Ladies and gentlemen, good day, and welcome to the Q1 FY24 earnings conference call of Strides Pharma Science Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, Mr. Singhal.
A very good afternoon. Thank you for joining us today for Strides earnings call for the first quarter ended financial year 2024. Today, we have with us Arun, Founder, Executive Chairperson, and Managing Director, and Badri, Executive Director and Finance and Group CFO, to share the highlights of the business and financials for the quarter. I hope you've gone through our results brief and the quarterly investor presentation, which have been uploaded on our website as well as stock exchange website. The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team.
I now hand over the call to Arun to make his opening comments.
Good afternoon, thank you, Abhishek. We appreciate everybody's time today for attending our call. Let me start by saying this has been a extremely pleasing quarter in terms of performance. We have bounced back strongly with three consecutive quarters of EBITDAs in greater of INR 150 crore. Coming from post-COVID, the reset is now complete, and on a continuing basis, our revenues grew from INR 838 crore to INR 932 crore, although our reported numbers have not been adjusted for the discontinued business. You may see those numbers as flat, but in effect, growth has been by 11%.
More importantly, we have increased our gross margin significantly, and by about almost 600 basis points, and a 3.5 times growth in our EBITDA from INR 48 crore to INR 168 crore. But for the last pickup of Stelis, which will continue till H1, when Stelis becomes EBITDA positive, we have reported a INR 30 crore PAT, for the first time after many years, many quarters, rather. Overall, as you know, Strides is in a therapy focus on acute drugs, and we have historically a 40/60% split between 45/55% split between our revenues in H1 and H2 in terms of linearity.
From that perspective, we are bang on target to meet our guidance of our EBITDA growth and our revenue growth that, that we, we hope to achieve during this financial year. Importantly, we have been focusing on cost control and those actions have started flowing through and has enabled our OpEx costs to reduce quite significantly, leading to an improved margins. We hope our EBITDA margin from the 18% levels now will inch more towards the historical 20% in the next couple of quarters, and a continual free cash generation will ensure that our, our debt book will be further improved. We guided, we guided between Stelis and Strides for a INR 500 crore reduction in debt.
We most of you are familiar with the fact that we announced the sale of the vaccine stock multimodal facility to Syngene for a consideration of INR 720 crore, which we hope to close by end of Q3. With that, with those proceeds, we will beat the INR 500 crore guidance on debt reduction, which will significantly improve the overall performance of the company, the balance sheet of the company. US business has grown quite significantly for us, being we do have a very large seasonal product portfolio in the US. Considering that we've had a good growth in the US with almost 30% growth YoY. This is a good start to our overall US strategy.
We continue to have product leadership in several products, and we do not see any margin pressure on our portfolio. We think overall, the business has stabilized, and the general sentiments around the US markets are playing through in terms of improved margin expansions. Our other regulated markets grew 15%, and that, that continues to be a key focus market for us as we build out that market. As you probably know that the, our access market is lumpy in nature. It's very dependent on the tenders that we win. It's a small part of our business these days, considering that we don't focus so much on the access markets, but we continue to stay invested heavily in our growth markets in Africa and emerging markets.
Although these businesses are small, we believe that this year we will exit our growth markets from a very low base to almost about $60 odd million. That's our target for the year. With, with all of these initiatives playing through, we're very happy with the overall performance of the company, and we, we are very confident that we will take even more stronger Strides as we move forward in the next quarters. In terms of Stelis, which is a significant associate of Strides, we, we have now de-risked this business completely. We have had a good beginning of the year. We have, as you probably are aware, that we got our FDA approval to the site a couple of quarters away, before, and since then we have been adding significant customer acquisitions.
We now, we have closed contracts of $25 million of CDMO work in Q1, which is greater than our last 3 years' CDMO book. Our commercial supplies have started, have started from the last quarter. Our customer got the first approval of a product developed and produced at our site. We now have customers who've got 3 product approvals. We see a momentum of several product approvals coming our way. We are leading the Stelis operations through our complex manufacturing of devices and complex injectables. We just commissioned a drug substance plant, and I'm very pleased to announce our largest drug substance award from a top ten pharmaceutical company that has come our way.
