Q2 21/22

Oct 21, 2021

Ladies and gentlemen, good day, and welcome to the Syngene International Second Quarter and Half Year Ended September 2021 Financial Results Conference Call. As a reminder, all participant lines will in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Cori Karnika from Thank you, and over to you, ma'am. Thank you and good afternoon to everyone. Thank you for joining us on this call to discuss Syngene's Q2 FY 'twenty two and H1 FY 'twenty two performance. To discuss the financial and business performance for the period we have on this call today, Mr. Jonathan Hunt, Syngene's MD and Chief Executive Officer Mr. Subhaji Bikwas, Chief Financial Officer and Doctor. Mahesh Bhargar, Chief Operating Officer. After the opening remarks, Jonathan, Subhaji and Mahesh will be Before we begin, I would like to caution that comments made during this conference call today will contain certain forward looking statements and must be viewed in relation to the risks pertaining to the business. The safe harbor clause indicated in the investor presentation also applies to this conference call. The replay of this call will be available for the next few days and the transcripts will be made available. With this, I now hand over the call to Mr. Jonathan Hunt. Thank you. Yes. Thank you, and thank you all for joining us on the call today to discuss Syngene's 2nd quarter performance. I'll start by giving an overview of our performance in the second quarter and the first half of the financial year and then move on to some more operational highlights. Now, Subhadji will provide more detailed insight into the financials in his remarks. The Q2 saw positive performances right across the business and the positive demand signals as our major client markets in the U. S. And Europe started to see the benefit of their COVID-nineteen vaccination programs, and many people began to return to more normal working and operating conditions. Given the natural lag between rising client interest and then business closure and project delivery and on to revenue and billing, While it's positive to see this gradual return to normality, I think it's unlikely to drive this year's revenue performance. However, it does all do well for the next financial year. So for the quarter, revenue grew 17% over the corresponding quarter last year. We continue to manufacture Remdesivir for COVID-nineteen during the quarter. Although from a societal perspective, I am pleased to see the volumes dropping The impact of vaccination reduces the need for treatment such as this. In the second half of the year, we need to keep a watch EBITDA for the quarter was up 12% to INR 1,900,000,000, reflecting, amongst other things, high raw material costs and ongoing strategy to invest in foundational dimensions of our business such as digitization and automation, where we're making advances in the way we manage our supply chain, engineering and maintenance and, of course, in our quality systems. Profit after tax was up 9% over the corresponding quarter to INR 920,000,000. I know that you have noticed that we reported 2 profit after tax numbers this quarter, the second one covering PAT after an exceptional charge. This charge relates to the reversing of the benefit we gained from the Services Export Incentive Scheme, following the government's recent decision to cap the incentive benefit at INR 50,000,000. Just to be clear, this is a one off adjustment related to the financial year 2020 for me. And I'll leave Subhadji to cover this in greater detail in his comments. As we're at the midpoint of the year, I have to pause for a moment on the financial results for the first half and ensure that everybody A clear understanding of some of the dynamics that we see there. Firstly, you'll recall The year on year comparison in the Q1 was impacted by a muted Q1 last year due to a period of reduced activity on to the first national lockdown in India. Consequently, 1st quarter year on year growth for this year is lifted by the soft comparison. By the Q2 of last year, our COVID control measures had allowed us to return to near normal levels of operations. And consequently, we don't see much such an artifact in this quarter's numbers. So in this context, the growth of 17% is both pleasing and I think a true reflection of the underlying movement and momentum within the business. Secondly, the manufacturing of brendevivir in the 1st 6 months of the year boosted revenue due to high demand during the 2nd wave of the pandemic. Now while we're happy to manufacture this important treatment, we've little visibility on how demand and volumes will play out for the remainder of the year. Looking ahead, while we delivered a robust performance in the first half of the year and very good for the second half, I remain both positive and cautious over the coming months, positive in that we continue to operate at 100% of normal operation levels, positive outlook and that we can see clear signs of our clients, particularly in the U. S. And Europe, getting back to work and Back to a type of normality. And this is likely to ensure we see a good demand environment for the remainder of the year. In fact, we're more likely to share it next year's revenue performance in this. And at the same time, we remain cautious in not knowing how the situation will evolve with COVID-nineteen. So taking those factors into account, I'm pleased to see positive performance across the business in the first half of the year. We believe that we're currently on track to deliver revenue growth in the mid teens for the full year as we previously guided. Turning now to operational matters. In the last couple of months, India's