Ladies and gentlemen, good day and welcome to Syngene International's fourth quarter and full year FY20 financial results conference call. As a reminder, all participants' lines will be in 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 that this conference is being recorded. I now hand the conference over to Miss Jill Deviprasad from EY. Thank you and over to you.
Thank you, Margaret. Good evening, everyone. Thank you for joining us on this call to discuss Syngene's Q4 and full year 2020 performance. To discuss the financial and business performance for the fourth quarter and full year, we have on this call today Mr. Jonathan Hunt, Syngene's Managing Director and Chief Executive Officer, Sibaji Biswas, Chief Financial Officer, and Dr. Mahesh Bhalgat, Operating Officer. After our opening remarks, we will be happy to answer any questions you may have. 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 our business. The safe harbor clause indicated in our investor presentation also applies to this conference call.
The replay of this call will be available for the next few days immediately after this call, and the transcript will be made available in a week's time on the company's website. With this, I would now turn the call over to our Managing Director and CEO, Mr. Jonathan Hunt.
Thank you, Jill, and thank you all for joining us on this call to discuss Syngene's fourth quarter and full-year results. As usual, I'll first give an overview of the final quarter and full-year financials, followed by an insight into the key highlights of the quarter. I'll also talk about the impact of COVID-19 on operations, as well as the important work that we're doing in testing and research into this virus. Then I'm going to hand over to Sibaji to share more details on the financials for both the quarter and for the full year. If we look at the fourth quarter, it really was a milestone quarter for Syngene, with revenue crossing INR 600 crore for the first time. That's a 13% growth on a year-over-year basis.
I think it's worth noting that we're reporting this growth against what was a particularly strong quarter last year, where we recorded 30% growth as a result of bringing some April projects forward into March a year ago. This fourth quarter really was very strong. Continuing growth in our discovery services business and a strong performance in development services were really the key to the performance in the quarter. The strong business performance was also coupled with tight cost control on both your operating costs and overheads, and that helped improve profitability for the quarter. EBITDA for the quarter grew 24%. That took it to INR 225 crore, while PAT was also up, and that was up 20% to INR 120 crore.
Looking at the full year, we're reporting, I think what's a robust top-line growth of 10%. That translates into 10% growth in profit after tax and a small increase of 10 basis points in the PAT margin, taking the PAT margin to 17.5% for the full year, up from 17.4%. Sibaji and I will share additional details in a moment. Looking at operational highlights for the fourth quarter. During the quarter, we commissioned a new research facility within the Biocon Park campus in Bangalore. This facility spread over 150,000 sq ft on five floors. It will house a multidisciplinary team of scientists that will support discovery research in areas like biology and microbiology. It also incorporates the very latest thinking in office and lab design, as well as safety and energy features.
The construction activities at our API manufacturing facility in Bangalore have now been completed, and we've successfully executed the first batch from this plant. As is required of all such facilities, before commencing full-scale operations, we are now in the process of completing all of the qualification and validation activities, and I think that will take us through much of this financial year to complete those. With these new facilities going on stream, Syngene's total research and manufacturing footprint is now up to just short of 2 million square feet, so 1.9 million square feet. I want to remind you that we're in the midst of a program of investment in facilities that will fuel our future growth. Like any investment, it'll take time to fully utilize the new capacity in R&D and in manufacturing.
In the meantime, the depreciation will have a dampening effect on our profitability in the short term. Sibaji will talk a little bit more about that in a moment. One of Syngene's strengths, I think, is our strong track record of regulatory compliance. Over the course of the last year, we've cleared audits not only by our clients, but also by regulators from across the globe, and that includes the U.S. FDA, the European EMA, the Japanese PMDA, and others. In this quarter, I'm pleased to report that we successfully cleared another U.S. FDA audit, this time of our small molecule bioanalytical laboratory, which is in our clinical development group. Beforehand, over to Sibaji, let me take a moment to talk about the ongoing COVID-19 pandemic and the impact it's having on the operating environment and on our business.