This is a very significant contract for code- for developing, for partnering, from a CDMO perspective for a key biologics product going off patent towards the end of the decade. Post the Syngene transaction, our debt in Stelis, which was a high of INR 1,400 crore last year, and is now about INR 740 crore, will come down sub INR 300 crore, significantly releasing the guarantees that parent has issued for the associate. One of the larger questions many of our stakeholders have been asking me is about the family's commitment to run this business. We are not only pleased to come back and run the ship, but also have committed ourselves to build Strides to a significant player.
Consequently, to ensure that there are no conflicts, we are proposing to combine the CDMO businesses of the group under Stelis, so that we build Stelis into a multi-specialty CDMO, with capabilities in biologics, complex injectables, sterile injectables, which comes from the family office, but also in other complex drug delivery systems. The intent is for Strides this to be a division of Strides and for Strides to have control. At this time, we have appointed a Big Four for valuation and a global banker, a leading global banker for fairness opinions.
We expect all of this to be in place, in the next 12 weeks. Therefore, I'm not in a position to give you granularity, except to state that, we will have a CDMO business of close to about $150 million, in year one, and it's a significantly profitable business from the beginning. It will unlock value for all stakeholders. This is, of course subject to shareholder approvals, lender approvals, and other processes that are involved in such combinations. The intent is to ensure that our interests are aligned with those of the Strides shareholders. This has been a call for quite some time since I've come back to run the business, and I'm glad we took this call.
We'll give you more details in the next 12 weeks in terms of how and what this will all end up. All I can tell you is that the CDMO platform that we are building will be very differentiated. It will not have APIs or normal oral dosage formats, but will be a pure play specialty pharmaceutical CDMO, and I'm sure that this will create significant value to Strides shareholders in the near term. With that rather, rather longish opening statement, I'm happy to answer questions. I have with me my colleagues, Badri and Vikesh, who will support in any questions related to the financials or other parts of the business.
We should be good to take questions, sir.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take the first question from the line of Shantanu Maheshwari, an individual investor. Please go ahead.
Thank you. I have a few questions on our US business. First of all, our US business is at $57 million in Q1 FY24. Any guidance you can provide on the growth of this business over the medium term or over the financial year, FY24? We think the US business will be steady this year at around $250 odd million. That's our target in terms of revenues. It's about $240-$250 range.
Got it. The second question is, if you can provide your view around the current competitive scenario in the market, as there are several reports on drug shortages in the US market. Are there any short-term opportunities that you see emerging? What kind of price erosion that you are seeing in our current portfolio?
The US is witnessing the highest number of shortages since several years now, in terms of number of products in the shortage list. We don't see any immediate upsides, because most of the shortages are related to injectables. In the orals, there is a lot more discipline in the supply situation. I think, I don't see any immediate one-off upsides coming our way, because firstly, we are in niche therapies and acute therapies only. We have a very good track record for compliance and for supplies. We are not meeting any supply shortages, so we are meeting all our requirements, and I don't see any significant moment of supplies coming out, shortages coming our way in the kind of products that we offer.
Understood. Thank you. I'll join the question if I, I have any more questions.
Thank you. Participants, to ask questions, you may press star and one. We'll take the next question from the line of Gaurang Sakare from Elara Capital. Please go ahead.
Am I audible?
Yes.
Yes.
Yeah. Thank you for taking my question, sir, and congrats on a great set of numbers. Just continuing on the U.S. market, you know, while we may not be seeing any short-term opportunities, but do you feel that the long-term trend in U.S. regarding price erosion or competitive scenario is changing? Do you see that price erosion easing? Because some of your larger peers have reported that, you know, pricing scenario is improving in U.S. That's why I wanted to just have your thoughts on the topic.