vaccination driver really picked up steam. And to protect our employees, we continue to implement COVID control measures such as regular COVID testing for employees on-site, shift working, social distancing in our laboratories and so on. This is how to operate at new levels and to keep our client projects on track. And we've also been conducting campus wide vaccination drives. And I'm really pleased that more than 75% of employees have Taken up on the top line and are fully vaccinated. Most of the remainder have taken their first dose of the vaccine at close to 100% high 90s have already had a single dose, and they then are expecting to get their second dose when the timing is right. In the beginning quarter, we continued to see a rising number of new client increase in Discovery Services, particularly in the emerging biopharma segment as a healthy indicator of global clients returning to more normal operations. We've made good progress on our plans further expansion and look forward to commission Phase III of the expansion in hydro bed, and that will ensure that we have the laboratory capacity We need to accommodate future projects. In Development Services and Manufacturing Services, the quarter saw positive performances and early signs of more buoyant demand environment, our small molecules plant at Mangalore remains on track with its program to be ready to gain U. S. FDA approval within 2 years. Across the company, we continue to invest in digitization to reduce the impact of human error and increase the ability to quote the order quality and other processes. And we know that these investments Great confidence to both regulators and clients alike while making life, medicine, much simpler for our staff. And finally, we made a number of key executive and operating leadership appointments in the quarter. Garth del Priore joined the exec team to run our large and small molecule manufacturing operations. Doctor. Alan Collins joined the company to build the integrated gut discovery services that we offer within Discovery Services. And Doctor. Shri Bedi Kanham Patxi joined the company to lead our Biologics Development Group as part of manufacturing services. Delighted to have all 3 of them on board, and they bring up both the depth and the breadth of experience. So in summary, our performance in the second quarter and the first half of the financial year, taking account for the unusual characteristics of the period of COVID, gives us real confidence that we will deliver results in line with our revenue guidance for the full year. So with that, let me hand over Thank you, Jonathan, and a very good afternoon to you all. I'm happy to take you through our results for the Q2, followed by the half year in the 30th September 2021, comments on revenue performance and profitability for the company as a whole. The performance for the quarter has been lower. Revenue from operations increased by 17% for the quarter compared to the previous year. At constant exchange rate, The underlying sales grew by 19% year on year. The exchange rate for this quarter has been lower compared to the same quarter last year. Growth came from continued performance in all segments of our business. Before I get into the analysis of the P and L account, Let me explain the onetime exceptional downward adjustment of the 253,000,000 that's net of tax that we have seen in our accounts and Jonathan just mentioned. This adjustment follows the government's recent decision to capture services export incentive scheme for research and development This is a repeat $15,000,000 for the financial year 2020. From financial year 2016 2019, Syngene benefited from this incentive of 5% of net foreign exchange earned without a net cap. Following precedence, Syngene assumed and accounted the same rate of 5% for accruing the service Now based on the current notification of the government, the company has reversed differential SEI claims receivables, and this has been presented as an exceptional item in the financial results for the quarter and the half year ended 30th September 2021. For Ample Clarity, no SEI granted has been booked since last year, that is financial year 2021. And hence, this reversal represents a nonrecurring one off exceptional item in our P and L and does not represent the underlying operational performance or future cash Slope of the company. Now moving on, EBITDA for the quarter was higher by 12% as compared to the period year. The EBITDA margin for the period was at 30.5%, and last year was 31.8%. Material costs have increased from 24% of revenue in Q2 of last year to 27% of revenue in Q2 of the current year. We are witnessing some supply chain delays or longer lead times in raw materials as there has been a spurt in demand, a challenge which has been compounded by the ongoing supply chain disruption across the world. As a precautionary measure to ensure our projects are delivered as per time line, We are securing our supplies by advancing certain raw material purchases and stocking them to avoid any potential disruptions. Business to buy land bank is having an impact on raw material costs and working capital, which is expected to continue in the subsequent quarters still the supply chain situation stabilizes. While this may impact our operating margins during the year, we believe it is a prudent approach to ensure timely deliveries for our customers and for optimized utilization of our assets. Let me now take a moment to explain the movement in other cost lines in the P and L. During the quarter, employee costs increased by INR 234,000,000 to about INR 185,000,000 as compared to INR 1.6 by $6,000,000,000 in the same period last year. This