Ladies and gentlemen, good day and welcome to Strides Pharma Science Limited Q2 FY 2027 earnings conference all. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note, this conference is being recorded. I now hand the conference over to Mr. Abhishek. Thank you, and over to you, sir.
Thank you, Nazli. Very good morning, and thank you for joining us today for Strides earnings call for the second quarter and half year ended September 2026. Today, we have with us Badree, Managing Director and Group CEO, and Vikesh, Group CFO, to share the highlights of business and financials for the quarter. I hope you have gone through our results release and 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, today's discussion will 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 relation team. I now hand over the call to Mr. Badree to make his opening comments.
Thank you, Abhishek. Good morning, good afternoon, and good evening, everyone, and a warm welcome to the Strides Q2 and H1 FY 2027 earnings call. Thank you for joining us and for the trust and support so many of you have shown us over the years. As always, I will begin with the overview of the quarter, and I will share an update of our overall FY 2028 aspiration, followed by our U.S. and ex-U.S. business. Vikesh will then take you through the financial performance in greater detail, after which we will be happy to take your questions. Q2 FY 2027 has been a quarter of firsts for Strides.
We delivered our highest quarterly revenue, and for the first time in our history, our ex-U.S. business became larger than our U.S. business, a milestone we had set for FY 2028, and I have reached well ahead of the schedule. Let me share the headline first. Our overall FY 2028 growth aspiration remains intact. Our rest of the business is accelerating faster than the U.S. and well ahead of the schedule. Let me say that again. Our overall revenue ambition for FY 2028 is firmly in place. What will change is the regional mix, with ex-U.S. accelerating more than the U.S. Our goal for ex-U.S. was to match the U.S. by FY 2028, and we have achieved that in the Q2 of FY 2027 itself.
As we highlighted last quarter, we expect H2 to be stronger than H1. On the Q2 FY 2027 performance, I will cover the broad highlights. With this, let me take you through the quarter, and I am delighted to report a strong second quarter. Revenue for Q2 FY 2027 reached INR 14,297,000,000 , our highest ever, growing at 17% year-on-year and 13% quarter-on-quarter, led by our ex-U.S. business and delivered against a challenging macro backdrop. Ex-U.S. now contributes 49% of our revenues, up from 43% in Q2 of last year, a clear sign that our diversification strategy is delivering.
Absolute gross margins grew a healthy 13% year-on-year to INR 8,003,000,000 , and gross margins stood at 56% compared to 57.8% in Q2 last year, and 60.9% in Q1 this year, reflecting a higher input cost linked to the geopolitical situation. EBITDA grew 8% year-on-year to INR 2,509 ,000,000 crossing the INR 2,500,000,000 mark in a single quarter for the first time, another milestone for Strides. EBITDA margin was 17.6% compared to 19% in Q2 last year and 18.2% in Q1, as we absorbed the high material, freight, and logistics costs linked to the same geopolitical situation.
We are actively addressing these cost pressures through an alternative sourcing, procurement initiatives, and continuous cost optimization measures across the business, and we are confident in our ability to manage them. Operational PAT grew a strong 12% year-on-year to INR 1,358 ,000,000, and an operational EPS rose to INR 14,700,000 from 13.2 in Q2 of last year. Before I move to our individual businesses, let me step back and share an update on our FY 2028 aspiration, which many of you will have already seen in our presentation. Let me begin with our track record, because I think it tells our story better than any words I could use.
Over the last 10 quarters, since the Q1 FY 2025, we have delivered a steady and predictable growth across key metrics. Revenue has compounded at about 14% and EBITDA at about 13%, and operational PAT at about 41%. The consistency gives us a real confidence as we enter the next phase of our growth. We had shared an aspiration of about $375,000,000 in U.S. r egional revenue by FY 2028. Given how the market has evolved, we now expect to reach this a little beyond FY 2028. The timing has moved, the ambition has not. Importantly, our growth ambition for the rest of the company remains fully intact. Our ex-U.S. market is accelerating well ahead of the plan, and we expect Strides to sustain the overall top-line growth along with its profitability.
On the U.S., the only thing that has moved is the timeline. The business continues to grow at a more measured pace, and the reasons lie in the market rather than in our commitment. A few things have changed since we set this aspiration. First, the drug shortage opportunities in oral solids, which lifted the industry at that time, have largely normalized. Secondly, operating costs are higher with increased material costs and our decision to hold more inventory to sustain our industry-leading service levels. We also chose not to launch products that did not meet our margin profile to protect the profitability and t hird, the growth in controlled substances is constrained by quota allocation, which we expect to improve progressively.