Well, if, if you see my calls, go back to my calls over the last three quarters, I have been consistently saying we don't see price erosions on our portfolio. I continue to maintain that. That is because of the nature of our portfolio. Being in the acute therapy, there aren't many competitors. The volumes are very small. I think it's more to do with the, the general commodity generics that we see stability from our perspective. I agree with the general view of our larger peers. Overall, I think the buying universe is also becoming a lot more sensible in terms of being practical and not squeezing manufacturers out of the system. As cost for compliance increases, you can't be in a lose-lose situation.
I think, that is causing shortages and the, the, the regulators and the Senate is taking, taking even the consolidators to task, and, and all of this is playing out well for manufacturers, finally.
Okay. Thanks for the response, sir. Secondly, regarding the combining, CDMO business and Stelis, for Strides, what would be the margin trajectory, let's say, in next two to three years after, this amalgamation and all these things are complete?
Stelis is a very large asset, right? While we have over $400 million of contracts, for commercial supply starting from FY27, adjusted for the... Stelis will be EBITDA positive from H2 onwards. Or the CDMO business trades between 28%-30% EBITDA, and we think that will be the EBITDA that that business will continue. Once the biologics business start commercial supplies, then, this will be a very profitable part of the group's business going forward.
Thank you. Thank you so much, sir. I'll join back the queue.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Thanks for taking the question. Arun, on, on the, the proposed Stelis you know, restructuring of sorts that you're talking about, if you can give us some qualitative sense on what could be the nature of the business that will get created, post, once approvals are through?
Yeah. I just want to take this word restructuring away from you, because it's actually consolidation of our businesses to make it even a more attractive company. What this will include is delivery technologies, mainly programs like soft gelatin, which we are a global leader. It'll include complex injectables, devices, mainly devices and auto-injectors. We're one of the few players who can do that. We are very big in the GLP-1 programs. Our partners, two of our partners have already first to file. We have strong presence there in the GLP-1 programs and all the GLP-1 programs, the old, the, the ones going off patent soon in a couple of years, and the new ones, which are going off patent even in mid-2030.
We are the primary supplier for most of the GLP-1s that are going off patent. We have complex injectables, lyophilization, and so that's the combination. So we are not in, doing anything in APIs. We will not do anything in the standard vanilla oral dosage CDMOs.
Okay. You know, in a, over a, say, 3, 2, 3-year period, what could be the size and scale of this business, if you can hazard maybe a possible guess around it?
Pro forma day one, subject to approvals, it will be approximately $150+ million in revenues, of which about $50 million-$60 million are related to Strides CDMO. Incremental for Strides will be approximately $100 million of revenues in year one, and we believe the CDMO business will hit about $400 million in FY27.
That's a combined business?
The CDMO combined business. You're right.
That'll include portions of biologics and everything else that is getting brought in now?
Correct. The biologics is all contracted, so we have an average CSA, Commercial Sales Agreement, which should deliver a little more than $90 million a year from FY27.
I think that's interesting. And from a CapEx commitment perspective, you know, for you to hit this milestone for the CDMO business and for whatever Strides intends to do in its own business, what kind of CapEx are we looking at over this time horizon?
I think, so basically incremental CapEx in a CDMO business is funded by partners. We don't see any near-term need for significant CapEx. The only thing is that we only have 8,000 liters of drug substance capacity, given that we have sold the large facility to Syngene. We will probably have to add more microbial and drug substance capacities, which will require approximately $30 million of new CapEx, to get to that $400 odd million of revenues that I'm alluding to.
Okay. I mean, Arun, aside of this for, you know, excluding the Strides CDMO part of the business, I mean, how do you envisage the growth for the Strides business ex of Stelis, you know, over this time horizon?