is an increase of about 15% and is a result of salary increments and headcount additions and Senior Hires across Discovery, Development, Manufacturing and Commercial Organizations. We strongly believe that hiring key talent in the new and developing areas of our business An invitation closer to the customers is critical for the next stage of growth. And hence, we will continue to invest in human resources, The benefit of which we'll show with a lag in our P and L. Power cost remained at a similar level to last year, fiscal year end of rate of revenue growth. Syngene's sourcing of power from green energy in our main Bangalore campus has been around 90%, and we are very proud of that. We have a high share of our power requirement service through captive units, both solar and wind, which has been sourced at a lower unitary cost, business. This has helped us reduce and control power costs despite an increase in units consumption. We'll continue with our efforts to maximize renewable power consumption in our sector. This is one of the several steps that Syngene is taking to address environment, social and governance aspects of our business to create a sustainable environment for growth. EMC rating agencies have rated Syngene at or above the industry average in this respect. Following our summary EMC report, A detailed E and P report will be published in half 2 of this financial year setting out our E and C strategy and priorities. Now turning to other expenses, which comprises of selling expenses, IT costs, maintenance expenditures and other general overheads. Fees are up by 14% year on year to INR754,000,000 compared to the same period last year. Despite continued pressure on expenses due to COVID protocols, the continued digitalization guide across our businesses, increased maintenance expenses on the expanded asset base. We have been able to manage discretionary spends effectively, keeping overall operating costs under control. The lower growth in cost has also been a result of lower level of international travel in the first half. We expect international travel opening from Q3 and this is very important for building a healthy sales pipeline for our business. Hence, going forward, we may expect some increase in the other expense lines, but otherwise we'll continue strict measures to control all discretionary costs. Our hedging strategy has always helped us negative currency volatility over the years. So while the tendering of rupee versus U. S. Dollar against the same quarter last year has resulted in lower rupee denominated growth in revenues. The hedge we had on U. S. Dollar receivables efforts has booked a head gain of rupees $104,000,000 in the quarter. This reflects the difference between forward rates versus the prevailing spot rate. The hedge rate was close to $76.5 per US dollar as against the spot rate of rupee 74 per US dollar during the quarter. Revenues for the second half is also hedged around the same rate of rupee 760.5. And depending on how the rupee moves versus U. S. Dollar, the benefit Debt Protection's tax equity is RMB762 1,000,000 which is a RMB75 1,000,000 increase from RMB687 1,000,000 in the same period last year. The increase on a year on year basis is attributable to addition of assets during the period. The CapEx during the quarter was around INR 1,000,000,000 comprising of discovery services expansion in Hyderabad and Mangalore, expansion of dedicated centers and investment in our biologics facilities. Now let me come to the tax rate. The effective tax rate for the quarter was at around 18.5%, similar to the tax rate in quarter 1 of the current financial year. This is higher than last year's effective tax rate of 12% for the full financial year, which had the benefit of accelerated depreciation coming from the Mangalore API plant and other new units that had gone live in various locations. There was also a onetime positive impact in the previous year arising out of revaluation of a tax provision Favorable Legal Opinion. The profit of the tax before exceptional items was up 9% to INR 920 1,000,000 as compared to INR 841,000,000 in the same period last year, reflecting an overall strong performance for the quarter. Assisted for the onetime tax benefit in quarter 2 of the last year, which I spoke about, the increase in profit after tax Before the expression, write in was a very strong 20%. Now moving to half year. Revenue from operations for the half year ended 30th September increased by 28% to RMB12 1,000,000,000 as compared to RMB9.4 billion that's anticipated in the previous As Jonathan explained, this high growth is reflective of good momentum in business and 2 additional factors: low base effect in quarter 1 compared to the quarter 1 of last semester and upside due to industry results during the first half of the current year. The underlying business growth remains robust in the mid teens range. EBITDA is up 19% to $3,700,000 a reflection of the improved operating performance in the business. EBITDA margin for the period stood at around 30% compared to 32% in the previous year due to the higher material cost in the PLL. The increased value of fixed assets has resulted in a 12% increase in the acquisition expenses to INR 1,500,000,000 versus rupees 1,350,000,000 in the same period last year. Overall, profit after tax for the half year, excluding the exceptional item due to reversal of export incentives, increased by 19% year on year to RUB 1,690,000,000. Reported profit after tax after the exceptional guidance for the half year, we are at RUB1.44 per year. Let me now speak about CapEx. Our CapEx guidance was sustained between INR 7,500,000,000 to INR 9,000,000,000 during the year, and this included about INR 2,500,000,000 gold order from the previous year. In the 1st 6 months, we have invested around $1,800,000,000 and we have already committed close to $5,000,000,000 for execution. So we are broadly on CapEx program and expect to see an accelerated CapEx spend in the second half as the programs are executed. 