Ladies and gentlemen, good day and welcome to the Strides Pharma Science Limited Q4 FY 2026 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 then zero on your touchtone phone. I now hand the conference over to Mr. Abhishek. Thank you, and over to you, sir.
Thanks. Thank you, Rituja. Very good evening. Thank you for joining us today for Strides earnings call for the fourth quarter and financial year 2026. Today, we have with us Badree, MD and Group CEO, Vikesh, Group CFO, to share the highlights of the business and financials of the quarter and the financial year. I hope you've gone through our results release and the quarterly investor presentation that 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 context of risk inherent in our business. After the end of this call, in case you have any further questions, please feel free to reach out to the investor relation team.
I now hand over the call to Badree for his opening comments.
Thank you, Abhishek. Hello, all, and thank you for joining us for the Strides Q4 and FY 2026 earnings call. Like in previous quarters, I will begin with an overall summary of the Q4 and full-year performance, focusing on growth metrics across revenue, margins, and operating performance. I'll then take you through a detailed review of the geographies. After my section, Vikesh will walk you through the financials in more detail, followed by Q&A. Before I get into the operating performance, let me capture the three years journey in perspective. Over the last three years, we have been very clear on our priorities: geographical diversification, profitability, and balance sheet strength. These priorities were deliberate because we believe that sustainable growth can only be built through strong foundation of profitability and operational discipline. The results of this strategy are now visible.
Over the last 10-12 quarters, we have consistently delivered improvement across revenue, EBITDA, PAT, while reporting our highest-ever EBITDA and operating PAT on a sustained basis. Let me cover the fir st point, the geographical diversification, which has been one of the critical pillars of our strategy. While U.S. continues to remain the key market where we have long-term aspiration, ex-U.S. markets have emerged as the most important highlight of our performance. For the last few quarters, we have been consistently talking about a calibrated strategy of growing these markets. I am pleased to say that this strategy is now delivering results faster than what we had actually initially anticipated.
If you look at the last three years, we have delivered consistent growth across key metrics, with overall revenue growth at a CAGR of approximately 12%, supported by 11% CAGR in U.S. and 19% CAGR in ex-U.S. markets. More importantly, the mix of the business has shifted meaningfully. Ex-U.S. contribution has increased from 41% in FY 2024, approximately 44%-46% in FY 2026, and on a Q4 basis, it is now close to 50%. This marks a very important structural shift in our business model. It clearly indicates that we are moving away from a single market dependency to a more diversified, balanced, and resilient portfolio. Second, profitability. The profitability has been the cornerstone of our transformation journey, and we continue to see strong and consistent improvement.
EBITDA has compounded at approximately 26% over the last three years, driven by the EBITDA margins expansion of 400 basis points to close FY 2026 at 19%. This reflects improvements across our business, whether it is a better portfolio mix, conscious deprioritization of low-margin institutional business, strong pricing discipline, and overall operational efficiency. Operating leverage is clearly visible at the bottom line. Operational PAT has grown 18 times over the last three years, and EPS has increased to INR 56 for FY 2026, which is the highest for us, with a strong exit run rate of INR 14.7 per share in Q4. This shows that we are now operating with significantly stronger earnings engine, where growth is translating into incremental profitability. The third pillar has been efficiency, and particularly around cash generation and balance sheet strength.
Our focus on working capital discipline and cost optimization and cash flow generation has led to a meaningful improvement in the financial metrics. Cash flows have strengthened, cost structures have been streamlined, and asset productivity has improved across the board. This is reflected in our return metrics as well, with ROCE improving from 15.76%, ROCE improving to 15.76% for FY 2026 from single digits just two years back. More importantly, our continued focus on profitability and cash generation has enabled us to significantly reduce debt. Today, we are operating with much stronger and more resilient balance sheet, which gives us the flexibility to invest in growth while navigating the external volatility.
Coming to the full-year performance, FY 2026 to be viewed in the context of a challenging external environment, particularly from a geopolitical standpoint. We reported a revenue of INR 48,587 million, that is INR 48 billion, representing a growth of 6.4% year-on-year. This was impacted by a few specific factors, particularly in the U.S. business. The flu season did not materialize as expected in the second half this year, which typically contributes meaningfully to our revenues. In addition, the overall growth was impacted by access markets which are currently facing donor funding challenges and remains tactical in nature. Adjusting for these access markets, our underlying revenue growth was much stronger at approximately 10%. This growth was driven primarily by our ex-U.S. markets, which delivered a robust 21% growth.
