us excitement is not that we have one very large anchor customer that's providing all of the revenue or revenue projection. It's that we have a really broad base of both large pharma and emerging biopharma customers that are looking at a range of our capabilities. While we'd love for all of them to succeed in the clinic, as you mentioned, that's rarely the case. We would anticipate there would be attrition, but we do see it's one of the areas with the highest number of clients with, I'd say, of all of our areas, the differentiated area of ADCs would be one of the hottest. I think the onshore drug product and then the offshore API would be also right up there.
I'd say it's not like we're all depending on one particular phase three to make the numbers work. We have a handful of meaningful large pharma and a handful of meaningful emerging biopharma that are collectively needle-moving and interesting and compelling.
Thank you so much. That's it from us.
Thank you. Next question comes from the line of Bino Pady Parambil with Elara Capital. Please go ahead.
Hi. Good morning. A couple of questions from my side. When do you expect your tax rate to normalize at the consolidated level?
Vinod, as you're aware, the overall tax rate depends upon the mix of geographies from where our revenues and profitabilities arise. The more the revenues coming from the overseas facilities, the more reduction in the effective tax rate because we've already got some carried-forward tax losses available, which we can offset. This will take over a period of time. As we have guided to over by FY2030, we definitely see it moving towards 24%-25%, which should be the ideal effective tax rate. You will see a gradual reduction in the tax rate happening across the period as this mix changes with higher utilization of our overseas facilities.
In the entities where you are making losses, you would be also taking some tax credit on the P&L, right?
Not yet because many of these are still at their nascent stage. So we haven't started creating deferred tax assets if that's what you are referring to. Once they turn around and demonstrate consistency of performance, we'll start creating those deferred tax assets. Currently, we are not.
Understood. What's the CapEx expected for FY 2026?
We expect it to be in the range of about $100 million-$125 million. This includes the $90 million expansion in the US that we have talked about. Part of that would also get spent in FY2026.
Okay. Last, just to reconfirm the guidance. This year, you said from 17%, the margin could come down, EBITDA margin could come down a bit to mid-teens. Does that also mean that the overall consolidated revenue growth also would be a bit muted because of the issue we discussed?
That's right. We have guided to a mid-single-digit revenue growth for FY 2026.
Got it. Thank you. Thank you very much.
Thank you. Next question comes from the line of Vinod Jain with WF Advisor. Please go ahead.
Yeah. Thank you. Good morning, everybody. The incidence of taxation has been high for the years 2023, 2024, and 2024, 2025. Now, my question is largely answered that the incidence would go down over the years to more normalized 24%-25% tax incidence up to in the financial year 2030. What is the specific guidance you can give for the year 2025, 2026? Will the tax incidence be lower significantly from the earlier two years?
It is like this that, as I mentioned, it depends upon the mix. Based on what we see currently for FY 2026, we do see better utilization and better sales from our overseas facilities, which means that you would see some reduction in the tax rate versus what you have delivered in FY 2025. There will be a reduction in the effective tax rate. It is just that right now, we are not giving a specific guidance because we have to see how this mix pans out. The more the utilization at overseas, the sharper the reduction.
Very well. That answers my question.
Vinod, we also made a point that in FY 2026, while our EBITDA margin goes down slightly over FY 2025, there would be a year-over-year growth in our PAT in FY 2026. That also indicates towards a lower tax rate in FY 2026 over FY 2025.
Understood. Thank you.
Thank you. Next question comes from the line of Madhav with Fidelity. Please go ahead.
Yeah. Just one follow-up. You know the brownfield expansion that you announced of $90 million at the US sites? Just wanted to get clarity that typically, just my understanding that when we do a greenfield expansion in this industry, generally it's 1-1.5 times something like that is the fixed asset turn. When we do brownfield at these two sites, typically what could be the revenue potential given, I guess, some of the infra is already in place? I would assume if you could give some color in terms of how different the margins could be given some of the fixed cost is probably already sitting at these sites. Thank you.
As you rightly mentioned, first I'll talk about the margin point. Yes, the margin tends to be better because obviously a certain component of the fixed cost is already taken care of. Therefore, the incremental gross margins flow into the EBITDA. Yes, margin profile tends to be better. In terms of asset turn, honestly, whether it's a greenfield or brownfield, the asset turns would tend to remain in the range of 1.5-2.
Would there not be some common infra like utilities, etc., which is already in place at the site so you don't need to spend on them?
Correct. A large portion of the capacity spends happen on creating the core infrastructure. It does not very significantly change.
Got it. Okay, sir. Thank you.
These capacity expansions will come online in FY 2027.
Riverview will be this year.
Yeah. With Riverview happening this year and Lexington happening in FY 2027.
Thank you. Next question comes from the line of Chinthan Shah with GM Financial Family Office. Please go ahead.