Nitin, at this time, this whole year, we are very focused on margin expansion. I think we've come a long way from where we started 4 quarters. Our, our revenue CAGR is forecasted only at 15%, whereas our EBITDA CAGR has to be greater than that. That's what we have achieved in the last 4 quarters. That's gonna be our focus also for the next year, till FY25. The whole idea is to generate significant free cash and bring our debt to EBITDA, on the combined entity, to under 2. Once we do that, is when we can again press the accelerator. Remember, we have over 150 ANDAs that are not commercialized. It's not a function of us waiting for product approvals to launch and increase our market.
It's a calibration of price discipline that we have brought about the business, that we want to maintain for another year. That is why our free cash generation has started to improve, our debt is starting to reduce, and you'll see a lot more free cash generation coming up in the next quarters as we rightsize our inefficiencies that we acquired in the last couple of years. I'm more focused on that, Nitin, to be candid, and building out the CDMO business to be scale, because that's all contracted. We have 15 customers. We secured $25 million of CDMO contracts in the first four months, three months of this year, which is greater than our contracts we secured in the last 3 years.
I'm very bullish on building that part of the business, while the products division will continue to grow and will expand, not necessarily in the US as much as it will expand in emerging markets and in, in other regulated markets.
If I can squeeze in a last one. On, you know, $25 million of contract that you mentioned that you won in Q1, typically, what is the time period over which such contracts are executed?
Typically, a Master Service Agreement is executed between, within, with. It can be as low as 12 months, but not later than 24 months.
Okay. Okay, got it. Thank you.
Thank you.
Yes, sorry. Thank you.
Thank you. Participants, if you wish to ask questions, you may press star and one. We'll take the next question from the line of Jainil Shah from JM Financial. Please go ahead.
Yeah, hi. Thank you for the opportunity. My first question is on the expenses. Our other expenses and employee costs have declined. Can you highlight what are the cost initiatives that we've taken, which has led to this decline?
Right. I'm going to request, Vikesh, who is our young CFO, to answer this question.
Hi, hi, good evening. On the employee costs and other expenses, one of the major, major factors that has played out are our cost optimization initiatives. We had last year mentioned that we are doing a cost optimization at Chestnut Ridge in a plant in U.S., that has fully played out from this quarter. That is the, that is one significant benefit. The freight, the freight costs have also improved. Outside of that, there is a, a small impact because of exchange, which is on a positive side. We expect overall both the operating costs and the employee costs together to settle at around INR 400 crore per quarter.
Yeah, that's helpful. How much for the debt reduction are we looking at from here? I mean, obviously, the Syngene seven point we have, we're gonna raise around INR 700 crore from Syngene sale.
Yeah. We are upping our target from INR 500 crore consolid between the two companies to now closer to INR 700 crore.
Okay. Okay. What is the rationale for selling our unit three when, you know, we are creating an entire CDMO business under one roof? Just a little more color on the.
If I didn't sell it, then your question would be, why are you carrying so much debt? You know, it's a chicken or egg situation. We, we needed to right-size the Stelis balance sheet, given our challenges with Sputnik and the write-offs. It was strategic for us to do it at that time. Incremental capacities can always be added in our FTA complex very quickly. The, the facility that we built for the multimodal facility is very large in terms of capacity. You know, we it'll take us a few more years of underutilization of that plant, which will have dragged down our PNL in Stelis and would not have allowed us to consolidate our CDMOs and create more value by being a very comprehensive CDMO company.
That also at the, the whole CDMO process, therefore, got acceleration by that, tactical or strategic move, or the way you want to put it.
That's helpful. Thank you so much.
Thank you.
Thank you. Anyone who wishes to ask a question may enter star and 1 on their touchtone telephone. We'll take the next question from the line of Abdulkadar Puranwala from ICICI Securities. Please go ahead.
Yeah, hi. Thank you for the opportunity. My first question is on the gross margin side. If I, if I see you use sometime.
Yes, please.
Yeah, is this better?
Yeah, it is.
