Q2 22/23

Nov 8, 2022

Ladies and gentlemen, good day and welcome to Piramal Pharma Limited Q2 FY 'twenty three 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Gavan Borana, GM, Investor Relations and Sustainability, Piramal Pharma Limited. Thank you, and over to you, sir. Thank you, Vivian. Good evening, everyone. I welcome you all to our 1st earnings conference call post the merger to discuss our Q2 and H1 FY 'twenty three results. Our results material have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion may include some forward looking statements, and these must be reviewed in conjunction with the risks that our business faces. On the call today, we have with us Ms. Nandini Biramal, Chairperson, Biramal Pharma Limited Mr. Peter D. Young, CEO, Global Pharma and Mr. Vivek Walsasthar, CFO of our company. With that, I would like to hand it over to Ms. Nandini Biramal to share her thoughts. Good day, everyone, and I thank you for joining us on our first results earning call as an independent and focused pharma company. As you are aware, we have completed the demerger of Piramal Pharma Limited from Piramal Enterprises and are now a list separately listed company on both AgnSE and NSE. It is an important milestone for the company. The demerger simplifies the corporate structure, strengthens the governance architecture with dedicated board and management teams, optimizes the capital structure and facilitates the businesses to independently pursue growth plans organically and inorganically. This should help unlock value for all our stakeholders. I would like to let you know that the U. S. FDA recently concluded good manufacturing practices GMP inspection of Paramo Pharma's Riverview, Michigan facility, which was completed successfully last week with 0483 observations. Let's now move to talking about the performance of the company in Q2 and H1 FY 'twenty three. During the quarter, we registered revenue growth of 9%, delivering revenues of INR 17.20 crores. Our growth for H1 was 11% with revenues of INR 3,202 crores. Historically, H2 has always been much stronger than H1 with about 55% of total revenues and 66% of the full year EBITDA being booked in H2. We expect a similar trend to follow this year as well. Our CDMO business grew by 6% and 12%, respectively, during the Q2 and first half of the financial year, backed by growth of our Torbay, Grangemouth and North America facilities. Our complex hospital generics grew by 12% during the quarter and 11% for the first half. Innovation anesthesia sales reported a healthy growth during the quarter and first half of the financial year. Our India Consumer Healthcare businesses registered a robust growth of 18% for the quarter and 12% for the first half of the financial year despite the high base of the last financial year where our business grew close to 50% Y o Y. Normalized EBITDA margin during the quarter and the first half of the year was 13% and 12%, respectively, nearly at the same levels as the previous year. We expect meaningful improvement in EBITDA margins in H2 over H1, in line with improved traction in sales in H2. Over the years, we have consistently delivered profitable growth, which is reflected in the 13% revenue CAGR and 24% EBITDA CAGR between FY 'twelve to FY 'twenty two. The last 2 years, due to the pandemic and other the Ukraine Russia conflict, we've seen a challenging business environment. We've been doing our best to address these short term challenges and we're optimistic that we will bounce back to our historical growth rates with an improvement in profitability. Even during these times, we have remained steadfast in our commitment to make growth oriented investments across our sites and businesses in line with our plans. Moving on to business specific highlights. Starting with the CDMO business. Over the last 10 years, our CDMO business delivered a healthy revenue growth of 13.5% an acre, driven by its differentiated capabilities, diversified manufacturing base, which is aligned to customer needs and integrated service offerings, acquisitions as well as Fast and Class track record in quality and regulatory. Navigating the current inflationary raw material and energy prices is an important challenge for us, and we're trying to offset that through judicious price increases and working on several cost optimization and operational excellence measures. We're focused on addressing these challenges and are positive about our growth prospects going forward. In terms of structural trend wins, we're seeing an increase in customer audits, which were affected during the pandemic due to travel restrictions and are seeing continued traction in form of request for proposal RFPs. However, slower decision making by customers owing to the macroeconomic environment is leading to some lag in the order book. In terms of customer profile, we have a diversified mix of big pharma companies, emerging biotech companies and generic companies. While we are ensuring low revenue concentration, at the same time, we're looking to grow deeper with our key clients. Our revenue from our top 10 clients accounts for about 40% of CDMO revenue. Our differentiated offerings such as both industrial injectables, high potent APIs, antibody drug conjugates, peptides, oncology, etcetera continue to attract customers. Quality and compliance is also an important aspect in our business. During the 1st 6 months of the financial year, we successfully took care of about 20 regulatory inspections and more than 100 customer audits, thereby maintaining our best in class quality and compliance track record. Through customer led brownfield expansions, we're expanding capacities at our major sites, including Aurora, Peak and Pool, Riverview, Great Shoppe and Moppet. In all, we've committed about $157,000,000 of growth oriented CapEx investments across the various sites, which is expected to be completed over the next 18 to 24 months. Integration of our acquired businesses as well as the capacity expansions, which at our sites were earlier delayed due to the pandemic, are back on track. We expect to navigate through these challenging times and emerge a stronger company going forward. Moving to our complex hospital generics. Our