Our response is rooted in our core business philosophy and rests on three pillars. First, the profitability-led growth. We will protect our established profitability thresholds and drive margin-accretive revenues through selective launches and an expanding set of differentiated platforms. We will not compromise on the profitability or the quality of our business to chase revenue. Second, rebalancing our growth engines with a sharpened focus on the ex-U.S. to drive geographical diversification and accelerate overall growth.
And third, the U.S. remains a strategic growth market for us, with growth anchored in differentiated platforms such as nasal sprays, patches, films, and a steady, expanding controlled substance portfolio. While our U.S. business has remained an anchor for us, the ex-U.S. business has grown up right alongside it. This is where we are seeing a real acceleration. Our ex-U.S. business grew 24% in H1 FY 2027. Our goal for ex-U.S. revenue to match the U.S. by FY 2028. The ex-U.S. was 76% of the U.S. business in FY 2025, 90% in FY 2026, and in Q2 FY 2027, it reached 102%, crossing the U.S. well ahead of the schedule. That is a strategy patiently pursued for years and coming to life.
Ex-U.S. now stands equal with the U.S., not instead of it, but alongside it, and that makes Strides stronger as a whole. With growing scale, operating leverage, and a better portfolio mix, we expect the continued margin expansion in the business. As a result, we now have two strong growth engines, both pointing in the same direction. Our U.S. business is our foundation, with deep market leadership, a broad approved portfolio, and a growing pipeline of differentiated and controlled substance products. Our ex-U.S. business is our accelerator, with a strong presence across Europe, U.K., Nordics, Africa, a robust launch engine, and a long runway into new territories.
Both are powered by the same discipline, a deep pipeline, steady launches, and a relentless focus on serving our customers. These two engines do not compete. They strengthen each other. They give us more ways to grow and make us more diversified and resilient. With that, let me take you through our U.S. business. Revenue for Q2 stood at $ 6,855 ,000,000 or $73 ,000,000 growing 9% year-on-year and 9% quarter-on-quarter. For H1, the U.S. revenue was INR 13,137 ,000,000 up 7% year-on-year. As we indicated in our last call, we expected a softer first half, and I am encouraged by the healthy sequential recovery we delivered this quarter.
Our B2B partner business saw a strong order book, and we secured meaningful new business wins during the year from a partner product, our recent launches, and other key molecules in our portfolio. These wins will begin to show up in our performance over the coming quarters and underpin the better H2 we have been talking about. We continue to deliver industry-leading service levels to all our customers. This is a real competitive advantage, and it is central to winning and retaining business with some of the largest customers and partners in the market. Our portfolio gives us a strong foundation.
As of October 26, we have filed 230 ANDAs, out of which 212 have been approved, covering 154 products. We also have a basket of ANDAs yet to be launched, and we will commercialize these at an opportune time. During the quarter, we launched three products, taking our commercial portfolio to 75 products, up from 72 at the end of Q1. We now hold top three positions in 38 products, which together contribute approximately 70% of our revenues. As I mentioned earlier, our U.S. portfolio is steadily shifting towards higher-margin differentiated products. We have more than 40 value-accretive products in our active pipeline, with filings and approvals planned in a phased manner and commercialization through FY 2030.
Controlled substances is a key part of the strategy, and we see a much larger opportunity ahead. Our CS business saw higher customer orders in Q2, and today, our five commercialized CS products, all oral solid tablets, contribute to 6% of our revenues and address a market of around INR 750,000,000 . While this portfolio is constrained by quota allocation, we have more than 10 CS products in our pipeline across multiple domains, including nasal sprays, patches, films, which will expand our addressable market size to around INR 4,500,000,000 about six times the market we serve today. Importantly, these niche products need only limited API quota, so they can drive the ramp-up of this business even within today's allocations.
We also hold an advantage that takes years to build. Regulators require these products to be manufactured in the U.S., and our Chestnut Ridge facility already has the capacity and expertise to do exactly that. Beyond the controlled substances, we have more than 25 non-CS products to strengthen our core portfolio. Together, these products are set to broaden our addressable market, deepen our portfolio differentiation, and create exciting medium to long-term growth opportunities. Our near-term milestones are already in sight. We continue to invest in building our nasal spray portfolio, and as committed in our last call, we filed our third nasal spray, also a controlled substance, in September 2026.