In light of the nationwide lockdown announced by the union government of India, we temporarily suspended all operations, except for a core team focused on ensuring all of our facilities continued to be held in a safe state of suspended operations. They also made sure that we were ready to return to operations quickly, and of course, safely. We invoked our business continuity plans, rapidly implemented a number of measures to ensure the safety and wellbeing of all of our employees while protecting sites and critical operations. As you know, the union government took the decision to include pharmaceutical and research companies into their categorization as essential services, and that's allowed us to continue to operate. As long as we put in place a comprehensive range of operating controls to protect our employees and limit the spread of the disease.
Over the past few weeks, we've gradually resumed operations, having introduced strict protection measures across all of our sites. We're currently running at about a 70% of normal operations, and I think we're looking to return to as close as 100% as social distancing will allow by the end of May. In our facilities, we've increased physical distancing by introducing modified seating in laboratories and offices. We've increased our transport fleet to ensure that one person per double seat is the norm. We've zoned each site to restrict movement on-site of employees and just reduce the number of contact points between employees. We've also introduced shift work in our research and development services to reduce the density of staff on-site at any given time. Of course, instituted things like mandatory temperature checks twice a day for all employees.
Like other companies, we've been making extensive use of IT and other technology-enabled solutions to work from home during the lockdown. While many of our staff in the enabling functions continue to work from home, we'll of course, continue to remain connected using technology. Our supply management teams are working with our regular and also alternate vendors to ensure uninterrupted supply of raw materials and other necessary items, as well as with our freight forwarders to ensure seamless delivery. We've also built up stocks of critical materials to avoid short-term interruptions of supply. As we speak, we have successfully ramped up our supply chain and don't currently see any limitations on our ability to operate due to the supply chain. From a performance perspective, the pandemic had a relatively small but actually positive impact on the fourth quarter.
We brought a few projects forward as clients accelerated their work ahead of their own lockdowns. Clearly, the first quarter is going to show some direct impact from the suspension of operations. A near complete suspension of all operations for three weeks of the quarter, and then a gradual return to near full scale through the remainder of the quarter. That gives you a good sense of how you can model that. In addition, the measures we put in place to ensure safe operations are adding to our day-to-day costs, and we'll need to both optimize these through the year as well as absorb them.
I'm sure you're likely to have many questions about the impacts of the pandemic in the current quarter and beyond, and I'm sure you'll also understand that in such a dynamic situation, it's difficult for any of us to know with precision how the coming weeks and months will unfold. With that said, I do want to summarize some key points. Syngene is a well-funded, financially secure business. Our current planning scenario gives us no concerns with regards to cash flow, or liquidity for the year ahead. Now, of course, we will manage both OpEx and CapEx prudently and in a risk-managed way throughout the year. Secondly, as an essential service with an effective infection control program already in place, we are ready and able to operate at or close to normal operating levels.
We do expect to see a marked impact from COVID-19 during the first quarter, but it's too early to know precisely the extent of that impact. We'll update you as we go through the year. We do have very good visibility on the order book for the second and third quarters, this gives us confidence that any impact will be restricted to the first quarter, and we should see a clear return to more normal performance from the second quarter onwards. Syngene is also using its scientific expertise and world-class resources to support and contribute in the fight against COVID-19. As announced at the end of last month, we've repurposed one of our labs to set up an RT PCR-based COVID-19 testing laboratory. This facility has been approved by the ICMR.
It's got a dedicated team of specially trained scientists, and they are testing samples received from hospitals here in Bangalore as we speak. We've also entered into a partnership with Pune-based Mylab Discovery Solutions to supply reagents for use in their indigenously developed testing kits. Syngene, as you know, has got a large-scale oligonucleotide facility, and we've repurposed that to support manufacturing of these reagents. With that, let me quickly summarize the quarter performance. Discovery and development services continued to show strong growth. Our new research facilities give us increased capacity in core scientific areas. The Mangalore API facility started now its qualification process and getting ready to commence commercial scale operations towards the end of this year. Our robust quality and performance standards have once again been audited and found to be in good order by the U.S. FDA.