CHD business grew by 11% to 12% during the quarter and half year of FY 'twenty three. Our anesthesia portfolio continued strong performance in the U. S. Market. In the non U. S. Market, we're seeing a healthy demand for our products and as we are accordingly increasing our capacities to service these markets. In the inhalation anesthesia portfolio, we're one of the few players in the world that has the capabilities to manufacture all 4 generations of inhalation anesthesia products. We've also vertically integrated with in house manufacturing to make staffing materials at our specialty fluorochemicals facility in the Hague. Our Intratitro portfolio in the U. S. Continues to command a leading market share. In the Injectable Pain Management segment, we've seen good performance in markets like Japan, South Africa and UK. However, that was offset by supply constraints in other markets. We're working towards improving the supply of these products and are seeing improvements. We continue on our focus to build a pipeline of injectable products that will augment our portfolio of offerings in this space. We have 37 SKUs currently in the pipeline. We launched TGODAS during the quarter, including a pre fill syringe in Germany and are expected to launch 8 SKUs in various target markets in the second half. Moving on to our India Consumer Healthcare business. Despite a higher base, we delivered a healthy mid teen growth in the quarter 2 and the first half of the year. Robust growth in apparel brands have been a key contributor towards this performance with the growth of 40% in the first half of FY 'twenty three. Our Power Brands contributed 42% of total consumer healthcare sales during the first half. In line with our stated strategy, we're reinvesting our profits in the consumer business to grow our Power Brands. We spent about 15% of our revenues on media and trade promotion, which are yielding good results as reflected in the performance of our Vowel brand. We also launched 10 new products and 11 new SKUs during Q2 FY 'twenty three. New products launched since April 'twenty contribute about 15% of the consumer business sales. We have a good reach in the tengel trade with access to over 200,000 or 2 lakh outlets. With strengthening our presence in alternate channels of distribution, including e commerce, modern trade and our own website, qualify. In. E commerce contributes to about 15% of total consumer business sales and has been growing well. To summarize, I'd like to say all of our key businesses have a key compelling plan for their growth and are executing on their respective strategic priorities. We expect about 15% revenue growth in the next 3 to 5 years. We also expect to improve our operating margins through scale advantages and therefore improve our return on capital employed. Today, we serve as a strategic partner towards the big pharma, emerging biopharma and generics companies globally, and our team comprises of over 6,000 plus market control employees, 15 manufacturing facilities across the globe and a global distribution network in over 100 countries. We take pride in its outstanding quality record and our focus on patient, customer and consumer centricity. Our conscious endeavors to perform on ESG aspects of environmental, social and governance are a part of our DNA as a responsible organization. I'd like to hand over the call to Vivek, our CFO, to provide an explanation of our financial statements. Thank you, Nadeep. Good day, ladies and gentlemen. I'll provide a brief explanation on our financial statements. The Honors of MCMC on 12th August approved the composite scheme of demerger of the pharma business from Piramal Enterprises into Piramal Pharma and amalgamation of CPL's wholly owned subsidiary Hemopharmaceuticals and Convergent Chemicals into itself with an appointed date of 1st April 2022. Accordingly, the financial statements of Piramal Pharma have been prepared giving effect to the scheme from the 1st April 2022. Financial statements for Convergent Chemicals and Hemo, wholly owned subsidiaries of VCL, have been combined as if this amalgamation had occurred on the 1st April 2021 or from the date on which the company acquired control of these subsidiaries, which arose later. Prior to the demerger, Piramal Pharma had entered into an agreement with Piramal Enterprises for continued onward sale by Piramal Enterprises of products under the government tenders that were obtained in the name of Piramal Enterprises, still obligations under these tenders were fully met. The agreement also included sale of Piranha Pharma's consumer products to Piranha Enterprises CFA network till all requisite licenses, registrations and permits were fully transferred in the name of Piranha Pharma. In accordance with the scheme of demerger, Opti Pharma undertaking has been considered as a non common control transaction and accounted as a business combination under Ind AS 103 in the financial statements of Priyankal Pharma with effect from 1st April 2022. Accordingly, the financial results for the quarter 6 months ended September 'twenty 2 are not comparable with corresponding previous periods. The comparative financials are available on Slide number 32 of the investor presentation, which is available on our website. All the closing inventory as on 31st March 22, at Piranha Enterprises in respect of such transactions included the margin element which was charged by Piramal Pharma to Piramal Enterprises on an arm's length basis. Since the demerger is effective 1st April, the opening inventory transfer to Piramal Pharma at a fair value as per India included the margin element and the same has been charged to the P and L in the Q1 of Piramal Pharma's financial statements on sale of such products by the company. The one time nonrecurring impact of EBITDA of this inventory margin in quarter end financials is INR68 crores. With this, I now leave the floor open for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Bharat Gupta from Fair Value Capital. Kindly proceed. The next question is from the line of Ankush Agrawal from Search Capital. Kindly proceed. Yes, hi. Thank you for taking my question. Are you now audible? Yes, you're audible. Yes. So my first