Coming to U.S. business, we delivered a revenue of INR 284 million for FY 2026 and INR 70 million in Q4. The performance during the year was impacted by a weaker flu season in the second half. Historically, the fourth quarter tends to be stronger for us given the seasonal flu demand in the U.S., which unfortunately did not materialize as expected this year. Over the last couple of years, we have been consciously reshaping our portfolio, transitioning from a smaller revenue products to a more meaningful products. In line with this strategy, we launched six products during the year, and some of our molecules have faced increased competition, and accordingly, we have rationalized our market share while maintaining our focus on the profitability. We exited nine products that did not meet our internal return thresholds and reinforcing our continued focus on portfolio quality and profitability.
We launched the controlled substances from Chestnut Ridge acquired ANDAs portfolio. Given that we are a new entrant in controlled substances, allocations were lower than expected in FY 2026. With a full year of operating track record now established, we believe that we are better positioned to secure additional allocations. This portfolio should add to our near-term growth. Over the past year, we have made targeted investments into global R&D programs. We have spent INR 2,500 million, approximately $30 million over the last 24 months towards IP purchase and partnered R&D programs focused on medium and long-term growth. We expect the benefits of these investments starting in the second half of FY 2027. Our strategic partnership in U.S. are progressing well, the B2B business that should drive the incremental growth.
Our pipeline continues to shift towards the more differential programs with a clear focus on nasal sprays, transdermal patches, and films. We also filed our second nasal spray in May 26, further strengthening the portfolio. We continue to focus our aspiration of reaching INR 375 million-INR 400 million in the U.S. Coming to the ex-U.S. markets, this has been a very strong year for us, and more importantly, it reflects a structural transformation that has been underway over the last few years. As I mentioned earlier, we have grown this business at a CAGR of around 19% over the last three years, and we are now starting to see the benefits of the investments we have made across markets, partnerships, and product portfolio.
To put this growth in perspective, the ex-U.S. business has scaled from $40 million per quarter in Q1 of FY 2024 to about $70 million in Q4 of FY 2026. A $30 million growth in 12 quarters. This steady progression highlights not just the growth, but the consistency and sustainability of the business model we have built. In our other regulated markets, we are seeing strong traction across key regions such as Europe, U.K., Australia, Nordics. The last 12 quarters, the ORM revenues have grown from about $31 million in Q1 of FY 2024 to $52 million, an exit run rate in Q4 FY 2026, reflecting a consistent sequential improvement on strong execution on the ground. At the same time, Africa continues to be a key contributor within our growth markets, where performance has been encouraging across regions.
Our focus here is evolving beyond just scaling revenues to increasing the share of branded business, particularly in the markets such as Francophone Africa, where we are already growing faster than the underlying market. The focus towards branded business will drive both sustainably and margin resilience over the long term. We also announced the acquisition of certain products from Sandoz in February 25. With the addition of the Sandoz portfolio, which is expected to start contributing from the second half of FY 2027, we will further strengthen our presence in Africa. The combined strength of our existing portfolio on the Sandoz branded business positions us well to become one of the leading pharmaceutical players in sub-Sahara African region over time.
Our continued focus has been building on high quality, sustainable business across ex-U.S. markets. These geographies are characterized by a relatively high entry barriers, stable pricing environment, and strong partner relationships, all of which will contribute to the predictable and resilient revenues. Despite the strong growth in ex-U.S. markets, our margins have remained robust. This clearly demonstrates that we are not compromising on our underlying business fundamentals. In fact, margin profile between the U.S. and non-U.S. ex-U.S. business is now becoming increasingly similar. This is an important milestone as it validates the ex-U.S. is not just a growth engine, but also a strong and reliable earnings driver.
What also gives us confidence is that the key growth drivers are now firmly in place, whether it is presence in the right markets, strong partner relationships, a diversified and expanding product portfolio, or a steady pipeline of regulatory approvals. Looking ahead, our filing momentum in ex-U.S. markets remains strong and will continue to drive growth over the middle term, medium to long term. Overall, we believe the ex-U.S. markets will continue to grow faster than the company average and will remain a critical pillar of our strategy, not only for growth, but also for improving the resilience of overall business. On some of the qualitative matters, I just want to cover some few points. One is with respect to ESG.
From an ESG standpoint, we are happy to report a five-point improvement in our score and inclusion in the yearbook for the second time, reflecting our commitment to responsible growth and governance. I also want to make some few comments on the external environment. The external environment remains challenging with cost pressures across raw materials, logistics, fuel, and as well as foreign exchange. We are also closely monitoring these developments and remain focused on cost discipline. We remain committed to achieving our long-term aspiration, and we aim to reach EBITDA margins upwards of 20% and gross margins in the 58%-60% range and continue to driving operating leverage to deliver strong EPS and PAT growth. Lastly, the board has recommended a dividend of INR 5 per share.