For the full year, I think after a slow first quarter, we recovered quickly and gained momentum throughout the year and increasingly applied financial discipline to ensure that our cost levers were in good order, and that drove what I thought was a particularly good profit performance at the end of the year. Notwithstanding the disruption of the coronavirus, I do think we're well-positioned for the year ahead. With that, let me hand over to Sibaji to share more details on the financial performance.
Thanks, Jonathan, and a very good afternoon to you all. I'm happy to take you through our fourth quarter and full year 2020 earnings. I'll begin with a briefing on the earnings for the quarter and follow it up with the full year numbers. We are currently going through unprecedented times, and while it's difficult to give precise guidance at this stage, I'll make some directional comments for financial year 2021. However, a word of caution. All such guidance should be seen in context of the volatile conditions around us, and we will update such guidance later based on the evolving situation. Now let me start with the quarter. The fourth quarter delivered steady year-on-year revenue growth. Revenues increased to INR 628 crore as compared to INR 555 crore in the same period last year.
Our sales also improved by 13% during the quarter, led by a continued strong performance in discovery services and a very healthy quarter four performance in development services. We suspended most of our operations with the exception of manufacturing services once the lockdown was announced on 24th of March by the government. This was done after consulting key stakeholders, including major clients, who were very supportive of our decision. During the quarter, raw material and power costs as a percentage of revenue stood at 25%. This is down four percentage points from last year. This is due to a change in sales mix in favor of discovery services. As you may know, discovery services tend to consume a lower level of raw materials than our development and manufacturing division.
Power cost as a percentage of revenue also improved. This is due to energy-saving initiatives and due to buying power from open market at better rates. Both our direct cost lines showed improvement during the quarter. As a result, the gross margin for the quarter stood at 49% compared to 47% for the same period last year. That's an improvement of 2 percentage points. Let me now take a moment to explain other cost lines in the P&L. During the quarter, staff costs increased by 25% to INR 164 crore as compared to INR 131 crore in the same period last year. This was explained in our last call. This is attributable to three main factors. The first is the ongoing employment cost, which has grown around 12%.
A further 4% of its growth came from addition of R&D facility at Hyderabad and the new research facility in Bangalore, and also from opening of the Bangalore manufacturing plant. The third and the final factor were the additions we made to the senior and middle level leadership to create an organization with the skills and experience to take company to the next phase of growth. As a percentage of total revenue, staff costs represent 26% compared to 24% in the same period last year. That's an increase of 2 percentage points. Turning to other OpEx expenses, which comprises of selling expenses, IT costs, and other general overheads. That's up by INR 8 crore to INR 82 crore as compared to INR 74 crore in the same period last year.
This is on account of additional operating costs that we are incurring in the new research laboratories in Hyderabad and the newly opened research facility and the renovated research lab, both in Bangalore. As you can see, 11% growth rate is lower than the revenue growth rate of 13%, which is a result of our ongoing efforts to optimize our cost base. The other expenses as a percentage of revenue reduced by 30 basis points. Coming to EBITDA. The EBITDA for the quarter was up 24% to INR 225 crore compared to INR 181 crore in the same period last year. While profit after tax was up 20% to INR 120 crore as compared to INR 100 crore in the same period last year. Depreciation stands at INR 62 crore.
This is a 41% increase from INR 44 crore in the last year, it's mainly coming because we made investments in the Hyderabad facility and the expansion at our main Bangalore facility, also because of commencement of the Mangalore commercial API plant. EBITDA and profit after tax margin for the quarter are at 36% and 19% respectively, compared to 33% and 18% in the same period last year. Both key measures of profit have shown a favorable improvement for the quarter. During the quarter, we recorded an interest income of INR 21 crore. Against this interest income, we recorded finance charges of INR 10 crore. This includes our INR 2 crore towards the facility lease as per the new standard. Associated with the interest income, we recorded a INR 7 crore in income tax.