question is around the CMO business, specifically the generic part of it, which I believe is a significant part of the overall CMO business. So could you help me understand some dynamic of this business? Like are we doing like PIIs in this business? Or if it's like finished course, then like what kind of clients will we have? Is this like the big pharma or generic players? Or like what is the kind of nature of contract? Is this long term contract with like stable and base margins? Or are these like niche products, you can highlight something on that around this specific Genrex demo business? Okay. So, Mr. Gautzeq, I've understood your question correctly and I'll try and respond to that. There are 2 kinds of generics, if I broadly categories that the first part is the generic that we do for our customers and the CMO arrangement. And this includes both APIs and combinations which are done from our various facilities in India and overseas. And the second part is generic API. So we have our own VMS, which we supply to multiple customers. So that's made to stock. And that's the second part of the business. Was that the question that you were looking for? Yes. So the CR business also includes some spot API business as well? Yes, it includes both APIs and combinations. That's right. So are you like would you be able to quantify a little more like how much of the business like the spot API business you're seeing, the small business you're doing and how much is for CMO business, they're doing it in that long term contract? See, broadly our categorization is that 60% of our business is into APIs and about 40% is formulations. But this includes the development pipeline as well, right? Yes, it does. So in the medium to long term, what kind of expectation is there from this kind of generic business? Do you expect the CMO business to move more and more towards the banking and development pipeline? Or do you continue to believe that you still do want to grow on the Zendesk basis in the longer term? This is Peter De Jong here. I'd say that on the generics business, we would expect to, on the API side, we would expect to continue to see growth there because we are obviously going to be filing some new DMFs and looking to get further sales with existing DMFs that are not fully accessing all their customer potential. I think a second dimension of growth that will probably be higher in the generics API area would be our recent acquisition and integration of the Hingel Pharmaceuticals, which makes generic peptide APIs. And we think that there is a pretty compelling pipeline of DMFs in the pipeline for that business as well. That being said, we would also expect to see good growth in our API services business as we continue to support our customers as their pipelines progress in the clinic and then later hopefully succeed commercially after being approved and launched. So, we would see multidimensional growth across our API business, both in the generics area and in the services area for the reasons described. Lastly, would you be able to give a positive sense of the margin tier between different business segments of Aspen, which would be the highest margin business across the 3 segments that you operate in something on that front? Is it possible to give that? As we said, we are taking the consumer healthcare business, we're taking it at breakeven. So the other 2 are the average. Okay. So it's broadly on the similar level. The next question is from the line of Damayanti Karai from HSBC. My first question is on CDMO business. So last quarter, it was mentioned that the segment got impacted due to some project delays and some cost pressures, etcetera. So can you update on that what has been the progress? And Ma'am mentioned there will be significant improvement in margins in the second half. So how do you see margin trajectory moving over next few quarters? And what is your goal in terms of reaching your CDMO business ultimately? Yes, M and A. Thank you for your question. So firstly, the challenges that we have spoken about in the earlier quarter was to state that mitigation measures have been taken against each of them, which we are continuously monitoring. We spoke about people and attrition and several measures have been taken to ensure that our vacancies are filled in across multiple sites. Also with respect to whatever are the execution challenges that we faced at some of our facilities, there is an action plan and most of the measures which have to be taken, they are all being implemented and monitored on a consistent basis. In terms of the overall operating margins for H2, which is October to March period, we expect a meaningful improvement and this will largely come in from a higher top line. So we expect top line to have a mid teens growth in H2 and that will also lead to improvement in the overall operating margins due to fixed cost leverage. Going forward, our aim is to consistently improve upon this margin. And we stand by our earlier guidance of aspiring to move towards the mid-twenty 5 percent, 26% range over the next few years. Sorry, mid-30s you said or 20%. About 25% to 26% across all businesses. Okay. My second question is again on CDMO piece. So very broadly at sector level, can you discuss a bit about the demand scenario? So in your press release, you mentioned that you are seeing a lot of request for proposals, but finalization of projects, etcetera, are getting delayed. So should we assume that due to difficult macro environment, customer queries are coming in, but they are not, I'll say, getting signed at this time, but eventually they should be open for business in coming period. So, I would comment on this. This is primarily in the on premise segment within the services business in the CDMO. And on that, we're seeing consistent RFP flow in this year versus prior years by value. And so we are seeing the RFPs coming in and we are spending time in them with our potential customers, some of which are current customers. We are seeing that when they do conclude, our win rates are the same as in prior years. And so we are winning what we would say consistent percentages of the proposals that do come in when the clients make decisions. And we would