Before I close, I'm pleased to share an important leadership update. We are delighted to announce the appointment of Ramaraju , our current Chief Operating Officer, as an Executive Director. Ram has been with Strides Group for more than 18 years and brings with him a deep experience across the pharmaceutical and healthcare sectors. As Executive Director, Ramaraju will be responsible for overseeing the global technical operations and strategic management of critical functions, including manufacturing, supply chain, and procurement. With this, let me hand over to Vikesh for his comments.
Thank you, Badree. Very good morning, good afternoon, and good evening to all of you. FY 2026 has been another year of a strong, profitable growth, which has been anchored in our pillars of profitability, efficiency, and growth. At the core of this philosophy has been a disciplined approach towards profitability-led growth, a very efficient capital allocation, and a drive to achieve sustainable and resilient business model. We are very pleased with the sustained progress across all of these metrics of profitability, efficiency, and growth over the past few years as we continue to build long-term shareholder value. Over the last 12 quarters, we have significantly expanded on our profitability metrics, improved our cash flows, and strengthened our balance sheet.
Despite a challenging external environment in Q4, where we've seen additional cost pressures, we have continued to deliver consistent quarter-on-quarter growth in our absolute EBITDA and operational PAT, which truly reflects the resilience of our business. I will now take you through the numbers, starting with the full-year performance. For FY 2026, we are reporting an EBITDA of INR 925 crores, which is a healthy 15% growth year-on-year, with EBITDA margins expanding by 140 basis points over FY 2025 to 19%. On operational PAT, we have grown even faster. With a 50% year-on-year growth, we are reporting an operational PAT of INR 518 crores, crossing the 500 crore mark for the first time. This was supported by sustainable growth in our EBITDA and lower finance costs.
Our EBITDA to operational PAT conversion ratio also significantly improved to 56%, which underlines the structural strength and quality of our profitability. Operational EPS also grew by 50% year-on-year, with an EPS for the year at INR 56.2 per share. Our reported PAT for the year is at INR 575 crores, which is up 40% with a reported EPS of INR 60.3 per share. Our reported PAT is higher than operational PAT on account of the sale of investment property that we had in Q3 of FY 2026. On the efficiency metrics, our cash-to-cash cycle is at 124 days, which is an increase of seven days year-on-year. This increase is on account of higher inventory levels, which have increased by 21 days year-on-year.
In addition to the superior growth that we've had in ex-U.S. markets, which was supported by these inventory levels, we have also built resilience in our supply chain, adapting to the challenges that have been posed by the current environment. And therefore, stocked up adequately to take care of our business needs. We had a corresponding increase in payable days in Q4, and we expect these to normalize over the coming days. After funding for this increase in cash-to-cash cycle, we've delivered an operating cash flow of INR 703 crores for the year. Which translates to a 76% EBITDA to operating cash conversion. We also invested in growth capital spend. We invested INR 418 crores across both tangible and intangible assets.
It includes INR 236 crores of tangible CapEx, where in addition to the maintenance CapEx that we spend every year, we made very targeted growth investments in building our nasal spray capabilities, enhancing capacities to support our ex-U.S. business and acquisition of a new office space in U.K. to cater to the growing needs of our business. We spent INR 182 crores towards intangible investments, which included certain global product rights, which will drive our growth in the near future in both the U.S. and the ex-U.S. markets. In the intangibles, the spends also include a very significant upgrade to our global ERP platform as we migrated to SAP HANA.
While we made significant investments in growth this year, our superior profitability and cash flows have helped improve our net debt to EBITDA ratio from 1.9x last year to 1.55x as we closed FY 2026. This is despite a negative impact of the currency depreciation which impacted our net debt by about INR 112 crores for the year. Our reported net debt as of March 26 is at INR 1,437 crores. In addition, our investments in OneSource, valued at INR 337 crores, adds further strength to our balance sheet. In terms of debt reduction, our net debt on a constant currency basis reduced by INR 197 crores, which reflects the strong underlying cash generation and disciplined deleveraging in our operational in our operational business.
While there may be near-term headwinds due to our cash-to-cash cycle, we remain confident of improving our net debt to EBITDA ratio over the next few quarters. Our ROC continues to improve. It is at 15.8% for FY 2026 compared to 14.9% last year, which reflects our improvement in operating performance. With the significant investments in growth during this year, which are yet to play out, we see this metric to continue to improve in the near future. Overall operating expenses for the year were at approximately 40.6% of sales.