Yeah. I had a question on the gross margins. This quarter, I mean, there was a good swing into the gross margins. Going ahead, you know, when we talk about the 60 product portfolio, what you have in U.S. and the rest 150 products you would be launching. I mean, you know, the per re- product realization, if you see, it's close to $4 million on an annualized basis. Out of this 150, I mean, are we reasonably confident that, you know, whatever we're launching would not be margin dilutive? You know, would not only just drive revenue, but EBITDA as well?
Yeah. So, Abdulk ader, just for your benefit, our gross margins are in this range for the last 3 quarters. We have brought the margins up from 50 to the 57 to 60 range in the last 3 quarters. We have been consistently improving our gross margin because of our pricing discipline. In previous calls, we have mentioned that out of the 150 odd ANDAs that we have, which we have not launched, only 60 of them qualify for our price discipline in terms of margins, gross margins, and EBITDA. You're right that our average revenue per product is about $4 million, average revenue, but there are many products where the average revenues are greater than $10 million. Out of the $60 million, it will take care of growth.
It will ensure that the gross margins don't drop, and it'll also ensure that there's an EBITDA flow-through, because gross margin is equal to EBITDA after a certain point in time, except for distribution costs. We don't intend to sell anything which do not meet the current gross margin criteria. I hope that addresses your question.
Sure, sir. Thank you. Just one more on the Stelis deal with Syngene. The gross value of this deal is close to INR 702 crore, and the debt retirement, you know, we are talking about is roughly INR 440 crore. I mean, where are we using, using the balance, you know, amount from this deal?
Yeah. There are, certain, CapEx creditors and others that will also be settled, part of this transaction. Approximately INR 550 crore will go into Stelis. As you probably know, that there is debt reduction of close to INR 500 crore, about INR 400 crore, but there's also INR 150 crore that we reserve for our OpEx losses, because we will be EBITDA positive only from H2.
Got it. All right. Thank you for answering my questions.
Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star and one. We'll take the next question from the line of Rohit Mundra, an individual investor. Please go ahead.
Hi, sir. Thank you for the opportunity. Just following on your initial lines about maintaining your strong, that you'll be maintaining the guidance. We had guided for an EBITDA of INR 700-750 crores for FY24, and if you were to achieve that, it would imply a revenue of INR 180-200 odd crores over the next 3 quarters. Are we confident of achieving the same number over the next 3 quarters, and what will be the driver?
Yeah. Like when I, when I opened the statement, I did say that being with the type of portfolio that we have historically for more than a decade, H2 is a typical 60% of our revenues and gross margins and EBITDA. 40% is our H1, because we have got a lot of seasonal products, and we are very dependent on the flu season for several of our upsides in H2, and historically, we have a much higher H2, H3. If you look at that, then we are already at around if you look at a 45%, 55% split, then we are bang on target in Q1, with regards our EBITDA.
Okay, that's it, thank you.
Thank you. Before we take the next question, a reminder to all the participants, anyone who wishes to ask a question, may press star and one. We'll take the next question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening, sir, congratulations on a steady set of numbers. First question is on this proposed deal. If I understand correctly, Strides holds around 30 odd percent in Stelis right now. In case some of the promoter businesses are merged into Stelis, that would mean a further dilution of Strides shareholding in Stelis. How do we intend to increase the shareholding of Strides into Stelis so that it becomes a majority shareholder as per the slide?
Yeah. I also mentioned that Strides will vend its CDMO business into the Stelis infrastructure, subject to, of course, shareholder approvals, and that will result in Strides having a lot more equity. Like I said, the scheme, the valuation reports, and the fairness opinion will be available between 10 and 12 weeks from now, and the scheme details will be available then. It's a little too early for me to discuss specifics.
Okay. This $50 million-$60 million of Strides CDMO business will also be, downstreamed into Steriscience. Is that the right understanding?
Yes.