say that the majority of the clients that we are or potential clients that we're working with are appropriately financed to make decisions and progress their pipelines as those decisions are needed to be made. I think what we would say we are seeing is that perhaps in the prior funding environment, our clients or potential clients would be making decisions before clinical results would happen in a given phase. So, they could be positioned for success, assuming a positive result from that trial that would be underway. Whereas now it seems that as they're looking more prudently at their cash flows and their allocation of capital that they're making decisions on those same programs after the clinical results would happen. And so, we would see a more protracted time from, let's say, RFP intake to RFP decision this year than prior years. Okay. Just to clarify, so it's just the timing which is getting shifted as you mentioned, but the win rate or the kind of projects which you are getting it's similar to what you achieved in the past year. Yes. Only one minor difference would be that we maybe are seeing a bit more of a late stage proposals coming in than perhaps earlier years. So, the actual mix of proposals is also slightly higher weighted towards, let's say, a Phase 3 and whereas in prior years, we'd see, let's say, a higher rating of or a modestly higher number of Phase 1 and 2. From our perspective, we think that those potential clients would be better funded. And also, the ultimate values and volumes when successful would be higher. And so but also we find that typically a Phase 3 decision would take longer than a Phase 1 or 2 decision. The next question is from the line of Sumit Gupta from Odila Ghoswal. Can you proceed? Hi. Thank you for the opportunity. There are two questions. First is considering the muted Q1 of fiscal year, does the ratio of the EBITDA for first half to second half still stands at 32% to 58% or can it be expected to be more lopsided in second half? So as Ghaznini alluded to, we do have a significant skew towards the second half historically as you've seen and that trend will continue. And likewise, you'll see a very similar trend in terms of margin as well. It will be significantly skewed towards the second half as you've seen in the past. Okay. And second question is regarding the can you like give us a breakdown for the growth prospects in the complex hospital generics into demand available for existing products versus the newly launched products? We are not giving demand forecast separately by business segments and sub segments of the business unit. Okay, okay, okay. And last question is like if you can provide an outlook on the net debt levels and the interest cost? So as you've guided you from it earlier that our debt levels that we're looking at about is 4 to 4.5 times per EBITDA and that's the level that we should be comfortable standing by. Okay. So this is for FY 'twenty three and 'twenty four or 'twenty four will be less? So for FY24 as well. As we have already guided that we'll be having some investments, growth investments that we are going to do. So it will be on similar lines. The criteria will apply for FY24 as well. Okay, sir. Thank you. The next question is from the line of Praveen Srinivas from Samsung Asset Management. Hello, Mr. Tarang Chinoas? As there's no response, we'll move on to the next question. It is from the line of Surya from Philip Capital. Kindly proceed. Yes. Thanks for this opportunity. First question is on the overall business structure. Since after being Piramal Pharma becoming a kind of independent company, so can you reiterate your segmental growth plans for, let's say, next 2 to 3 years or over next 5 years, let's say? Because you have talked about the capacity additions, you have given margin indications over 2 to 3 years and all that. But in terms of growth, what are the key drivers that you are witnessing for the 3 business segments? That is the first question. So let me this is Peter De Jong here. I'd say, go segment wise, the first segment would be the CDMO segment and we would look at essentially a combination of capacity investments coupled with client pipeline progressions. And so if you look at it, we have a number of late stage clinical programs that are at our facilities already being doing work on them. And we would expect with a reasonable attrition rate of those programs in the clinic and their subsequent progression of those that succeed, combined with capacity investments to support our being able to serve those clients as we progress, is why we think that our growth in that overall segment should be much higher in the future than it was in the past. And that's driven by the fact that we have nearly 34, 35 Phase 3 programs and about I think nearly 20 on market recently launched commercial programs. And so that bolus of late stage clinical work and early commercial work is a lot of what's going to drive future growth at a higher rate than in the past. And that's on top of all the ordinary course of work and business we're doing that's going to continue, and that's why it's going to be on top. So I think that's the CDMO answer. In the complex hospital generics market, we are still far from fully realizing our potential in the inhalation and aesthetics segment. We have a limited number of competitors and we've been steadily growing market share there. And we believe that we are well positioned to support continued growth in that segment and we're investing in further backend capacities and capabilities to support that growth of Settle. We think it continues to be a meaningful grower as it has in the past and we still think there's meaningful market opportunities there. And then, I think the second leg of growth will be as we know are gaining more control over the supply chain through the transition of the CMO for our acquired injectable pain products. We think that we're going to be able to exploit some modest opportunities for growth in that segment. And the third one is that we're continuing to progress our pipeline of other pharmaceutical products that we sell to the same channel that we sell our inhalation products. And we would expect that as those projects