2022 has some overhang of pandemic both in supply and demand sites. With travel decreasing now, we believe the combination of virtual way and physical way of building is likely to ensure a good demand environment for the remainder of the year, a factor more likely to Our underlying performance for the first half has remained robust, and we are operating at normal levels at our facilities. This gives us confidence that we are on track to deliver the revenue guidance for the full year. We will be in a better position to update this guidance in January 2022 company has a clear visibility on the year end. Thank you, and we can open for questions now. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Participants are requested to use handset while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue is open. The first question is from the line of Alafar Garude from Macquarie. Please go ahead. Hi, good afternoon everyone. So my first question is on the guidance. We have reported 28% growth in the first half. Even if I assume, say, a 15% growth for FY 2022, it just implies a 5% growth in the second half despite the good demand environment as you mentioned. So the question is what is the upside risk to this FY 'twenty two top line guidance of weak deals? Yes. Good question. I'm not going to quantify it. Your maths is logical. I would maybe it's British English, but our guidance was mid teens. That implies for me a range. And if you can start at 13% and go all the way to 19% and define where you think the middle of that range is or What mid teens would be, you get a range of percentages. You can do a sensitivity analysis on all of those. But in general, I think the message is mid teens for the full year. Very happy with the performance in the first half, seeing Good demand environment and good progress on the business. I think if we come in at the mid teens or at least the mid teens, maybe a notch higher, I think those are all likely outcomes. But at this stage, we are only halfway through, none is knowing What the next 6 months will bring in terms of COVID, you'll forgive me, I hope, a little bit of conservatism of saying I'll wait and see what happens for another quarter before I give a more detailed comment on that. Understood. Hopefully, there was enough in my answer You can get a feeling, if not a point estimate. No, I understood. Thanks for the context. My second question is you have mentioned about excellent demand in emerging biopharma discovery services. Can you also comment on the demand for biologics manufacturing? Jerry, also if you could highlight where are we in the evolution curve with respect to the return on investments for Biologics Manufacturing? Yes, that's good. I don't think I said excellent. I think I said positive. It wasn't the general tone I'm giving, I think it's Certainly in Europe and the U. S, as their national vaccination campaigns kick in and really seem to be making a difference, you've got a general sense It's palpable if you go to the U. S. At the moment, the people going back to work, getting back into the routine of being in office. And that's triggering them to sort of catch up a little bit on Perplex run a little bit slowly. It's warm rather than hot. I don't think it's a Hot environment, yes. But it's warming up, and that's a good thing for next year rather than for this It will take a while to respond to those client inquiries, turn them into contracts 1 and then start delivering them. But yes, reasonably positive, I think, on that. On the Biologics, Structurally, actually, I think it's a good market to be in. There's an awful lot of demand. The whole global response to COVID has consumed quite a lot of biologics capacity. And therefore, there's a general sense The capacity, if you've got it, is valuable and a scarce thing. And I'm hopeful that we'll start to see that come through in future quarters and into next year in our P and L. But we are seeing a rising number of client inquiries in the rising number of client wins. It's not there yet strongly in the P and L, I think it should, for whatever reason, you think it will be next year. Understood. That helps, sir. Thank you, and Thank you. Thank you. Before we take the next question, a reminder to the participants, Please limit your questions to 2 per participants only. You may rejoin the question queue if you have a follow-up. The next question is from the line of Suryapathla from Philip Capital. Please go ahead. Yes. Thanks for the opportunity. So just one clarification about the gross margin. So In fact, in the previous quarter also, we had seen a kind of growth sharp ROI decline on the gross margin, But that was led by incremental manufacturing activity what we had done for RENVISS. I think sequentially the number has come down drastically about industrial manufacturing. But still there is a kind of 500 basis point kind of YY impact, still that is visible. So one reason you have mentioned that Some raw material inventory built up for that. But is it that and it is likely to segment quarters that you have mentioned. So whether this is going to be a kind of ongoing concern that I'll take it. So you're right. Last quarter, It was mainly on account of rent deficit, which had a very high percentage of raw material cost. And what we see this quarter, we see a bit of that and the