Employee costs remained stable at 19% of revenues, while other operating costs increased to 21.5%, due to both business mix shift towards ex-U.S. markets and the elevated supply chain and manufacturing costs, largely in Q4 due to the dynamic geopolitical environment. Our net finance costs stood at INR 138 crores for the year, which reflects a consistent reduction from FY 2025 levels, which has been supported both by lower debt and improvement in our borrowing costs. Our effective tax rate for the year remained at sub 15%, which is at the lower end of our expectations. Quickly moving to the Q4 performance. For the quarter, our EBITDA grew 10% year-on-year to INR 240 crores, which reflects our continued growth in absolute profitability.
Our EBITDA margin for the quarter was at 18.1%. EBITDA margins were impacted on account of cost increases that were attributable to the escalations in logistics costs and air freights, which were seen to be significantly higher than previous quarters. These costs were to the tune of INR 20 crores, which would have otherwise added to our performance for the quarter. Despite these challenges, we are delighted to report growth in absolute numbers, and we continue to remain focused on building a resilient and sustainable EBITDA profile. Our PAT and EPS continue to expand on a quarterly basis. Operational PAT at INR 136 crores grew 20% year-on-year with an operational PAT margin of 10.3%.
Operational EPS for the quarter at 14.7 INR per share reflects our continued improvements in earnings quality. Our reported PAT for the quarter is at INR 129 crores, with a reported EPS of 13.8 INR per share, which has grown by 54% year-on-year. Overall, FY 2026 has been another year of disciplined execution with strong growth in profitability, significant improvement in operational PAT and EPS, improved ROC, balance sheet discipline, while we continue to invest for future growth. The growth momentum in our ex-U.S. business, along with our profitability orientation, has enabled us to drive improvement in gross margins and EBITDA with a significant expansion in PAT and EPS over the last couple of years.
We remain focused on building a structurally resilient business with sustainable growth, disciplined capital allocation and continued strengthening of our balance sheet. Thank you, and we are now happy to take any questions that you may have.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pratik Kothari from Unique PMS. Please go ahead.
Yes, hi. Good evening, and thank you. My first question on the U.S. portfolio, I mean, while we have reoriented and we are doing exceptionally well in our other regulated markets and the growth markets. One, if you can touch upon what is happening in the U.S. markets in terms of I mean, because you're seeing product discontinuations, even the product launches that we had anticipated or planned for didn't go through. Just one comment on U.S., what is happening there?
Yeah, sure. Pratik, from a U.S. perspective, I just want to give you some few things, which did not happen in the last year. One is the seasonal aspect. Second is, we have been telling that the controlled substances, okay, will need a past history. Like we need a good stable year of controlled substances before the growth comes back into this because it depends on quota and then production and then the actual commercialization. The third one is in terms of the portfolio. If you really see, we have got a lot of launches coming up from the second half of this year, which will continue till about 2028.
We just don't want to lose profitability discipline as far as the U.S. business is concerned, and that has been a stated policy. If you really see, Post the OneSource that happened, you know, still our growth is quite good from 11% perspective over the last two to three years. Overall, if you really see, this is a conscious effort to maintain the profitability at the marketplace. We believe this should all, you know, the growth should start from H2 onwards with a higher trajectory.
Correct. It's a steep growth, I believe, because we still hold on to our target for next year. This would be driven by combination of everything, your nasal sprays and your controlled substance, the new launches.
Aspirationally, we have kept this INR 375 million-INR 400 million.
Yeah.
If you remember, the INR 400 million was given in the context some two years back. We want to chase that for the simple reason that we have got, you know, the drivers in place. We are also working on till the last dollars to make it happen. That's what we are focusing on. We should be able to get to that growth trajectory very soon.
Just, I mean, double-clicking on this. To maintain these margins, we have either not launched as many products or we have let go of a few. This increased competition or pricing pressure is coming from where? Are these pure Indian players who are doing this?
Of course, there are a lot of peer players. It also, you know, we have explained it in the previous quarter also, like there has been intense competition in few of the molecules. The most important part, Pratik, you should know, is that we still have leading positions in 37 of the 70 products, right, in the market.
Sure.
The leading position in 37 out of 70. If all of this, you know, plays out and I think we should be there. It's not a very difficult situation. The only thing is we'll have to focus on few things, and we have got eight quarters to make it happen.
Right.
Sorry to interrupt you. May we request you to please rejoin the queue, Mr. Kothari. We have other participants waiting for their turn. Thank you. The next question is from the line of Dhaval Shah from Girik Capital. Please go ahead.
Yeah. Hi, thank you for the opportunity, sir. My question is related to the flu season. Sir, I'm fairly new to the company, my question could be a bit basic one. This, our medicines are given more when the patient is in the hospital or at home? Or how is the prescription, how does the prescription work for it? I was just reading on the net that the influenza-related hospitalization were third highest since 2010/2011 flu season in the U.S. While towards February, March, you know, the cases in fact started increasing a lot. What is exactly impacting our growth for this flu-related drugs? Yeah, your thoughts on it.