come to the market that we should be able to have growth from those new additions and we are seeing growth in them in the current period and we expect to see growth in the subsequent periods as well. So I think those are the 3 legs of I guess sources of top line growth in the top line growth in the top line growth generic. And then, Lenny, do you want to comment on the On the consumer products in Inogen Tumor Health, I think we should see growth through our power brands. We're investing about 15% of top line currently in media and trade promotions. And I think as you get scale, we will see increased profitability from that business as well. And the way we would see increased growth is both by finding new consumers for existing products, but also launching new products and new formats across the board. Sure. Thank you for that. To better understand the profitability of this segment and the overall consolidated operation of Piramal Pharma, so we have seen a kind of very strong margin performance such a trend over 2019 to 2021 like that, then 'twenty two was a kind of depressed one. And this year, running year is looking even more further depressed. So it is really difficult to understand what is the core margin trend of these businesses. So and also CDMO, if you see that, okay, it is a long established study performing and consistently growing business that we have seen, there's a track record, but the margin profile has not moved on to the kind of peers level. It is subdued meaningfully. So could you give some sense, let's say, last year, FY 'twenty two, if we say that it was 18% and now from the first half, if you are saying it is a 14% kind of margin trend, so how far are we from the kind of a normalized margin trend for the consolidated business and particularly for the CDMO? If you can give some clarity, that would be useful. Sure. So let me first articulate as to why the margins actually dropped during the interim period. As you are aware, there are a couple of factors that happened. First was our conscious decision that as far as the consumer products business is concerned, we would be reinvesting the profits back into the business. So consciously, we're keeping this at EBITDA neutral and spending more on sales promotion so that we can grow top line faster. The second is during the course of the pandemic, sales more specifically at our overseas facilities were at a scale lower than what it should have been. As you can imagine, the overall fixed cost is comparatively higher and therefore this had an impact on the overall margin. Coupled with this was the larger macroeconomic factors where inflation and general increase in all the cost of input also led to margin pressure. Having said that, actions are being taken. As we have spoken before, price increases wherever possible, we have been taking those. Whatever cost optimization operational excellence initiatives have to be done, we will introduce those as well. And as far as the CDMO business is concerned, it's largely a fixed cost leverage gain. The more we sell, the more the margin can increase. And the intent right now is whatever the capacity that we are building across our various overseas facilities as well as creating capacities very well there in demand, idea is to grow those sales faster so that we can see a margin expansion. And yes, we remain committed to our guidance of increasing the overall margins to the levels that I had alluded to before. We would be moving in that direction to be able to expand the margins. Okay. So just last question with your permission. Can you give some more clarity about the CapEx plan that you have alluded already about $157,000,000 In which areas that you are putting that? And what is your current global market share for the innovation in the Spanish segment? So for the CapEx, I'll just list some of the larger ones. And if you look at our investor presentation, we do actually itemize some of the other ones. But we have an ongoing expansion at our Riverview, Michigan API facility, which is focused on, I guess, potent and high potent API services. The second one is in our Grangemouth UK facility, which is focused on conjugation of our ADCs or antibody drug conjugates, and that's a brownfield expansion at that location. Those are the 2 largest expansions in terms of consumers of capital committed projects, but we do have a number of other projects ongoing at our Cellarsville facility, at our Lexington facility, at our Terve peptide facility and some of our other locations. And you can see that list in our investor presentation. Sure, sir. On the Indonesian market share please? So that would be in the I would say, you can probably get your own IQVIA data to your own interest, but I'd say we'd be in the low to mid teens. So we have a lot of headroom. The next question is from the line of Praveen Srinivasan from Samsung Asset Management. Can you proceed? Can you hear me, Mohan? Yes, sir. We can hear you if you can be a bit louder. Sure. So I wanted to understand firstly what is the nature of the other income that is on the financial statement, right? So there's 2 INH2.76 crores in FY 'twenty two or INH1. So what is the nature of that? Yes, Praveen. So this includes the ForEx gains. It includes the government grant, which we get on our capital investment, especially overseas we get subsidies. It includes that. It includes a bit of fair value, bit of past provisions, which are no longer required. So it's a mix of many things actually. So which will be the dominant aspect from uninstalled in your listing? Currently, it's a predominant portion of forex gains. Dominant of forex. Can you give some sense of how much of the other income would be ForEx? We're not discussing sub GA level numbers right now. Okay. And in the CGM of business, can you tell me sort of the currency, how many products are in commercial manufacturing? Manufacturing? And also, I think you have given the pre commercial product number in the slide, right, for FY 'twenty two. Is there any update on that number for Q2? I don't think we update those numbers on quarterly basis. When we next refresh them, we'll let you know. So I think what's in the slides is the most recent. Yes. And in terms of commercialized products, how many are there? I think we disclosed the number of on patent commercial products in the materials, but we are disclosing the number of total off patents. How many are in patent? 