dividend is also much lower. However, as I said, we procured a lot in advance. And when what happens when you procure a lot in advance? Most of it goes and takes in the inventory, but some are in nature of consumables and like solvents, which go and get into the P and L immediately. As a result, you see a high material cost in the quarter. Over a period of time, as we use this material, and that will be over a few quarters. We should see this gradually normalizing. We are keeping we'll keep a close watch on that because it's not Always good to buy raw materials in advance, but we prioritize that because we think customer experience and our delivery is very important. And hence we decided to do what we did. And over a period of next few quarters, we should see this gradually normalizing, Surya, if I answer your question. Yes. And just a comment, if I could. I don't see it particularly as a negative, but I actually think it's a prudent thing to do. In general, we've made an active choice to carry higher inventory levels, Higher stock of consumables or warehouses are running full with our stock rooms and that's really deliberate. I mean we're in a pandemic environment. We see more broadly in the economy and in other industries people struggling at times with logistics Some distribution and supply chain and lengthening supply lead times. And I'd much rather make sure we're as insulated from that as we can do. And one of the ways of insulating yourself from that is to carry a little bit of a higher inventory load. For me, it's quite a healthy indicator. We're doing that because we see demand and we want to be ready to service that demand. Yes. Thank you, sir. So just a clarification on that again. See, whether this registered manufacturing was from a Mangalore unit? So in the specific location, Subajit? It is not for Mangalore unit. We get it manufactured from our other manufacturing facilities that we have. Okay, Sure. My second question is on the biologic plant. So Out of the total spend of like $50,000,000 kind of spend on the biologics plant, what portion of that is already Capitalized and what is the occupancy rate that we'll be having for that unit? So, Sibanye, if you maybe take the opportunity to sort of do a broader recap of where we are on CapEx this year. It's a big program this year. We gave guidance at the beginning of the year. And if you do that, I can sneak in and say, You'll forgive us, but we won't be giving you the asset utilization of individual plants and mines. It's not a level of disclosure that would be usual in our business, but I'm sure, Subhadji, you'd be happy to give you the general shape of the CapEx program, what we're investing in and why. Sure. Yes, I will do that. So, broadly based on whatever we told, you are right. We have invested around $50,000,000 in the biologics and it's on the ground. For the current year, our CapEx guidance has been INR 7,500,000,000 or INR 100,000,000 to INR 120,000,000 That included an expansion of our biologics plant as well. Part of that has already happened and it has been reported in And some part of that will happen in the rest of the year. So we will continue to expand our biologics activity based on the demand that we are seeing. So the amount of CapEx that has gone into Baloyi's plan will vary from quarter to quarter. Sure, sure. Okay. Yes. Yes, yes. Thank you, sir. Thanks a lot. If I just And one more please. In the previous quarter, you had mentioned about the spike proteins what you have developed Given the kind of situation what the entire world is facing about COVID and all, so Any progress on the commercialization aspect on those developing fronts? So maybe Mahesh, you could dive in and take the opportunities to talk a little bit about that. Well, I would caution you. All of those COVID related activities for us are often scientifically interesting, certainly something that we've got Skills to contribute. But it's not a strategically core business for us. We're doing it As much driven by a sense of obligation, we're going to play our part in the global pandemic response As we are for commercial reasons. So many of those activities, the reason for disclosing them to the capital markets was less about their financial value, more just to demonstrate that we're deploying an active part. Mahesh, do you have any other comment? I think you covered it, Jonathan. I'll just add a little bit of more color to it. The kind of things that we have done are more What we've done is made sure that there are reagents that are available that are needed for kids. We've made sure that we have tests that are developed. We've made sure that there are tests that the vaccine manufacturers can use. And these are all supporting services literally just to enable movement of the other manufacturing organizations such as the vaccine manufacturers, or the clinical trial groups, or the diagnostic labs Okay. So what are leading to any cost pressures as Zendal is thinking? Sorry to interrupt, but may Mahesh, I think we lost you. What we'll do, we'll continue with the queue and if we get a chance, you can make a comment on that at the end. Sure. Thank you. Before we take the Thank you. Thanks for the questions. Before we take the next question, a reminder to all the participants again, please limit The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yes, hi. Good afternoon to all. My question is towards Magal. So in the last 2, 3 years, we have seen Significant improvement in the product service offerings. We've been talking about ADC and recent past we've also We're talking about a couple of new initiatives and biosimilars also ramping up. Just trying to understand