Our nasal spray has GDUFA goal date in H2 FY2027, and we expect approval in Q4. In transdermal patches, we expect to launch a controlled substance patch in Q3. This product came to us as a part of the ANDAs we acquired, and we expect its full benefit to flow into FY 2028. Overall, we expect a better H2 for the U.S. business. We are committed, we are invested, and we are building for the long term, growing in a disciplined way that protects the quality of our earnings.
Moving to the ex-U.S. markets, our accelerator, the most exciting part of our story, the ex-U.S. market for Q2 reached INR 6,963 ,000,000 an outstanding 31% growth year-on-year. For H1, the revenue was INR 12,838 ,000,000 up 24% year-on-year. Importantly, even as ex-U.S. markets grew faster than the company average, we maintained the profitability of this business. What encourages me most is how broad the growth is. Every ex-U.S. market continues to show healthy momentum, driven by new product launches and expansion of our core base into new geographies and with new partners.
In Q1, we had said that certain shipment delays were a matter of timing and not demand. I am pleased to say that with a robust supply chain execution, we delivered Q2 without any spillovers on demand, and order books across our key U.S. markets have remained very healthy. In the U.K., our prescription business delivered a strong performance with healthy pricing, volume momentum across several key molecules. We continue to deepen our relationship with the leading wholesalers in the market, positioning us as a dependable supply partner.
We expect our launch momentum to pick up here and drive the next leg of growth. In Europe, our partnered business delivered a strong performance on the back of higher customer uptake. Our private label business, OTC business in Germany, continues to grow strongly with wider pharmacy reach and an expanding product portfolio. We are adding new customers across several countries and multiple new out-licensing deals we signed in the first half, which will further strengthen our momentum. Focused R&D investments and a broader customer base will continue to fuel growth in that region.
The Nordics delivered a strong quarter-on-quarter growth led by a base portfolio. Our branded prescription business is showing very encouraging early signs in market uptake, with some of our branded products now positioned as first-line treatment across several regions in Denmark, and more regions expected to follow. Together with the increasing launch momentum, our branded portfolio is expanded to drive growth in the Nordics in the second half. In Australia, the supply contract improved meaningfully, and we have agreed on new projects with our key partners, which are now at various stages of implementation.
In Africa, our branded business in Francophone Africa delivered a stellar growth, and we continue to outpace the underlying market. Our deal with Sandoz is now awaiting antitrust approvals in few countries, and we expect it to close in Q3. In South Africa, we saw a strong momentum in the independent pharmacy channel and added new products and new business with a leading retail pharmacy chain. Overall, the strong launch pipeline and an expanding customer base and a significant regulatory filings is underway across all our territories. We expect the full ex-U.S. business to keep growing faster than the company average.
Before I close, I am delighted to share an important governance update. We are pleased to welcome Mr. Biren Gabhawala to our Board as an Independent Director. Biren is a chartered accountant with more than three decades of experience in financial reporting, audit, taxation, and corporate governance, and chaired the audit committee of eClerx Services and 3M India. His appointment will further strengthen the Board's financial oversight, and with it, independent directors is now to make up six of our 10 directors. Biren, welcome to Strides.
Before I hand over to Vikesh, let me leave you with one clear message. Our overall growth story is intact. While our U.S. aspiration will take a little longer, our focus on growth is unchanged. We will continue to pursue top-line growth across geographies without compromising on profitability. Our commitment to U.S. is equally unchanged. It remains a core market, central pillar of our growth, and a home to some of the most exciting opportunities in our pipeline. Our U.S. business is strong, our ex-U.S. business is accelerating, and together, they give us more ways to grow than at any point of time in our history. With that, I will hand it over to Vikesh to take you through the financial performance. Vikesh, over to you.
Thank you, Badree. Good morning, good afternoon, and good evening, and thank you all for joining us. Badree has taken us through the headline performance for the quarter. I will focus on the drivers behind our profitability, cash flows, and balance sheet metrics. Starting with gross margins, our material costs rose to 44% of revenues in Q2 from 42.2% last year, reflecting the increase in raw material costs that Badree described. This moderated our gross margins to 56% for Q2. Importantly, for the first half, gross margins stood at a healthy 58.3%.