Understood. Secondly, you know, this debt-- on the debt reduction piece, so this INR 740 crore, and so I understand INR 550 crore, which you explained, but how much of that is going under transaction cost and capital gains of this INR 740 odd crore?
Capital gains is very marginal, and the transaction costs are also very marginal.
This, between 740 and 550, which is INR 190 odd crores, how is that-
INR 705 is the deal value.
Yeah.
702 or something. It is not 750, it's 700 and-
Okay. This INR 150 crore between INR 700 crore and INR 550 crore is going where?
It goes to creditors. There are some CapEx creditors outstanding, and also goes to partly loss to fund, the loss funding of Steriscience. Steriscience continues to lose money for this first half, and it will be cash positive from next half of the financial year.
Okay. Just to clarify, on the CDMO plan: overall, the plans is that at Stelis level, we want to increase the revenues to $400 million by FY27. It should carry a 28%-30% EBITDA, and incremental CapEx is $30 million from here. Is that the?
Yes.
Okay. Okay. Thank you, sir, and all the best. Thank you.
Thank you. Participants, if you wish to ask a question, you may press star and one. We'll take the next question from the line of Omkar, an individual investor. Please go ahead.
Well, good evening. Am I audible?
Yes.
Thanks for taking my question, congratulations for good operating margin numbers in this quarter. Last time, I got a very less time to ask my question, so please allow me to, to ask 2, 3 questions properly this time. I remember your sentence in last conference call, saying Strides' focus will be on improvement in gross margin and operating profit margin. These both the things are in line with expectation, operating profit margin is improving. That is a great thing. Strides was planning for US revenue around $65 million-$70 million. Again, in this commentary just now, you said, we have got a good YoY growth. QoQ, US revenue gone down by 10%. Any reason for it? We were planning $65 million-$70 million revenue last year also.
No, we, we have never guided that we will be doing $65 million-$70 million. You are not paying attention to my commentary to say that historically, Strides has got significant sales in the US in H2.
Okay.
It's because we have a lot of seasonal products which are linked to the flu season in the U.S. We have several products that meet that criteria. We have grown significantly YoY, and we are in the right trajectory to get to a $250 million, $240 million-$250 million revenue this year. I guided that our U.S. revenue had, last year, approximately $20 million of a specific contract that came part of the Endo transaction, which is no more there. The actual growth is going from $200 million to $240 million-$250 million.
Okay.
There's a significant growth in the US core business, because when we acquired the facility in New York, we had a one-off contract, which, for which, which lasted for about 24 months. Which is no more there, or it is there in a very small value. Our core business has grown and it's grown well. We have not communicated to you or to anybody that we will do $70 million this quarter. We have grown quite significantly QoQ, YoY, and QoQ, because Q4 was a big-- Q3 and Q4 were big quarters in the US because of the flu season. It is quite natural that Q1 is low. Historically, this is the story for Strides over the last 10 years, so this is not a new phenomenon.
Okay. you mean to say now base is from $200 million to we will plan for $240 million-$250 million this financial year?
Correct.
My second question regarding other regulated market revenue, which came from $40 million to $48 million in last Q4, thanks to Australia business in Q4. This quarter, UK revenue back to $35 million, which is little bit lesser as compared to our, you can say, exit run rate of $40 million. Any specific reason other regulated market went down again from $48 million to $35 million?
No. Again, when we announced our Q4 results, we indicated a reorganization of how we will report. Earlier, our South African business was part of our other regulated market. Now, our South African business is part of our emerging markets and growth markets. We have reported the reclassification of all the businesses in our Q4 results. If you would like to -- if you don't have access to it, it is there on our website, but more than, more than happy to send it across to you.
Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Vishal Bora from NK Ventures. Please go ahead.