Yeah, sure. From your perspective of what you're saying is a very general thing. From what we need to see is what is based on our portfolio, right? Our portfolio usually it adds quite well in the H2, and that has been the past trend for the last three years. Somehow this year, because of the better discipline with the wholesalers and all of these things, and they're able to make the demand uptick did not happen, right? It's not that it's it may come back next year also. We don't know. What we can say is that definitely the uptick which happens between the H2 and H1, what we have seen in the last three to four years did not happen in the current year.
That's what usually if you really see the entire growth, the 100% is divided into 45% in the first quarter and the 55% in the second quarter. Whereas if you really see this year, it is more or less it is 50/50 from that standpoint.
Yes. Thank you for that. My second question is on the controlled substances. Now, can you help me understand a bit about this product? Again, through my limited research I could understand, you know, it's a difficult business to do and also at the same time has a very strong EBITDA margins. Can you throw some light how should I look at this business and, from your plan for the next two, three years perspective, how do you plan to scale this up?
As far as the controlled substances is concerned, it is an in U.S. for U.S. strategy for us. We have launched four products in controlled substances. One of the important things you should know is that it's a very stringent regulatory process. First is you have to apply-
Yeah
For quota, that's the first step. Once you get a quota For getting a quota, you have to demonstrate your past history. In the sense like if you have been selling controlled substances in the past, the quota will be restricted to the way you sell, right? For a company which is entering newly into the controlled substances, it takes at least one to 1 .5 , two years to settle down and display that, you know, past history, right? Last year was the first year where we had a full year of controlled substances.
What we do is once we demonstrate the sale, we go back to the DEA again and apply for a additional quota because the government wants to be making sure that you are able to deliver what you take and based on which and if you are able to give that, give that, what to say, assurance, then you get more quota. That's how it works. And then we allow to apply, we allow to get the API, and then we allow to, you know, the PB allow to produce. You go to the commercial and then go back to the DEA again. This is the entire process.
With the controlled substances started somewhere in the year of 2024, 2025, the second half or the third quarter.
18 months or 19 months we have sold controlled substances. Last year was the first year we had a full year. We will go back to DEA with a request for additional quota, and that should drive the future growth for us.
Got it. Sir, on the profitability front, is it going to significantly influence our margin trajectory going forward, the 20% target?
Actually the profitability is more or less similar, okay? Depends on the product. I don't think so the profitability is going to change dramatically because of controlled substances. That's for sure.
Got it. In overall scheme of things, we should look at Strides as a operating leverage play going forward to improve the margin or it's going to be a mix of product mix as well?
I covered that in my speech. Like, our long-term aspiration is to get to an EBITDA upwards of 20% and also staying 50% to 68% to 60% in a gross margin range.
That's what we've been working internally, and we have been working relentlessly on various line items to get there.
Sorry to interrupt.
Thank you.
We will request Mr. Shah to.
Thank you.
Thank you. The next question is from the line of Rudraksh Raheja from ithought Financial Consulting . Please go ahead.
The opportunity, sir. I hope I'm audible.
Yes.
Thank you. Sir, in nasal spray you mentioned that it's a $600 million-$700 million market opportunity-wise, and we are planning to launch three products this year. How much of that market are we tapping in the first year?
I think, means, I did not refer anything on the INR 600 million and INR 700 million.
Where did you get these numbers from, Rudraksh?
I think in some previous calls or communicate.
No, I don't think so. We have not communicated. We have stayed completely to the same theme in the last two, three quarters. I don't think so we have, you know, communicated in any forum, at least I, as far as I remember in the recent past.
Okay. Sir, is it possible to disclose what kind of market size are we trying to target?
No, no. See, we have given the overall guidance, the overall outlook, how we are looking at the business for the next two years, right? We have to stay with that.
Are you talking about specifically controlled substance, is it?
Yeah, nasal spray market, sir, specifically.
The nasal spray.
We are not specifically-
Yeah.
This is the beyond FY 2025 strategy for us. The market has to form. We have just filed the one product last year. We have filed one more this year. We are building a capability, capabilities in our Chestnut Ridge plant. At least it is another 12 months away from commercialization. Once we get a better clarity, we'll come back to you.
FY 2028 is when you'll see the impact of this?
Yeah.
Understood, sir. Understood. Sir, would it be possible to disclose your capacity utilization across our different manufacturing plants?