To help you see the underlying business, the adjusted EBITDA margin for the quarter, excluding interest income, is at 34%. The adjusted profit after tax margin, excluding interest income and finance charges, is at 19%. This compared to last year's fourth quarter, EBITDA was at 30% and adjusted profit after tax margin was at 18%, respectively. As many of you may know, Syngene follows the practice of hedging all foreign currency revenues. Currency movement during the quarter has been in line with the hedge rate, resulting in a nominal loss of INR 1 crore in the quarter. This reflects the difference between forward rate versus the prevailing spot rate. The hedge rate and the spot rate for the quarter were almost at the same level of INR 73 per US dollar during that.
If I compare that with the last year same quarter, we booked at INR 8 crore hedging loss in that quarter. With that, I'll move to the full-year performance for financial year 2020. During FY 2020, revenues grew to INR 2,094 crore. This is up 10% compared to INR 1,901 crore in FY 2019. If you recall, we reported a one-time pass-through billing of INR 40 crore during the first quarter of FY 2019. Excluding the impact of the one-time pass-through billing, the revenue for FY 2020 grew at 13%. In FY 2020, the dedicated centers constituted 31% of sales, discovery at 32%, and the rest came from development services and manufacturing. In FY 2019, dedicated center was at 32% of sales, discovery was at 29%, and the rest was from development services and manufacturing.
As you can clearly see, discovery services increased its share of revenues due to its strong growth during the year. EBITDA for the year was at INR 700 crore. This is up 14% compared to INR 612 crore in FY 2019. Profit after tax, excluding the exceptional gain of INR 46 crore related to the insurance claim in quarter two, was up by 10% to INR 366 crore, compared to INR 332 crore in FY 2019. EBITDA and PAT margins for the full year, excluding the exceptional gain, were at 33% and 17.5%, respectively. The effective tax rate decreased to 18% in FY 2020 as compared to 20% in FY 2019. The decline in the effective tax rate is mainly due to the incremental depreciation impact in the tax books coming from the new units that have gone live during the year. I'll move to the balance sheet.
The cash generated from operating activities was largely used to fund the ongoing CapEx program, resulting in a net cash position of INR 362 crore as of 31st March 2020. This is as compared to INR 304 crore as of 31st March 2019. We effectively self-funded our CapEx program during the year and increased our net cash balance in the process. During FY 2020, we invested approximately $108 million in ongoing CapEx programs. Of this, $43 million pertains to the commercial API manufacturing facility. Another $28 million was invested in discovery services, $12 million in biologics manufacturing facility, and a balance of $25 million in the dedicated and development services. With this capital infusion, our fixed assets currently stand at $451 million, and this includes an asset under construction of $33 million.
Overall, we are on track to take our total asset base to $550 million by the end of this quarter. This is exactly as per the guidance given in the last few quarters. We are pleased that our commercial API manufacturing plant at Mangalore completed the build phase of the program and commenced operations from March 2020. Total amount that is being invested in Mangalore plant is around $75 million, and this asset will be depreciated over an average life of 18 years. As pointed out earlier, the Mangalore API manufacturing plant will need to go through a process of further qualification, validation, and gaining regulatory approvals before starting large-scale manufacturing.
We are very happy with the progress of the API plant execution so far and expect it to begin commercial operations from Q4 2021, and then build up to full capacity utilization anywhere between three to five years' time from there. We will be in a position to give clearer guidance on the revenue projections closer to the date of commencement of the large-scale operations. Before I end, let me give you some directions about our business in the current financial year. As outlined earlier, we continue to invest in future growth, which comes from a mid to long-term ramp-up period, which leads that we are making the right investment to support our anticipated growth trajectory in the coming years. Our investing rationale from our core businesses of dedicated centers, discovery services, and development services remain the same as before.