Yeah, thanks for the opportunity, and congratulations to the management for a very good performance. So first, just want to understand, you know, this more philosophically. Strides had done very well with the injectables portfolio, you know, the Agila portfolio that was built earlier and sold off, I think more than 10 years back. You know, then we were building this business under Steriscience, and we were looking to merge that earlier also. Just want to understand now with the, you know, with the promoters finally deciding to consolidate these businesses under Stelis and taking a controlling stake through Strides, how do we look at, say, from a 3 to 5 year perspective, you know, philosophically, the promoters' intention now to build this business again, into a much bigger entity?
Historically, Strides has more about building niches and then moving and moving out. In this round, how do you intend to build the business?
Yeah, Vishal, I think the environment keeps changing, right? I mean, I don't think, this is the time for us to build business to sell. This is a time for us to build business to consolidate, which is what we're doing. Secondly, if you recall from 2017, when I stepped out from active operations, we invested in high CapEx, long duration businesses, and, typically it takes three to four years for these kind of complex businesses to make profits. It would have been extremely dilutive for Strides and the shareholders for us to build a business when we were already struggling through COVID and reset, to carry forward a business.
Now that the circumstances make us commit to Strides for long term, it's logical for us to consolidate our interests so that we take away all these, you know, challenges around businesses that potentially would compete with Strides. Now that if, if Stelis was a pure play biologics company, this was not required. Now that we are now converting it into a multi, a specialty CDMO, then obviously there are conflicts which we are trying to avoid and we would like to avoid, and we've been very focused on governance from the beginning. That's why we are taking great pains to appoint global advisors and at great cost to ensure that everything is kosher, in terms of a process. The reason why you're bringing a business now is it's accretive, it should be accretive to Strides.
The incremental EBITDA and the margins should be accretive. It will discover a significant value for Strides shareholders in some parts of its business that is currently sitting in a products company and not getting valued correctly. I think all of this value unlock will benefit all stakeholders. Remember that, we have been a minority shareholder for Strides for many, many years, for many decades, and it's in our interest to protect all shareholder interests. We just want to do everything proper. It's taking a little more time than we hoped for, but when you see the, the fairness opinion and stuff like that, and the names that we have used, I'm sure you'll be convinced that this is in the best interests of all stakeholders.
sir, what, if you can, describe a bit more about the businesses that are being considered, you know, what kind of contracts or what kind of... You mentioned a bit about the capabilities, but, you know, the contracts.
At this time, like I said, I started off in my opening that I, the reason why we decided to go public is that we have an in-principle approval of our board, and we're obliged to go public. I can't get into the granularity of the comp, the, you know, the sum of parts of the business. All I can tell you is that this will be a powerhouse CDMO, with very highly differentiated. Please bear with us, it's just 8-12 weeks away before you can get access to a lot more information on how we come about the sum of parts.
Sir, noted, but given that you're guiding this business to be, say, a $400 million plus business in another three years, let's say 2027 onwards, given that, you know, that is very similar to the scale at which Strides itself is operating today, in three years' time, this business would be a meaningful component of the overall business. And, you know, from an attractiveness to potential investors' perspective, possibly even more attractive than the formulations generics formulations business. Any thoughts around, you know, this in the context of the overall scheme of things at Strides, or is it too early to comment?
It's very early to comment, and I would strongly request you, Vishal, to bear with us for 12 weeks. You will get a lot more granularity when we have information which is, where third-party organizations are currently conducting, and then we can address more specifics around this.
Sure, sir. Thanks. If I may, just one last, hygiene question. There's this write-off on ranitidine, I think, taken this quarter as well. It's been some time since you
The, the tail end of our litigation costs for the transaction suits and all those things, so it's more or less done with.
Okay.
Only related to litigation.
Sure. Thank you.
Thank you.
Thank you. Ladies and gentlemen, as that was the last question for today, I would now like to hand the conference over to the management for closing comments. Over to you.
Thank you. Thank you all for attending today, today's call, and if you have any questions, please feel free to contact Abhishek or one of us in our investors, investor relations group, and we'll be more than happy to address them. Thank you all.
Thank you very much, sir. On behalf of Strides Pharma Science Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.