Yes. We have got enough capacities to cover the next two years' volumes. We have been driving operational efficiencies. It's always good to have some spare capacity because to meet any emergencies. We have been operating at a fair level, typical of any pharma company, which will operate in this space. All I can say is that we don't need additional too much capacities for us in the next one or two years, excepting for the incremental CapEx, which will give us the incremental growth.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, we request you to please limit your question to two per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Prolin Nandu from Edelweiss Public Alternatives. Please go ahead.
Yeah. Hi, team. Thank you for taking my question. Badree, just wanted to understand a little bit more on the U.S. business, right? The, you know, the $70 million run rate, right? I mean, one of the things that I want to double-click on was that, you know, apart from the controlled substances launches which were delayed because of the reasons that you explained, were there any other launches which were also delayed? Was competition the reason there? You know, because you mentioned, you know, you had some plans to launch, but you did not. Was that comment specifically for controlled substances, or was it for outside the controlled substances as well?
A question related to that would be, what are you expecting in next two quarters for you to You know, you say that, you know, the recovery or growth will start happening in H2. Why would Q1, Q2 will still be, you know, on a weaker side, right? What are the reasons that, you know, that you are seeing in the next two quarters for you to say that the growth will start happening only in, you know, H2 of FY 2027? That's my first question.
Yeah. What I want to say here is I want to correct you here. Like, if you really see, my comment was not limited to controlled substances. That is number one. Second thing is we also have 150 products in our portfolio, right? Strides policy has been to, you know, the launch when the market actually gives an opportunity. We are not in a hurry to launch. There are host of products which are there, which are available for us to launch at any point of time, and that's what we will do. We'll wait for the market disruption to happen, be it a API or be it a new player coming, be it any player going out. That's been a practice because that helps us to maintain the overall company-level gross margins.
As far as your next two quarters is concerned, I am only saying that the full potential of the growth you will start to see from H2 onwards. It's not just that it's muted or it's not like that. There'll be definitely be a growth. We have to look at it from a long-term perspective. Some things take at least 16 - 18 months, or sorry, 18 - 24 months, to solve for, right? While the quarter on quarter there will be growth, the full potential of the growth with more launches, you will see the impact of it more in the H2 onwards.
That's clear, Badree. Thank you so much. The second question would be on the margins, right? On the controlled substance, right, you mentioned that they would be similar to our existing U.S. business. One would have thought that, you know, because this is more specialized, the margins would be higher, right? Where is that, you know, understanding wrong?
In that context, right, while right now you are seeing the convergence of non-U.S. and U.S. margins, but over the period of time, once controlled substance and nasal spray and some of the new products becomes a decent part of our U.S. revenue, don't you think that U.S. revenue are structurally, I mean, you know, pointing towards a higher than, you know, the company average or the non-U.S. part?
Yeah. As far as the controlled substances are concerned, I just want to say that it's an in U.S. for U.S. strategy. See, we have to understand that we are a very new entrant to controlled substances still, right? We have just had 1.5 years of experience. Last seven quarters we have been launching, right? We have been in the business of controlled substances. We have to see how it pans out because we, at the end of the day, our end goal is to improve the margins. And we all know that Gross margins are much higher compared to the company-level margins.
The good part is that once the history is established, we should be able to once we come to a reasonable size, our ability to do many things in that business becomes much more stronger. From a nasal spray perspective, it's just at least another one year away for us to launch. Our end goal is to, you know, to see how much we can gain market share at the time of launch. If you really see the overall context, the U.S. business has to be understood because we are also equally investing in R&D. That's also a very important factor you need to take into consideration. Overall, I think your observation is right.
The controlled substances will take its time to build that profitability and the operating leverage that we are looking for.
That's it from my side, Badree. Thank you. Thanks a lot, and all the very best.
Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital Private Limited. Please go ahead.
Yeah. Hi, sir, and thank you for giving the opportunity. Sir, first question is on this, you know, you described, the tangible and intangible investments to the tune of around INR 350+ crore . You know, what is the broad run rate, let's say, for the next two years in these two buckets?
Yeah. As far as the, you should, it will be around INR 300 crore, is what I think. Because with the tangible portion is almost coming to an end, from a factor. We need only the maintenance CapEx. There will also be some intangible asset, global rights, which we may acquire to, you know, fast-track the growth. I think it should be about INR 300 crores, is what I think.
Okay. Understood. Secondly, sir, just, sorry to harp on this point again, the U.S. guidance for FY 2028 of now Earlier we were saying $400 million, now we are saying $375 million-$400 million. Is it a exit run rate sort of a guidance or is it what we want to achieve in FY 2028? Number one. Secondly, this translates broadly to 15%-20% CAGR from the current base. Does it look achievable in the context of the kind of growth we are seeing currently?