how And then while the growth is definitely looking upwards in mid teen plus, when do we see the step function, step up in the margins. We are in that range of 28% to 30%. I'm excluding other income here. But I mean, when will we see the margin inching up for us into the next How do we think about adding new and improved services, which I understand are higher value, But how do we see margin improvement from here from these services? Yes, good. An interesting question. Actually, I'd put a broader frame on it and go back a little bit. Syngene's margin has been pretty much consistent in that sort of high very high 20s, low 30s at the EBITDA level. I remember 5 years ago having the same discussion with you on analyst calls and saying, look, That's a solid sustainable rate. We fluctuate a little bit around within that zone, but I think that is sustainable while investing Consistent in the business and continuing to grow and globalize and have new services. And that's exactly what we've done and I think we're continuing to do. That's a pretty top tier set of margins by our industry standards. Every time I look around the world and look at the whole range of competitors that are in our industry, whether they're companies in India, whether they're companies in China, Europe or the U. S, whether they're public companies or private companies. What I consistently see from Syngene is an upper quartile margin structure. So I'm not sure I buy into the premise that there should be an ever upward march on margins when you're already one of the Margin Needed in Your Global Industry Group. What we are willing to do is actively invest Even if that means that our margins regress a little bit towards the mean for our Global Industry Group, The key thing is to mention margins. It's about value creation beyond the cost of capital, and we do that on an enduring and sustainable basis. So I'm generally happy with the margins. I think if you do a comparison across the global industry group, Well, public and private, we have seen that we are consistently one of the better margin businesses, one of the leaders. And the reason for that is around the value we create for our customers. And it's that combination Managing the business has allowed us to, I think, over the last 5 years, more than tripled the revenue, effectively tripled the market cap of the company. Okay. And my second question is on cost related to Mangalore facility, what is the margin pull down due to Mangalore facility currently? And Is it fair to assume that once Mangalore is on, the cooldown stops and then we can see margin expansion? Would that be correct way of understanding? A fully utilized, Mangalore facility won't be margin dilutive. It should be pretty much in line or even accretive to our core margin. So yes, we're some way off. Yes, I think we've given extended guidance. Certainly, it's a topic I seem to repeat the same phrase every quarter. The key pivotal piece for the mine is all is getting FDA and other major regulatory approvals. We've got programs ongoing to deliver that. We're on track with those. I think they'll deliver that within the 2 year time frame that we set. And then beyond that, We start to build that business, drive our asset utilization, and that then allows that bit of the business To contribute both to our profit and to our margin structure. Look, we've got more than that going on. I mean, Syngene as a business is not a single swing to our blow single shot business. So it's not all about Mangalore. Mangalore is just one of a number of businesses. There's even more than that going on within the manufacturing services. I point you to the very good progress we're starting to see in our Biologics business. So it's one of many operating leverage points. It's not the only one. Yes, I understand that. Are we calling out the top line and the cost related to that? No. Okay. Thank you. Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead. Yes, thank you. Just a clarity on the raw material argument that you mentioned, I had not understood it actually. So do you mean to say that You procure raw material and since then the raw material prices have gone down. And therefore, when you're pricing it to customer, You're not getting an equal benefit. The question is that the crudely Yes. I think the premise of the question in the comment was from the other question was The proportion of money tied up in raw materials in the business has gone up this year compared to previous quarters. And the answer to that is yes, it has Because we have bought more raw materials to put them in our warehouses and stock rooms, and the reason is to carrying A higher inventory of raw materials and consumables is because there's a global pandemic going on and we can see challenges that other industries and other companies are facing with supply chain, logistics, distribution, shipping, lead times, delivery, And we want to be insulated and protected from that. And the way to do that is to make sure that you've already got the raw materials you need for the second half of this year. So our current our P and L for the first half, you can see a rise in cost of factors of production like raw materials and consumables. The reason for that is we bought more of them so that we have them when we need them throughout the second half of the year. Hopefully, does that get to the essence of it? So I'm still confused in the sense that, one, I can understand that Veneti is much But I'm not able to understand still that if you're stocking higher, why is that impacting your P and L to this extent? That's something still unclear to me. I'll try to explain that, but I'll make yes, please go