We expect to deliver an asset turnover of at least 1x from our investments over the lifetime of the asset, with the revenue build-up by the end of second year of the investment. Our investments are calibrated towards this goal, and we'll continue to invest for growth in our core businesses in the future. Growing businesses like API manufacturing and biologics, the revenue build-up period is likely to be longer than our core businesses. However, these businesses, once fully occupied, are expected to generate strong returns on investment. As you know, any investment in new facilities creates some depreciation load on the P&L during the early phase of the asset life cycle, that is, until the facility reaches an optimum utilization or occupancy level.
You may take note of that in your modeling. With some impact coming from partial shutdown in the month of April, we believe our Q1 revenues will be broadly at the same level as Q1 of last year. We will exercise our cost levers to control our discretionary expenditures during the year to soften the impact of flat revenues in quarter one. Our direct costs, which are around 40% of our operating expense, is expected to follow the revenue during the year and is by nature, controllable . Due to travel restrictions around the world, we expect travel costs to be lower, and we'll also proactively control and reduce overheads in our business.
Having said that, safety measures undertaken as a part of our COVID-19 response will put some additional burden on our costs as we spend more on transportation, personal protective equipment, and in supporting multiple shifts to have less density in our laboratories and other facilities. As a result, we do expect around 25% drop in quarter one FY 2021 profit versus last year. Assuming the business comes back to the normal levels by end of quarter one, based on our current visibility of the order book on a full year basis, we expect double-digit growth in revenues. We expect the PAT for full year FY 2021 to be at similar level to FY 2020. As I mentioned earlier, this guidance should be seen in context of what are clearly volatile conditions, and if required, we'll update the guidance during the year based on the evolving situation.
With a strong balance sheet, we are well-placed to tide through the difficulties that come with the continuing COVID-19 crisis. Our cash position is strong, and we'll follow a gated approach in our spending and investments to ensure that we always maintain the required liquidity in the business during the year. The underlying business fundamentals remain very strong, and it is our firm belief that we'll return back to normal business performance as soon as the situation stabilizes in India and in our key markets of U.S., Europe, and Japan. That completes my commentary on the results. Jill, we can now open the floor for questions.
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 handset while asking a question. Anyone who would like to ask a question, you may press star and one at this time. We would request participants to limit your question to one at a time. Should you have a follow-up question, please rejoin the queue. Thank you. The first question from the line of Nitin Gosar from Invesco. Please go ahead.
Hi. Good afternoon, gentlemen. First question is pertaining to current investment in the books right now stands at around INR 738 crore. Could you please help us understand which are the avenues the money would be parked into?
Sorry, Nitin, I couldn't hear the last bit of the question. You're asking about the investment in the books. What was the last part of that question?
Yeah. The investment or the current investment, which looks around INR 738 crore right now in the balance sheet, I wanted to understand which are the avenues where the money would be parked. Is it corporate deposit? Is it mutual fund or liquid schemes?
Okay. Well, Sibaji, that's clearly a question for you.
Yes. You are talking about the deposits that we have and are basically showing up in the balance sheet. They are all put in certificates of deposits in bank and NBFCs, and all of the institutions where we have put money are all AAA rated, so they're in very safe places.
Okay. Anywhere we may not come under pressure in terms of redemption or anything. You don't see anything?
We don't expect that. They're very high-quality securities, and we don't expect that. We always, as a practice and discipline, keep very close watch on that.
Okay. I have furthermore questions, but I'll join the queue and come back. Thank you.
Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, thanks for the opportunity and congratulations on good numbers. Sir, just wanted to understand the dollar term growth, both for the quarter and for the year.
Okay. Sibaji, do you have that number to hand? I'm sure you could back calculate that fairly quickly if you just apply the operating exchange rates for the quarter. Sibaji.
Yeah. The dollar term growth for the quarter, close to 10%, and for the year is close to 8%.
Okay. Thanks for that. One more follow-up on the top line only is you clearly mentioned about the top line going forward directionally, asset turnover, 1x going forward. Just on the CapEx front, what was the CapEx as at, say, FY 2019 start of the year, and what is the addition over the last 12 months, if you could just rehash that?
We ended the year at $451 million, and we spent $108 million during the year. If you back calculate, you would know.