Hi. Thank you so much for the opportunity. I had two questions. One is we have commented about the commercial part of the CDMO business, but just wanted to check on the other aspect. There is a generic side. Basically, what's happening there? I mean, is that business growing next year? What's the outlook over there? Or when that's going to be a muted one? That is my first question. Second, over slightly longer term, basically, how should we see the mix of this on patent commercial manufacturing to increase to over the next, say, three, four odd years? Those are my two questions.
API generics on our CDMO side had a good year last year of growth. It was returned to healthy growth after a period where it had not. Based on all of the seedings and customer conversations and customer filings that happened over the last year, we anticipate the year upcoming that we're in currently to also be a year of healthy growth. That's looking good. If you look at the question about the LRP, if you go back to what we're focusing on in terms of on-patent work, differentiated offerings, integrated projects, those themes remain. If you look at the underlying growth that we're seeing in that Nandini and Gagan described, excluding the customer one-off, it's quite strong. A lot of it's related to these same themes.
The outcome is that we would anticipate once the one-time issue resolves in FY 2027, combined with all of our other actions with all of our other customers, that that number should continue to grow at a faster rate than our overall business.
Got it. Understood. Just one follow-up on the generic side. I mean, we see continuously some pricing pressure here, or that has largely stabilized. The guidance that you have given on the CDMOs, despite that, even though we'll be growing at a healthy pace in the generic side, the decline on this side is much more to offset that growth. Is that a fair understanding?
I would say the price always remains important in generics. We've done a lot of work on our back integration, our process, and our procurement components. We've actually taken more steps in-house, and we've changed how we do the steps so that we can maintain and, frankly, improve our profitability in that segment while growing, even though we're not taking price up in the generic segment. I think we've changed how we go about it. We've also got some new product introductions that are planned. They're modest. We've done a lot of work on the back end to make sure that we can meet our margin expectations with the target prices needed to succeed in our molecules.
Okay. Okay. Got it. Thanks for answering the question.
Thank you. Next question comes from the line of Alankar Garude with Kotak Institutional Equities. Please go ahead.
Hi. Good morning, everyone. You spoke about the uncertain funding environment, especially at the early stage, and also prolonged planned decision-making. On the other hand, you also spoke about strong demand across the key product categories. The question is, if there is further improvement on the macro front and the underlying CDMO growth picks up beyond mid-teens, do we have sufficient capacity, including the expansion already announced, to meet this demand over the next three to four years?
I think if there is an improvement in the macro, yes, we do have capacity and capabilities available to take advantage of it.
Understood.
Just two.
Yes, everyone.
In the medium to long term, our LRP does have CapEx investments planned. If we were to have an uptick in demand in the near term, in the, let's say, 12-month horizon, we could absorb much of that immediately. Obviously, to achieve our long-range plan ambitions that we've described, there is investment required in the medium to long term.
Understood. The second one, given the strong US presence for the company, are you starting to have any incremental discussions with clients regarding shifting to your US facilities in the context of tariffs? Yeah, if you can bifurcate that response across on patent and generics would be helpful.
I think the single most important factor for the future performance of CDMOs, including ours, is the macro environment allowing clients to raise money and, if they have money, to spend money. That is the most important thing that will drive how we or other CDMOs perform. At the moment, it has been uncertain, uneven, or insufficient, which is what Nandini described in her remarks. That is the thing we need to track first. The second is in terms of clients shifting to onshoring or reshoring, I would say that the incremental choices, we have a lot of bids out. People are kicking tires. They are evaluating choices. If they do not have to make a decision to progress a program because of certain clinical requirements or otherwise, they are probably going to delay until they know what the tariff outlook is.
If they do have to make a decision, they are making decisions, and that's what's driving our current order book trends. In the absence of clarity on that one limited point, they will probably defer those certain choices. If I look at the sites, I would say Riverview would be getting primarily on-patent RFPs. I would say Lexington is primarily getting on-patent and perhaps some 505B2s. I would say Sellersville is getting a mix of both on-patent and, let's say, off-patent work. It's a mix where, let's say, an off-patent may be someone looking at a large volume shift onshore because of certain federal contracting requirements, whereas the on-patent would be taking advantage of a development or late-stage clinical capabilities. We're seeing a mix. That's the breakdown across the three sites and the types of RFPs.
In general, there's always an exception to every rule, but that would be the general trend.
Got it. That's helpful. That's it from my side. Thank you.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to hand the questions over to Gagan Borana for closing comments.
Thank you very much. We hope that we were able to answer most of your questions. In case you have any follow-up questions or any clarification, please feel free to reach out to me, and I'll be happy to respond. Thank you and have a good day.
Thank you. On behalf of Piramal Pharma Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.