8, I think, right? 19, right? 19 over 19. 19. Okay. And finally, could you tell me the CapEx guidance for both FY 'twenty three and 'twenty four? It would be about $157,000,000 Over the period. Over the period. Over the period. Okay. All right. That's all for myself. Thank you. The next question is from the line of Ranveer Singh from Edelweiss Wealth. Kindly proceed. Yes. Thanks for taking my question. In press release, you mentioned that during the day merger, part of the tender based business in India remained with Piranhaal Enterprises and part of the OTC cost also because the licenses, DTC where the class was pending. So that I want to tell us what's the portion of revenue that is just aligned with Piranmul Enterprises? Okay. So let me just clarify that firstly, the arrangement is Piramal Pharma actually does this to Piramal Enterprises so that Piramal Enterprises can do the onward sale. This is basically because those tenders were won in the name of Piramal Enterprises. So all of the revenue actually goes to Piramal Pharma to Piramal Enterprises. The difference between the two is to the extent of the extent of the unsold inventory that is remaining with Piramal Enterprises. All those inventories have now been taken back. So it's not as though there is some sale which is recorded in Piramal Enterprise, which is not part of Piramal Pharma. All revenues are booked through Piramal Pharma to Piramal Enterprises. And this will continue only till the point these tenders are obligations are complete at post which Piramal Pharma will directly service obligations against such tenders. Okay, understood. Understood. So when that I'm sorry, this would completely be out of tenant? I'm sorry. If you could please repeat your question? So from Piramal Pharma, whatever inventory is currently rooted through Piramal Enterprises, so when we can expect that directly we will be selling it? I mean, what is the life of tender, that particular tender where we needed to send in 1 to 4 program enterprises? See, we expect all these obligations to be completed by the end of this fiscal. Whatever are the new tenders, Piraha Bapa is directly applying in its own name. Okay, understood. And just I think you alluded to earlier participants also. On the margin side, again, if you look at FY 'eighteen, 'nineteen, free ad or before that, how about the CDMO business used to generate 20% plus kind of 50% margin? So what actually went wrong? There is one factor you said that in consumer healthcare we have started investing. But even if you also mentioned that consumer healthcare is breaking even now. So even at this breakeven level and if you explore this business also, so it still seems that CDMO business has somehow significantly lost their margin. So what was the reason? So is it that some competition has come in there in those particular business trends? Or my understanding is not correct here? So firstly, I don't think we have spoken about CDMO margins, specifically our margins and whatever we have reported are for the company as a whole. And secondly, as we earlier mentioned, during the pandemic, we did see sales actually getting impacted in the CDMO space. And as you'll aware that we acquired some of the facilities overseas in CDMO, the revenues were not up to the mark in terms of what was actually expected during the pandemic. And the CapEx investments during the pandemic were delayed. That's the reason there was a margin compression. Having said that, in future, the margin expansion would largely be coming from higher top line. So as I alluded earlier, it's a fixed cost business. As you sell more, your margins start improving. So it's about fixed cost leverage. And that will be the primary driver for margins in the CDMO space. I think the other one is that we expect some of the on patent molecule Phase 3 molecules to actually get to commercial. And as they get to commercial, we should see volumes and orders increase. So that will also basically fill up the capacity. Okay. So it's more of operating leverage bundling. That's what you are saying. It is like we are not expecting any high value products or something coming in pipeline, which could drive the margin here in Citi and Oasis. Right now, I'd say let's aim for the ones and twos. If you get a 46, that will be upside. Okay. Understood. And this CapEx of $157,000,000 So 18 months is the implementation time or in 18 months, will it be the same? 24 months. So some of it it's a series of projects. Some of them will come online sooner rather than later. So it will kind of over the next 18 to 24 months. Understood. Understood. And the last one, that in debt side, what level of debt we can expect by end of FY 'twenty three? So, as I said, we have the max debt that we're looking for is in the range of 4 to 4.5 times of EBITDA, that's where we'll see ourselves. No, in absolute term, currently 4,300 something that we have. So what's your debt repayment obligation in next 6 months? So, it's like this, our debt repayment obligations are fairly well diversified, I see. That's where your question is heading towards. It's fairly well diversified and it takes into consideration whatever our investment requirements as well. And our debt levels would be about 4 to 4.5 times EBITDA. That's where we'll be. The next question is from the line of Kunal from Nomovelt. My first question is on complex hospital generic business. Now one of your U. S. Competitor, generic player, has said that they are going to launch sevoflutane by the end of this year. So I understand this is a business where suppliers are restricted. So I just want to understand when a new competitor comes in the market, how does the market dynamic change? I think we've seen the introduction of new competitors in the U. S. Market over time. And we believe that this particular product category is more resistant to entrance. And that's due to the combination of limited people who can manufacture the actual active ingredient and the bespoke bottling requirements actually