I just want to give you a perspective of this INR 400 million. This INR 400 million is there for the last two to three years, right? Of course, that we had a demerger of our software business. That's number one. We did not change this INR 400 million because we want to chase an aspiration, and we believe that we can be between INR 375 million-INR 400 million at this point of time, right? We are working towards it. What is more important is that while you harp on U.S. business, there is also another regulated markets which is also growing at a very healthy rate, and it is growing much faster than the U.S. market.
From our perspective, we look at the overall company and as a basket, and together we should be able to give the economic long-term results. That's the way I look at it.
Presently, this is a target for full year of FY 2028, right?
Yes, that is correct.
Yes.
We are not taking any exit run rate and all that. The reason why we are saying is that we have got another eight quarters to go. We want to try to reach as close to the INR 400 million as possible.
Understood, sir. Thank you and all the best.
Thank you. The next question is from the line of Sanjay Shah from ASK Securities. Please go ahead.
Yeah. Good evening, gentlemen. Thanks for opportunity. Badree, your opening remarks are really helpful to understand company, and congrats to Mr. Ramaraju . My question was regarding our top 37 products contribute around 75% of U.S. revenue. How vulnerable are these products? Can you highlight upon it, the pricing erosion, competition side and even customer concentration side?
One of the things I just want to highlight here is that, Sanjay, thanks for your question. As far as the 37 products is concerned, there is no, it's widely spread across the entire U.S. revenue. That's the first thing. There is no great customer concentration. Second, in terms of the pricing pressure, we have had marginal pricing pressures, but it has been offset by most of the other measures, like we have some COGS improvements, that's the reason we are able to keep a gross margin between that 58%-60% range.
In fact, if you really see the last three years, that disciplined approach has helped us to improve gross margins by more than 300 basis points, and as well as the EBITDA margins by almost 400 basis points when we started post OneSource, when you adjust for OneSource, 15% to almost about 19%. As far as the customer is concerned, I just want to say that we have got a very wide customer base. In fact, the big customers contribute almost, you know, the reasonable portion.
There are also a lot of many customers which contribute to give the portfolio great support, because these are the customers where you don't see price erosions much, and we are able to maintain it within a range. I think overall, to answer your question, the vulnerability is not there from a customer or a product perspective. Second thing is the objective has been to maintain the gross margins, and that is what we have done. Consistently, you can see all the eight quarters, we have demonstrated the gross margins between that 58%-60%, and we will continue to work on it to get to that range.
Great. We are investing heavily on complex generally like nasal sprays, transdermals and films. What are the execution capabilities still need to be built internally? What timeline can we expect before meaningful commercialization of the said products?
As far as the nasal spray is concerned, you see one of the strategic acquisitions we made many years back was with from Endo through a Chestnut Ridge facility. Today, that facility has got the capabilities to manufacture films, patches as well as Sorry, as far as the nasal sprays and not the patches and films. controlled substances. I repeat again, the Chestnut Ridge has got a capacity to manufacture nasal sprays and controlled substances. As far as the R&D is concerned, we have got a combination of the third party manufacturer as well as the in-house manufacturer. These all should contribute meaningfully beyond 28. That is FY 2028 and beyond. That's what we are expecting.
While one or two nasal products can be commercialized much earlier, which we believe we can, if everything goes right. You will see, you will see bulk of the revenues coming in 2028 and FY 2029, onwards.
That's great. Thank you very much. Very helpful, and congratulations to the team.
Thank you. Thank you, Sanjay.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Yeah. Thanks for taking the question. Badree, two things. One is, A, on the newer sort of growth engines you're talking about. You've talked about nasal sprays. They'll start to file a couple of them. They'll begin to contribute 2029. There are some other modalities that you mentioned in the presentations. Can you give us a little more color on what are the timelines for those modalities?
Yes. These are all, again, it is for 28 beyond. It's not going to contribute anything much to 28. We already started all the programs. It's all going in full swing. So we should start filing in next 18 months. Then it'll be beyond 28 for us.
In those, apart from nasal sprays, which is the second sort of, second one modality to probably start to become meaningful commercial for us?
patches and thin films. These are the two areas of domains that we have identified. We have already, the R&D is in full swing. We should be able to file for that in the next 12 months, 12-18 months. You know, commercialization later.
On the nasal sprays, apart from the three nasal controlled product nasal sprays that you guys mentioned earlier, what is the total pipeline that we probably are looking at, say, from a two, three-year filing perspective?
There are a few items we have added. There are some third-party programs. We have added at least another five or six of them. I don't know the exact number, definitely there is a portfolio that is being built on nasal spray domain because we are completely backward integrated in terms of Chestnut Ridge catering to those business.
These will be all controlled product nasal sprays?
Yeah. Controlled as well as other nasal sprays also. Right.