Our ex-U.S. businesses, where we have maintained profitability even as it scaled, continues to support the quality of our margins. With cost increases now moderating and our cost improvement programs, including alternate sourcing and procurement initiatives gaining traction, we are confident of sustaining our H1 gross margins going forward. Even in this challenging environment, we remain committed to our margin discipline, launching only products that meet our profitability threshold and continuing to focus on the quality of our revenue growth.
Our EBITDA for the quarter was INR 251 crore, our highest ever, at a margin of 17.6%. Higher material, freight, and supply chain costs linked to the geopolitical situation compressed our margins and tempered the flow-through of our very strong revenue growth, but it did not hold back the growth in our absolute profitability. With the two growth engines, U.S. and ex-U.S., now contributing in balance, our earnings base is more diversified and resilient than ever before.
On operating costs, other operating costs, excluding freight, increased by INR 47 crore year-on-year due to higher manufacturing and other operating costs in manufacturing, and freight costs increased INR 21 crore year-on-year to 5.5% of revenues. Even with these cost increases, operating leverage is still visible as total operating costs improved by 40 basis points to 38.4% of revenues. In terms of cost line items below EBITDA, our depreciation and amortization was at INR 57 crore for the quarter, and net finance cost was at INR 43 crore, slightly higher due to the higher average working capital borrowings we had during the quarter.
Operational PAT grew a healthy 11.5% year-on-year to INR 136 crore, with an operational EPS of INR 14.7 per share. And our EBITDA to operational PAT conversion remains steady at 54%. Our reported PAT at INR 134 crore for the quarter, with a reported EPS of INR 14.2 per share. From a H1 perspective, the first half delivered steady growth across all our key metrics. H1 FY 2027 revenues grew 15.1% to INR 2,695 crore. EBITDA grew 6.9% to INR 481 crore, with a 17.8% EBITDA margin.
Operational PAT grew 9.8% to INR 259 crore, with operational EPS of INR 28.1 per share. Reported PAT for the first half was at INR 300 crore, which was up 26.4%, and this included the gain on Pivot Path divestment, which we recognized in Q1. Moving to working capital, our cash-to-cash cycle stood at 137 days. This is up 13 days from March 2026, with absolute working capital increasing by INR 307 crore during the first half. This reflects two components: investment in inventory to counter the elongated supply chain timelines, and the working capital which supported our growth.
Approximately INR 174 crore reflects the 14 days increase which we have seen in our inventory levels from Q4. This has been due to the higher transit and lead times due to the geopolitical situation, and we also had a deliberate increase in our finished goods inventories at all our front-end locations. This has helped us get back to the industry-leading service levels in a tough operating environment. These service levels have been central to the new business wins we secured in the U.S. in this quarter, and also delivering growth on our ex-U.S. markets. The remaining INR 133 crore increase in working capital is on account of the 15% revenue growth we achieved in H1.
We remain steadfast in our efforts to continuously improve our cash-to-cash cycle and get them back to our historic levels. On net debt, as we had earlier indicated, the inventory build-up, over the last two quarters was expected to lift our net debt-to-EBITDA ratio temporarily. The ratio now stands at 1.72x, reflecting the INR 211 crore increase in net debt during H1, driven by working capital. At the same time, we continue to invest in our future, deploying INR 208 crore in CapEx and intangibles to support our growth platforms, including our nasal spray and transdermal patch programs. These investments are directed at the differentiated pipeline Badree outlined, including our controlled substances opportunity, which will broaden our addressable market and support margin accretive growth.
As inventory normalizes and H2 launches and business wins begins to contribute, we remain focused on growth and improving our cash-to-cash cycle. With this, we expect our net debt-to-EBITDA ratio to stabilize and improve by the end of the year. This net debt is not adjusted for the retained investment we hold in OneSource, which is now valued at approximately INR 290 crore. On ROCE, our trailing 12-month ROCE was at 14.4%, remaining in the 14%-15% range. As our growth continues and recent investments mature, we expect these returns to improve.