package it into the final packaging. And then the actual product has been used in a hospital setting or an institutional setting where the bottle is actually placed into a vaporizer, which is attached to an ACID machine and the vaporizers in many but not all cases would be provided by the drug, the company that's providing the drug. And further, many of these are contracted through GPOs, IDNs or hospital contracts. And so, at least when we saw the last set of entrants the last entrant come in after us, we saw that they kind of nickeled on the edges, but didn't really get meaningful share and they've been in the market for a number of years because it's a slightly more complex sale than just a straight catalog sale, let's say, in a retail market where you would see different buying dynamics. And that's part of why we like this segment, because we do find that while people may get approvals and they may enter, we do find that in due course, it's difficult for them to gain share because it requires specific capabilities and a particular channel strategy. Got it. Okay, sure. And second is on the consumer business. I understand you're fairly ambitious plans of doubling revenues in the next 3 to 4 years. But I assume to do that, you'll have to put in a lot of investments in especially there'll be a lot of OpEx also, a lot of digital advertisement and so on and so forth. So, does it mean that the profitability in this business will also remain subdued in the next 3 years? So I think what we see is as we get to about a milestone of about 1,000 crores, I think we'll start in a way we think that's sufficient scale to cover a lot of the fixed and variable costs. And we should then see a steady increase in profitability from there. Will we jump to the steady state of profitability immediately? No. But we should see steady increases in profitability. So in 3 years' time, would it be fair to assume that you'll be somewhere in teams in this business, change margin? Or would it be It will be on the pathway. You will be there. Okay. Perfect. And lastly, if I can squeeze in one more. So while you want to double your CDMO revenues in the next 5 years, I assume that the mix in the business should also change. Otherwise, no 2. I mean, if the mix hasn't changed, then it becomes difficult to increase the profitability also, right? For example, you have around 70% from commercial manufacturing today. So would that become lower? Will it become higher? Would developed markets contribute a lot more? Just want to understand if you can drill down a bit more on how we should see this business 3 or 4 years down the line? So we don't give sub segment level guidance, but we can give you some directional trends. We would say that right now about 60% of the revenue in the CDMO will be from API or drug substance. And we would probably expect that should probably grow at a faster rate than the overall. And I think the second maybe guidance I could give from a qualitative level would be is that we would expect our on patent development and on patent commercial to grow at a faster rate than the overall. So I think those 2 together and not all on patent development or commercial is drug substance and not all drug substance is on patent. But, I'd say that those two sections should grow a bit faster. And I think maybe the only outlier I would draw is that we would expect our fill finish capabilities, which our drug products are probably going to faster rate than our overall maybe drug product capabilities. The next question is from the line of Sitesh Agarwal from Fair Value Capital. Kindly proceed. Yes. Hello. Thanks for the opportunity. If you look at the net debt to EBITDA ratio, it is around at 4.5 times as mentioned. And you have guided a CapEx of around INR 1200 crores in the next 18 to 24 months. So I wanted to know like how are we kind of if you could throw more color, how are we able to fund how will we able to fund this CapEx? And second question, could you elaborate more on the CapEx spending across different segments? So I think I, in a way, responded to the query earlier. As I said, our overall debt schedule which we have today is very diversified. It does take a few minutes, whatever our investment needs. And also, over a period of time, internal accruals should be able to be sufficient for repayment of debt as and when they fall due for repayment. So, all of this has been taken into consideration. My only request is if you look at the net debt to EBITDA ratio as it stands today, I understand where you're coming from, but you need to understand that you're obviously seeing some impact. Going forward, we obviously expect these ratios to improve. And accordingly, we have reached the service debt both through a mix of internal approvals as well as being able to raise debt for the ones that we've already retired. That should help take care of the overall requirement of CapEx. Okay. My next question is like we have seen good revenue contribution from the developed market. I believe kind of due to the headwinds there, inflationary headwinds and energy costs there, are we seeing more order inquiries by the innovators from those market assets? We're seeing kind of maybe this is a bit of a macro question. And I presume you're talking about the CDMO business. And in that, we're seeing 3 trends that are playing out somewhat in parallel, and we have yet to see how they're going to fully conclude. And that's also why we think our business model choice is favorable because we have capabilities in both the West and in the East. So the first one is there is we're hearing a number of inquiries from a company looking for a China plus one strategy. And what this means is that at least from the Board perspective of a client or the decision making governance, they're maybe currently sourcing something from China and they're saying, can we get one other source in an emerging market where we could have reasonable value, but something other than China. And so we're seeing an increasing number of queries in particular at the recent CPHI conference, we saw a lot of queries in that direction. I think the second trend is that if you look at the end market pricing for pharmaceuticals and the