Yeah. You said that the 1x asset turnover with the revenue build-up from second year onwards. Would that be?
Yeah. As I said, it's on the core businesses of discovery services, development services, and dedicated centers. 1x asset turnover for the lifetime of the asset, but after a revenue build-up is up to two years.
Okay. This includes Mangalore API?
Mangalore is a manufacturing business. I think Sibaji's comment was quite specific around.
The current core business of discovery services, development services. The manufacturing, you can get to that sort of asset turn in those time frames, but they tend to be a little bit longer term buildup.
Understood. Okay. No, I was asking for $108 million. What is the share for the Mangalore API CapEx?
Okay.
Well, we gave that, I think, in the speech.
Yeah. Mangalore.
33 million out of the $ 108 in the year.
Mangalore is $43 million out of the $108 million.
Okay, sir. Thanks. I'll join back with you. I have more questions. Thank you so much.
Okay.
Thank you. The next question is from the line of Ashish Thavkar from Motilal Oswal. Please go ahead.
Yeah, thanks for the opportunity. Sir, for your CMO business, given the kind of CapEx that we are incurring in our business, would we rely more on our own BMS or those BMS would be in-licensed?
We are a service provider to innovative companies, so the assets that we would develop and manufacture would be on behalf of somebody else. It's not a generics plant.
Okay. Just a follow-up on a similar line. To that extent, if I compare your research services to your CMO business, would the return ratios be drastically different?
You broke up. With the prospective returns in terms of return against cost of capital. Is that the question?
No. Between your research business and your CMO business, would your IRR or return on capital employed be significantly different?
I'll invite Sibaji to make a comment. I think the way we look at it is that we see the CMO business as being strategically complementary. It sits well alongside our other businesses, and over time, we can integrate those so that we have an end-to-end continuum of service that we can offer to clients. From research and discovery into development into manufacturing. They fit strategically well together. I don't see the CMO business as being dilutive. I think it has a similar sort of prospective set of returns that we get within our existing businesses today, research services and development services. I'd point to the fact our margin performance compared to our peer group is certainly above average, sits around about the upper quartile on a global basis. We see it as a high-quality prospective business.
Yeah. That's helpful. Thank you.
Thank you. The next question is from the line of Chirag Dagli from HDFC Mutual Fund. Please go ahead.
Yeah. Hi. Am I audible?
Yeah, you are.
Yeah. If I look at your scientist strength addition, we've typically added between 450-500 people on an annual basis over the last five years. FY 2020, we've added about 240-250 people. Is there anything specific going on there you want to call out? What is the outlook on this addition say over the next three, four years?
Super. Yeah. I don't think there is anything we would call out. For many of our businesses, the addition of one scientist is one unit of growth. I'd expect to see over the long run, the addition of scientists to track exactly with the sort of revenue performance of those very people-centric businesses. Our business today in research services is an intellectual capital business, if you think about it. It's less CapEx and more brainpower is the driver of it. They should be growing in proportion. The manufacturing business, as we evolve that over the next five years, of course, is more of an operating scale CapEx business. You build a plant and then you leverage off that. You don't need more people, to leverage, to operate the plant over time. It gives you a different shape to it.
There's nothing I'd call out in particular. Now, Sibaji very helpfully gave you, I think some quite clear direction on guidance for the year on how to model. He gave you an expectation for the first quarter of the revenue and the PAT line, and then revenue and PAT for the full year. I think if you interpolate between those, you're going to be there or thereabouts in understanding the movement of the lines between revenue and profit. From that, you can derive the sort of expectations on head count growth. Our current view on that is that the impact of COVID-19 will be largely contained for us in the first quarter and will reflect the fact that we suspended all operations for almost a month of the quarter. We're now back at work at least at a 70% level.
By the end of May, I hope that we're, or expect that we'll be back almost at 100%. Then the second and third quarter, providing nothing materially changes in the pandemic and the situation in India, should play out that we're pretty much back at normal operations. That gives you a good sense of how we're thinking about the year.