To summarize, Q2 delivered record revenues and EBITDA in a challenging cost environment, and the first half saw steady growth across all our key metrics, with both our U.S. and ex-U.S. business contributing in tandem. As we enter the second half, our priorities are clear: build on our growth momentum across these markets, preserve our gross margins, improve our cash-to-cash cycle, and strengthen our net debt-to-EBITDA ratio. With the overall growth aspiration for FY 2028 being intact and operating leverage playing out, we continue to maintain that bottom line should accelerate ahead of top line. We are confident in the strength of our business and in our ability to deliver on these priorities. Thank you, and we are now happy to take your questions.
Nazli, we open for Q&A, please.
Yes, sir. 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 their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use 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 Nitin Agarwal from DAM Capital. Please go ahead.
Thanks for taking my question. Badree, you already talked about in opening comments around the pickup which is happening in the non-U.S. markets. But two things. One is, A, if you can just give us a sense on what is leading to this improved momentum in the non-U.S. markets. And two, what kind of growth is possible in these markets over the next two to three years period, especially with the, taking into account the Sandoz transaction which we have closed, as you said, sometime this year?
Yeah. As far as the non-U.S. market is concerned, this is a market we are invested for a very long period of time. The portfolio expansion in the new territories drives these markets. There are B2C markets, there are B2B markets, and we see an increased demand. And we believe that these are the main two reasons where we really feel that this market can expand. We have got a portfolio in place, products in place. Regulatory is very minimal from that standpoint for the commercial revenue a nd we are also investing in domains which are in these markets. And overall, I think it's all adding up quite well. That's the first part.
As far as the growth in this market, we'll continue to grow at a much above than the company average on all of these markets. On the higher side, we always said that this market will grow faster than the U.S. market in the last few conversations and w e think that trend will continue, and this trend is bound to continue for the near long term. With Sandoz adding in, it will definitely lead to a very, very meaningful size in the next one or two years. We are very sure of mirroring the U.S. market in terms of the aspiration. That was an aspiration which we kept about two years back from INR 375 million perspective. With the latest trends that is coming in the non-U.S. markets, it should be upwards of that.
It should be upwards of INR 375 million, INR 28 million is what you meant, if I got it right?
That's correct.
The growth in these markets, is it driven by some specific products, or this is like a broad-based product portfolio which is driving it?
It's a broad-based portfolio. As I said, there are B2C markets, B2B markets. I think the good part is it's very sticky, it's very consistent. So once you reach a particular size, the stickiness will be much, much more. Our product strategy has played out in all of these markets and B2C markets, in fact, a lot of markets are in different stages of evolution and t hat is what is driving the growth. Some markets are less than INR 25 million, INR 30 million, where the growth rates can be much higher. Some markets are upwards of INR 50 million, where the growth rates can be maybe in the mid-teens. So, that's what is driving the entire growth. It's a broad-based growth and w e are happy with the progress, what we have achieved on the ex-U.S. markets.
But on the profitability front, how do these markets compare versus the U.S. as a block?
It should be slightly higher than the company average in terms of the EBITDA, because it depends on the B2B as well as the B2C markets. Overall, I think the gross margins and the EBITDA are good in these markets.
Okay. Secondly, on the U.S., you talked about things sort of catching up with a bit of a lag, and the focus being more on some of these differentiated products. So, when do you see the meaningful contribution from these new differentiated products begin to deliver?
It will be in FY 2028/FY 2029, for sure. That's what we are aiming for. It's only a slight delay by about three, four quarters, and we should be able to get to that milestone by FY 2029.
Okay. Thank you so much.
Thank you.
Thank you. Next question is from the line of Pranav from JM AMC. Please go ahead.
Hi, good morning, sir. Am I audible?
Yes, you are audible.
First question is on gross margins. So we have seen a sequential gross margin slip, and you are alluding that second half gross margin would be a tad bit better. What gives you the confidence? Has anything particularly changed over here vis-à-vis second quarter?
Yeah, Vikesh, you would like to take it up?
Yep. So, from a quarter perspective, a lot of the purchases that if you would see which came in Q4 at the height of the geopolitical disruptions, those did get consumed in this quarter a nd we have also had a lot of cost initiatives that we had already put in place when the geopolitical disruptions happened a nd those have started playing out. We see them internally, and that is what we expect. It should start to play out from H2 as well, and which is why we are confident that the margins at 58% are sustainable.
Just extending over here, so do you think Q3 will be better than Q2 and Q4 better than Q3? Do you expect a sequential improvement or a sharp bump up in the fourth quarter or something?