buyers of those pharmaceuticals, we expect them to be under some amount of pricing pressure because of fiscal deficits and the money being spent in other areas and inflation reduction act and some of the other equivalents in other countries, we would expect in due course there to be pressure on value and we would expect that one source of value would be looking east. So those would be 2 things tugging orders east. On the other hand, there's a very strong tug west, particularly for innovative clients where they experienced over the last few years certain amount of supply chain disruptions. And from a governance perspective, a number of them, particularly for lower volume, less chronic and let's say small patient indications or non recurring treatment, an example would be a rare disease or an oncology treatment that's preapproval, they would probably be looking more for that to be placed in the U. S. Or North America or depending on their perspective onshore in a western market where their customers may be or where they may be, because of the lower supply disruption. So, we are seeing some amount of reassuring preference for unpack products under development because of the perceived difference in risk and accessibility, if you can drive there instead of a long haul flight, combined with the China plus 1 and the fiscal pressure points, which may push certain categories east. So, we're able to see how it's going to fully play out and we think that's why us being in a multi geography context, best positions us to actually support both trends in parallel depending on the clients and their product needs. Thank you, sir. Just one last question. In the hospital GenX business, in the presentation, it was mentioned that nearly 13 products are end up in the development phase yet to be commercialized. Can you help us give a little bit more color on the market size of these molecules and the growth fraction we envisage in this complex hospital genomics business? So I think in the we described the pipeline and the stage in the pipeline it's in according to terms of whether it's approved or not at launch or under development, and we give that and then we then give an aggregate market addressable market number for that portfolio of projects. And you can see that as being $7,000,000,000 in terms of the addressable market for those 37 SKUs. And I don't we aren't getting SKU by SKU level breakup, but I think the point is that they are reasonably worth approaching and even a modest share in those would be meaningful for this. The growth rate traction we see in this hospital Genex business? So, we aren't giving forward guidance on the hospital generics revenue outlook, but we did give the backward looking revenue numbers in our comments and in the slides. Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. My question is related to the kind of debt we have today. Is there a plan to raise funds? I don't know if this is covered. Sorry, I joined the call late. But is there a plan to raise further private equity fund or something like that? I think right now we're quite happy. We feel our internal accruals will pay off the debt that we have. And we don't need to raise additional funds at the moment. Okay. And I understand in the presentation you talked about 2H is obviously higher as seen in the last 3 years. But what is the margin guidance? I understand it's more of an operating leverage as CDMO comes in. But especially for CDMO and a company as a whole, is there a color on the margins, please? I think we'll see sequential Q on Q improvement. Yes. But in the range of 15% to 20% or it could be lower than that? It will be meaningfully higher than what you've got in Q1. Okay. And normalcy, we were in the range of 25%. Is it possible to reach 25% in 2024, 25% given higher cost and especially all our sites are overseas. So the cost advantage is not there, right? We'll say that, look, in the next 3 to 5 years, we should improve get there. And in the next 3 years, we'll see sequential improvement. Okay. So what I understand is sequential improvement is there. But would this sequential improvement also visible in Q1, Q2 of next year? Because Q3, Q4 is given that you will have because your orders are obviously back second half this year. But I was trying to understand the normalized I know. I think we can't comment on FY 'twenty four at the Understood. And lastly, on, A, you talked about that attrition things are passed and the ex Lonza guy had come and he's trying to fix up things. But what about inflationary pressures? So given that those are there and the revenue visibility is there, so I'm just trying to understand not EBITDA margins, but how should we model in the gross margins? I think, I mean, look, inflation pressure is going to continue to be there. And we are looking at it as a combination of things to try and address that. It's price increases where we can, operational excellence as well as cost optimization and procurement cost optimization as well. So I think that's where we are. We're looking at a mix of things. And is there a plan to increase the share of manufacturing and services from India versus current share? We'll actually the way we look at it is that we go where our customers want and we help serve them and their patients better. So if they're saying I only want U. S, that's what we're going to do. I think last question. Last question, please. Sure, ma'am. The last question is from the line of Tushar Mandazanti from Motilal Oswell. Kindly proceed. Yes. Thanks for the opportunity. Again, on the EBITDA front, given the first half FY 'twenty three has shaped up and given that we had business headwinds in FY 'twenty two, excluding other income and considering second half FY 'twenty three to be much stronger than first half, would we be able to cross FY 'twenty two EBITDA? Or that seems remote at this point? I think we're not giving such guidance at the moment. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Gagan Bhurana for closing comments. Thank you very much. We hope that we have answered most of your questions. In case you have any follow-up questions, you may feel free to reach out to me. 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.