Understood. Thank you so much.
Thank you.
Thank you. The next question is from the line of Vrijesh Kasera from Mirae Asset. Please go ahead.
Yeah. Hi, sir. Good afternoon. A couple of clarifications. In your opening comments you mentioned that in the Q4 we saw some of the clients actually accelerating the work. Did I hear that correctly, and that led to a positive impact on the quarter?
Yeah, a tiny impact, but I thought it was worth calling out just because most people across industry are reporting the fourth quarter of the year was a little bit down because of the leading edge of the sort of lockdown in India. Remember, of course, we're a very globalized business. Most of our clients are not Indian and not in India. They are distributed around the world, including the U.S. and Europe. As you've seen, if you track the news, the impact of COVID-19, which is visible so much sooner, particularly in Europe. Therefore many of our clients were experiencing their version of lockdown at a much earlier point than India was. India, thankfully, has sort of seen cases of COVID-19 a little bit later, and that's given the nation a bit more time to react and plan, and take actions. Nothing more than that.
I wouldn't over-interpret the comment.
Understood. The second clarification that I wanted on the full-year outlook, did you mention that even after the decline or flattish growth that we'll see on the top line for Q1, we'll still close the year with a double-digit growth?
Yes
on the top line?
Correct.
This is what you're saying.
That's the current planning assumption. As you know, I don't think there's a business in the world that wouldn't put the same caveat I'll put on that, which is that's if the current situation continues through the year. We're in the middle of a global pandemic, and therefore everybody needs to be very clear that planning assumptions change very rapidly. I'm sure you, along with many of our staff, have seen a massive change to your working environment over the last six weeks from a pre-COVID world to a lockdown, to mass work from home. It's a highly fluid situation.
It understood.
What we're trying to indicate to you is that on the assumption that we're back at work and operating, which is where we are today, and we can continue to do that, then the order book for the second, third quarter, we've got pretty good visibility. The fourth quarter, we've got reasonable visibility, but of course, we're always looking to do our sales and commercial operations now are always the determinant of the fourth quarter. What you do in the first quarter tends to feed the fourth one. We've got more to do for that.
If you add all of that up, relatively sort of impacted first quarter because we suspended operations, then back to a more normal trend, the add up of those two should mean that we do at least as well on top line revenue in FY 2021 as we did in FY 2020, maybe a little bit ahead of that. Double-digit growth.
Did we give a PAT guidance as well?
Yeah, we did.
For the year.
Yeah. I think PAT for the full year should come in level with where we were in FY 2020. No decline, but we should be pretty much at the same level of profit generated during the course of this year.
Yeah. Final one, if I may. This API plant, where we are doing the validation studies at this point of time, for the FDA approval or the regulatory approval because of this pandemic, do we expect any delays on that front?
I don't think we have enough clarity on how that's going to evolve with global regulators, not just the FDA, to know whether or not a delay is possible or likely. That I think is unclear. We've seen, for example, some audits, some client audits, some regulatory audits, have switched seamlessly to virtual auditing, doing it through an offline assessment and also almost video tools. We had one this week. We've done an ISO qualification and validation in the last few weeks, and they did that rather effectively through a combination of offline and video auditing. We need to see how that evolves. I don't think I know at this point whether or not we're likely to be impacted or not, but that's true I think for all companies. That said, of course, the regulators have also got an obligation or an incentive.
The world needs new manufacturing capacity. It needs science to be done. You're seeing an enormous effort globally with regulators and governments moving very, very quickly to address the pandemic. I'm sure that they'll be equally looking at that and thinking, "How can we continue to operate effectively in a world that's got COVID-19?" It's not as if that's asymmetrical. All parties will be looking for an effective solution.
Sure, sir. Thanks a lot.
Thank you. The next question is from the line of Neelam Punjabi from Perpetuity Ventures. Please go ahead.
Thank you for taking my question. Congratulations to the management for a good quarter. First, could you please throw some light on your hedging policy? This is in context of the loss in other comprehensive income being reflected in your current quarter and FY 2020. Could you please give some color on that?