The way I would say is our focus remains on EBITDA and PAT, and that is what we will continue to focus on. We have grown our focus over the last many quarters has been to drive sequential growth, and we will continue to focus on that. So, when you look at a longer-term trajectory, you will see us growing quarter on quarter.
Okay. Second, on the guidance front that we have deferred to FY 2028, does your guidance hinge on, say, a particular set of products? If yes, can you call out the products?
First of all, it was not a guidance. What we mentioned was an aspiration.
Aspiration, sir. Yeah, aspiration. That is what you just corrected.
It was an aspiration for us to get to FY 2028, so that is what we were chasing. With the geopolitical disruptions that have happened over the last few quarters and the fact that the shortages are no longer as much in the U.S. in the product portfolio that we operate in, and we did not want to launch products compromising our fabric of profitability discipline. That is the reason we felt that it is better to protect the quality of margins and focus on profitability, drive the profitability and EPS margin accretion that we have been known for the last many quarters and t hat is what we remain focused on.
Okay. On that aspiration front, does your aspiration hinge on a particular product or particular market opportunity?
It does not hinge.
Or it is broad-based?
It does not hinge on a particular product. It is more broad-based, and we also spoke about the portfolio that we are building out, which will start to play out from FY 2029.
Got it. Sir, what gives you the confidence that your quota allocation for controlled substances will improve in the coming year?
In fact, when you look at the last couple of years, we have seen progressive improvement in the quota allocations that we have received. Quota allocations happen twice a year, and every time we have gone back with quota allocations with the history of our sales and the improvement in our sales, we have been able to get improved quota, which is effectively what is reflecting in the business today, which has grown from 0%- 6% in the last couple of years. It is a very different model than the regular retail products where you can get to a 20%, 30% market share overnight.
This takes time, but then once you are in there, it remains sticky. What we are also doing is having learned from this, we are building a portfolio around this entire controlled substances space. Plus the new products that we are building, they need very limited API quota. That would also give us an ability to ramp up much faster than the ramp-up that we have had over the last couple of years on the existing portfolio.
Got it. Perfect. Thank you so much, sir, for answering my questions. Have a good day.
Thank you. A reminder to all the participants, anyone who wishes to ask a question may press star and one on their touchtone telephone. Next question is from the line of Akshaya Shinde from Centrum Broking. Please go ahead.
Yes, thank you for the opportunity. The ex-U.S. revenue has surpassed the U.S. business. How should we look at the change in geographical mix from the margin perspective? Does the higher contribution from ex-U.S. market have a structural impact on gross margin going ahead?
Yeah, as far as the overall gross margin is concerned, Vikesh highlighted that we will be in the range of 58%-60%. We will continue to maintain that range. As far as the ex-U.S. markets are concerned, there are different types of markets, B2B markets, B2C markets, at various levels of profitability and w e believe that overall, every market will be healthy in terms of margins, and we will be within the range at the company level.
Understood. As the company is now maintaining higher inventory to navigate the in-place supply chain, so should we expect that working capital requirements to remain elevated, or do you see the cash conversion cycle improving over the next few quarters?
Yeah, cash conversion cycle definitely will improve in the coming quarters, but a s we know that last six months has been difficult for every company operating in this space, with the lead times increasing for the raw materials, plus the key starting materials. The main objective of most of the companies, including all of us, is to maintain the business continuity and keep the growth intact and t hat's the reason we have increased the inventory levels. We believe that it will form a new normal in some point of time but w hat you're seeing is slightly at an elongated level at this point of time, but this will all moderate as we go along and we complete this year. We believe that the cash cycle engine should be back in the next quarter itself.
Okay. Sir, lastly on the interest cost. So given the higher working capital borrowings and the resulting increase in interest cost during the quarter, should we expect this finance cost to remain elevated for the H2 FY 2027 as well?
It will be within a range between that INR 40 crore- INR 45 crore. It can be within that range and I think this quarter was about INR 46 crore, I think, if I remember right.
INR 43 crore.
INR 43 crore, yeah. It'll be between that INR 40 crore- INR 45 crore range.
Okay, understood. Thanks, that is it from my side, and all the best.
Thank you.
Thank you. Next question is from the line of Karan Shah from GC. Please go ahead.
Hi, thank you for the opportunity. There are two questions. I guess we alluded on the first quarter call that there was some deferment in revenues in the ex-U.S. business, so w ould it be possible to quantify how much could have been the flow-through to the second quarter?