ahead. I'll make one more attempt. As I said, our raw material part of the Raw materials because we continue to manifest the MSP, but it's only a fraction of the increase. The rest of it, it comes from some of the raw materials that we buy that Your expense top or charge to the P and L immediately. Project specific raw materials get inventorized, the general raw materials, and we have a lot of that like solvents, Not get inventorized, get charged off to the P and L immediately. That doesn't mean the raw material is not built out. It's an accounting policy that we follow that We cannot link a particular raw material to a particular project in case there's a P and L immediately and that's why you see the higher charge in the P and L. Okay. Now, yes, it's clear to me. Basically, solvents, etcetera, that's not priced into the customer. That's open effectively. The goal is down benefit if it goes up, that's hit in the near term. Understood. And second question is, Can you just roughly tell us how big is manufacturing of the other component legacy business that you have discovery, development and manufacturing today? Yes. It's a bit, do you want to give a comment just broad shape, all divisions? What's the sort of percentage distribution between them? Yes. So, Jin, on a full year basis, I'll give you I don't want to go into specifics of a quarter. At this point of time, onethree of our revenue come from 1 third from discovery and 1 third from development and manufacturing. And from quarter to quarter, this may shift, but on a full year basis, this is the pattern issue. And sir, this is Paradis. So development is basically equal to manufacturing, sir? So development is not equal to manufacturing. Development is a stage before manufacturing. What we do today is that we are reporting these tools in a combined form. So development and manufacturing is 1 third of our revenues. Sure. Thank you very much. Thank you. The next question is from the line of Charulata Gaidani from Dalla and Prasha. Please go ahead. Hello. Yes, congrats on the good numbers. And I wanted to know how much would be the best deal in the current quarter. Okay. Your second question? And second question pertains to the FDA approval for the 9 year plan. When you said 24 months, what would it mean end of end of middle of FY 2020 stores. Okay. Thank you. So, Subhadji, do you want to give some guidance, maybe Mahesh, you can on the FDA one. I don't think we broke it down to a quarter. In fact, I think we gave a broader time line for that. Over to you guys. Shaulabh, The line over here broke up a bit. If you can please repeat the first question, it would be a bit tougher. My first question is one that I'm likely to answer actually, which is What was the revenue breakdown of revenue in the second quarter, Q1? It's not a question that we have. Sure. So, Talitha, thanks for the question. We don't give back up to that level. But as we mentioned that At a normalized level, we are going at mid teens. So if you take out the other aspects, which is soft quarter 1 of last year and then let's say from the first HubSpot. We are actually going at a mid teen level. So you can then probably invest on that. Okay. Okay. Right. Yes. And in terms of the annual approvals? Yes. So Charulita, this is Manish. To answer your question around the timing for the manual ore, you can expect that we are looking at a timing that's the early or the first half of the slide 24 to get the 1st regulatory approvals in place for that facility. Go ahead, Manoj. Okay, go ahead. Yes. Manoj has been mentioned that we have the strategy and pathway for that approval in place. We will, of course, look to continuously revisit that timeline and do everything we can to activate it as well. However, we want to be realistic about the fact that today the environment is very dynamic. There's a lot of changes that are happening with regards to prioritization and the FDA, which is the key regulated order that we are looking at for getting approvals. I think you touched on my point, which is, of course, it won't be lost on any of us. When the FDA comes to Back to their decision to do and it's their time line, it's not ours. So when we give you guidance, It's a prediction or it's an estimate, but as it's not in our control, it's completely down to the regulators. Right. And do you expect FDA approval for the biologics plant? Again, I'm not sure which biologic plant you're referring to which approval. So Manhaj, could you share a number? Yes. So just to Emphasize, so we have a biometrics facility that is a mammalian manufacturing facility and we are looking at the regulatory pathway for getting that facility approved as well. At this point of time, I do not be able to give you a specific date for that. However, I would say that we have an active negotiation with clients who will help us to use that facility for commercial manufacturing, which of course will happen through the FDA approval process. So I'll stay tuned on that one. The microbills facility, we just brought online, so they're finishing their qualification, and that will be a little bit further down in terms of its approval to a regulatory Okay. Thank you. Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to Ms. Connie Kanikar for her closing comments. Thank you everyone for joining today's call. Hope you have answered your questions. If there are any further questions, please do get in touch with our team and we will be happy to get back to you. Have a good day and thank you once again. Thank you. Ladies and gentlemen, on behalf of International that concludes this conference call. Thank you all for joining. You may now disconnect your lines.