Okay. With all of this going on, how do you visualize the R&D spend going forward now?
The R&D spend will be, we said last year also that R&D spend is going to be higher. It will be upwards of INR 25 million, INR 20 million-INR 25 million for sure, in the coming two years. I, we believe that we have got the enough growth engines to invest on the R&D and also the in the scale-up of the business.
Thanks. Lastly, if you can second one, on the growth markets, if you can just, you know, let us know about how should we think about the Sandoz transaction, and the impact it makes for the growth markets and overall, you know, any update on how the growth markets businesses have sort of been doing? I mean, any positives to call out for the growth market growth for this year?
Yes. As far as the Sandoz transaction is concerned, it is expected to fructify in the second half of FY 2027. That is between October and March. The next year it should contribute meaningfully to the growth. The third thing is in terms of, you know, overall the branded portfolio will definitely, you know, technically double for us more than 1.5 times as with this portfolio. We think that over long term, we should be able to build a good brands portfolio as a part of the overall revenue of the company. It's growing quite well. So far in the last few quarters, we have grown faster than the market. Our brands was more related to the Francophone region, wherein we have done quite well.
With this Sandoz portfolio, we get a much more broader presence in South in in Africa. We think this will add very meaningfully to the margins because as you know, the brands have higher margins compared to generics.
Right. If we can have a last one, [Kish]. How should we think about the, this quarter's SG&A expense spike? Should the base analyze for when we model next year?
Yes, it will be in that range. It's because last quarter was a sudden increase in the freight cost, we are watching the geopolitical situation very closely. I covered it in the recent in my opening speech also. There has been increase in prices, we are working very closely with the customers, how much to pass on. We are working on multiple strategies to maintain the gross margins within that 58%-60% range. If we're able to do that, the operating leverage automatically plays out. Having said that, the logistics costs have increased. Maybe you can put some discounting factor on the Q4, maybe you should take that.
Thank you so much. Best of luck.
Thank you.
Thank you. The next question is from the line of Shilpa Saboo, an individual investor. Please go ahead.
Hello. Good evening. Good evening. Thanks, thanks for taking my question. I'll be asking on the behalf of Shilpa Saboo. I have a first question on the controlled substances. Sir, as discussed in previous con call, now we have completed one year in controlled substances. Are we eligible for higher quota allocation for U.S. market? If yes, then what is the revenue potential?
Yeah. We don't want to give a very specific revenue potential on controlled substances. All we can say is that this will be an engine of growth, and we have completed a full year. Because it's very difficult to commit, you know, without getting the quota, right? The It's a chicken and egg story. All we can say is that the last one year we have demonstrated whatever the quota we have received, we have been able to sell and we are able to demonstrate, and we'll go back to DEA. If there is anything additional quota, it will anyway get reflected in the growth as we go along.
Okay. Second question is on 505(b)(2). For 505(b)(2), we had around eight to nine product in pipeline. Will three to four be commercialized this year? What will be their market size?
We have not had any 505( b). As far as I'm, I don't think so it is there. Maybe, verify it and come back.
What will be the, like, market size?
No, no, we don't have.
Correct.
We don't have at all.
Okay. That's it. Sorry.
Thank you.
Thank you. The next question is on the line of [Vedant] from Bas Investment. Please go ahead.
Sir, I wanted to confirm that you mentioned that there will be a Q on Q growth. Like last year when you guided at the start of FY, right, sequentially Q on Q there will be a growth. This year also we can expect the same?
Yes, of course.
Sequentially there will be growth, right?
Yes.
this Q4 to Q1.
Last quarter, right, in Q4 we have grown at 11%. If you adjust for institutional business, we have grown at 14%.
Okay. Okay. Margins will also revise since you are saying.
I have clearly said that margins will be between that 18%-20% range. The end goal is to get to on a long-term margins of upwards of 20%.
The controlled substances you mentioned last, in last Q3 or some call that from Q1 also you will see some uptick. Are we online on that or it's still not decided until this quota?
We have got a past history to go back to DEA at this point of time. Once we go back and once we get an additional quota, and then if it gets into a commercial revenue, anyway it gets into the growth, right? That's what we are working on. We are very happy with what we have done in the last one year with the quota what we received. We have gone back to DEA on that.
You have already gone back, so result will be out in quarter. Result will be out in this quarter or next?
Yeah, it'll come any time soon. There's no specific timeline to this, but.
Okay.
We have gone back.
All right, sir. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to management for closing comments.
Thank you very much for all your questions. Should you require any more follow-ups, we are there available. The investor relations team along with me and Vikesh will be able to all clarify all the queries you have in near future. Thank you.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Strides Pharma Science Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.