Yeah, so the flow-through has been. See, we have said, I think there is a slight. I need to give you more clarity on this. Between the Q2- Q1, okay, there have been certain supply issues. All that has been sorted out, and that's what is being reflected in the growth. And if you really see, it is a very sticky business, and we have sorted out for all the revenue recognition issues, whatever we had because of the long lead times, because of which we could not reach the products on time. That has all been normalized, and it's back to growth.
Can this be considered as a new run rate ex of Sandoz?
Yes.
Got it. And sir, second question on CapEx. Any guidance for FY 2027 and 2028? What would be our CapEx?
Vikesh, would you like to take that up?
Yeah, I mean, it should be around the INR 300 crore mark. I mean, if you look at our spends have reduced from Q1 into Q2, and we expect it to be more closer around the INR 300 crore mark by the end of the year.
And the same thing for FY 2028?
Yeah. FY 2028 can be slightly lower.
And a lot would go toward the intangibles, because I don't think we'll be requiring much apart from maintenance.
There is maintenance CapEx that continues, so it will be maintenance CapEx and then some parts to intangibles, yeah.
Thank you for the opportunity.
Thank you. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. Next question is from the line of Pratik from Unique PMS. Please go ahead.
Hi, good evening and thank you. The first half we see about INR 265 crore of CapEx as per our cash flow. Does this include the IP purchases? Does it flow through here?
Yeah. The difference between the INR 200 crore and the INR 260 crore is the INR 60 crore of payments were for all the investments that were done last year. The cash flows went out in the first half.
Okay. But this INR 200 crore, does it include IP purchase or this is
Yeah, this includes IP purchase as well. This includes IP purchase as well as the investments that we are doing in nasal sprays and patches.
Correct. Even last year, we had done a few IP purchase, a few external R&D partnerships. So all of that, when does that start contributing? Strides, I believe we will get to, but the rest, when does that come in?
Some of them are for our global markets, and they are playing out as far as the ex-U.S. is concerned. Some of the specifics for U.S. will come through. In fact, we are going to launch our first patch later this year, which was an acquired IP last year, so some of these will start to flow through as far as the U.S. is concerned over the next 18 months or so, b ut as far as ex-U.S. is concerned, it is already playing out.
Correct. Fair. And so effectively in the last six, eight quarters, we have kind of upped our investments, be it CapEx, IP purchases, acquisitions, the R&D programs and t hat has kind of kept our debt levels in a ballpark range. We earlier had some aspiration of being debt-free or net debt-free in a certain time. So has that changed? Are we pushing that out? I mean, are we now choosing to invest more rather than pay down debt, and maybe we are at comfortable levels? So FY 2028 or 2029, I think used to be our earlier guidance or aspiration.
Yeah. So that aspiration has not changed. If you really look at the increase in debt level, it has been largely working capital-driven than CapEx-driven, right? The increase in our working capital in the first half has been about INR 300 crore, and almost INR 170 crore of it was on account of the geopolitical disruptions, which was more like a one-off. Surely, this is not a permanent thing. Our aspiration remains, our growth on a consolidated basis is intact. While the mix between U.S. and ex-U.S. has changed, on a consolidated basis, it is intact, and that will reflect in our cash flows and debt and it will largely remain working capital debt as we get to 2029.
Correct. But this debt-free plan that we had included working capital debt, right? O r was that ex of that?
Yeah. I mean, if you run the cash flows, you will get to that answer, right?
No, the—
Because—
So as a specialist in last?
Yes. See, effectively what you are seeing, the increase, if you see over the last four or five quarters, our debt have consistently reduced every quarter, right? This is the first quarter where you're seeing a debt increase. That debt increase has largely got to do with the working capital. So, if you adjust for that one-off, you will start to see the cash flow, and the cash flow that we deliver will continue over the next many quarters as growth continues.
Correct. Fair. And last, again, in this cash flow statement, we see INR 70 crore of some inventory obsolescence costs that you have charged to P&L. Anything on that?
There is nothing specific as that. I mean, some of those are elements of the businesses that we operate in. I think on an overall basis, it is about 1%-2% of COGS.
No, so INR 70 crore, right, for H1?
Because it is not, I mean, it is a movement of provision. It is more from a reporting requirement that has been called out separately. So, it is a cumulative number.
That passes through cash flow statement?
The corresponding adjustment is in the inventory line, in the inventory movement. So earlier, historically, that inventory movement was net. Now it has been grossed up for that line. I think it is more a presentation change.
Oh, is it? Okay.
Yeah.
Great. Thank you. All the best. Thank you.
Thank you. Participants, you may press star and one on your touch-tone telephone to ask a question. Next question is from the line of Kusum Agarwal, an individual investor. Please go ahead.
Hello, sir. My question was regarding the visibility of H2 U.S. launches. The deck says that H2 will be stronger because of new launches. I just wanted to get clarity on how many approvals and launches do we expect in the second half of financial year?
Vikesh, you want to pick it up?
Yes. So we expect to launch four to six products, but more importantly, the products that we already launched will also see revenues in H2, and therefore, we expect our H2 to be stronger than H1. The H2 launches to flow into FY 2028, right? Where we will have a full year benefit for FY 2028.
Okay, sir. That answers my question. Thank you so much.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Jay from Equitas. Please go ahead.
Hi, Vikesh. Hi, Badree. I just wanted to check, our U.S. business on dollar terms has actually been flat this quarter. So is it that we're seeing a lot of price erosion, or is it that we have discontinued few products because of margin requirements? So what is the reason for the revenue being flat year-on-year?
See, from a revenue perspective, while on a dollar term, it is flat, it has got to do more with the mix of products, and two is the pricing in the market also gets adjusted to the currency depreciation that happens with the competitive forces because, as you know, in the U.S. market, the customers constantly want the best pricing. So that does get adjusted, and which is where we remain focused on delivering the gross margin and having the pricing discipline and the profitability threshold as a framework as we run our P&Ls.
It's mostly price erosion, right? That is being offset by our probably new launches?
The cost improvement plans that we put in place.
Yeah, but that will be on the bottom line. I am talking of the top line pick.
Right.
So INR 73 million or so, INR 73 million. So we are basically fighting off price erosion with new launches. That is it, right?
It will not be price erosion. It will also be some volume also that we give up, right? So it is a combination of both. So, it may not be as much price erosion.
Okay. Got it. And, somewhere in the PPT, you mentioned that we are seeing that the drug shortages have normalized. Do you think that is or do you think those shortages could?
Jay, we lost you a bit. We cannot hear you well. Can you please repeat your question?
Yeah. So I just wanted to check, in the PPT, we mentioned that the drug shortage opportunities have largely been dissipated. So are we expecting that to remain like that, or do you see that shortages could come back when price erosions occur?
Oh, I mean, see, that would be more tactical at this point of time, and which is where we are building a more strategic portfolio orientation. And as far as the shortages are concerned, supply levels across the industry have significantly improved over the last couple of years. The number of regulatory approvals have improved, and which is effectively what has led is very minimal shortages across most of the oral products that are there. I mean, the shortages that we see are either in injectables or in patches that continue to have shortages. So at this point, we are more focused on building that portfolio that can carry us and give more predictability of our growth.
Got it. That is it. And quickly on the controlled substance front. So when we say, whenever we are going back to the regulator and asking for a higher quota, and we have always got it, so that additional volume that you are getting, because the market is taking my share from other players in the market here.
Your voice is breaking out.
Can you hear me now?
Yes, we can.
Hello?
Yes.
Yeah.
Yes.
Quickly on the controlled substance, when we say that whenever we go to the regulator twice a year and we get higher quotas, is it that the market is expanding, or do you think that has got to do more with market share gains from other players in the market?
It has got to do more with market share gains in the market that we have had.
Got it. Thank you. Just lastly, quickly on the LATAM front, just wanted to understand how do you view LATAM? Do you think it could be meaningful over the years, and what is the competition intensity in those markets? We know that there are few listed players that are very strong in those markets, but what is our strategy going into the Latin American markets?
I can answer that question. Now we are in this regulatory phase of this market, and it will take a couple of years for us to build. If at all, we have started building those markets. I do not think so it will contribute meaningfully to any growth till about 2029, 2030 maybe the first year. And we are in the process of building the portfolio.
Got it. That is it from my side. Thank you.
Thank you.
Thank you. That was the last question for today. I now hand the conference over to the management for closing comments.
Thank you, everyone, and good day to you. Thank you.
Thank you.
Thank you. On behalf of Strides Pharma Science Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.