Yeah. Sure. Sibaji, over to you.
Sure. Thanks, Jonathan. Yeah, I will. We generally are very conservative about our hedging policy. We hedge 100% one year out. For all long-term contracts, we hedge for the full contract period. For the second, third year, we hedge partially. That's broadly how we progress on that. We do have a big hedge book and that's disclosed in our annual report and under financial statements. Right now the hedge book is $550 million.
Okay. This practice is consistent? You all have been doing this since in the past as well, and do you all intend to do it in the future as well?
Yes, absolutely consistent. We are very disciplined about it. Our revenues are hence very predictable as long as the order book is sustained. Sometimes it does lead to MTM gain. Sometimes it does lead to MTM losses. At the end of the day, they are all OCI, they go as it is in the balance sheet. We have a high level of predictability as far as the future year's revenues are concerned.
Yeah. Sibaji, just take a moment if you sort of step back. What you're seeing in this quarter is no change. Our hedging policy has been as it is for many, many years.
Correct.
Therefore there's, for us, no area of concern, no reason to change given the current sort of COVID environment. If that was the premise of the question, if you were looking and saying, is this a different way of operating? It's been a consistent policy for a number of years. It's proven to be very prudent and I think quite conservative.
Thank you. I would request Mr. Punjabi to rejoin the queue. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Hi, good afternoon. Congrats for the set of numbers. I was looking at the capital work in progress, which has declined roughly INR 260 crore when I compare with the December quarter. Is this all coming because of the commercialization of the Mangalore facility? Trying to understand if the Mangalore CapEx has moved from CWIP to gross block, or if the decline is not coming from Mangalore, can you help us understand where the decline is coming from?
Yeah. Yes, we capitalized the Mangalore plant towards the end of the quarter. Most of the decrease in the CWIP is coming from capitalization of Mangalore plant. There are other plants, other facilities, but not significant enough to mention.
Okay. The Mangalore CapEx, the total CapEx of around $ 75 million, now it's moved entirely out of CWIP, and it's now part of your gross block.
Yeah, most of it. A little bit is left because our plant has a tail always. There are some construction activities here and there going on, but most of the $75 million is in capitalized books now.
Thank you. Would request Mr. Ahamed to rejoin the queue. The next question is from the line of Mohnish Dave from Temasek Holdings. Please go ahead.
Hi. Thank you for taking my question. Jonathan, Sibaji, you mentioned that revenue for FY 2021 was double-digit growth. PAT would be nearly flat. While we understand some of the Q1 impact because of negative operating leverage, if you could elaborate a bit further, how much of this is because of, let's say, weak mix? How much of this is maybe because we are spending higher on the newly commissioned facilities? Also what you mentioned about higher PPE spend, transportation spend, operating multiple shifts. If you could just elaborate a little bit more on the margin compression expected in FY 2021.
Yeah. Sure. I'll make a couple of comments and then hand over to Sibaji. I would say, though, as you know, as a company, we have a policy of not giving specific earnings guidance. It's a deviation from our normal practice. I look forward to when we go back to our normal practice, that'll mean we'll have come out of pandemic. We're trying to be helpful by giving you guidance both for the quarter and also for the full year. Forgive me if I don't break open the rest of the P&L to every line item. With that said, I think your question captured some of the drivers. There are some increase in operating costs. We've moved to shift systems.
Over the last month, we've effectively started our own transport company to get staff into work, given that most public transport throughout the country has been suspended. We're running a fleet of buses. We're doing that in a socially distanced way. It's one person per two seats. That means you need just mathematically twice as many buses as you thought you needed, and so on. We can't really break those over into line items. Sibaji, I wonder if there are any other color comments that you would give that would help people think about it.
Jonathan, you have covered it all on COVID-19 related expenses. I think the question also included Mangalore SEZ plant, and on that, we already gave you some understanding of how much will be the depreciation impact. On top of depreciation impact, there will be also some operating expenses. As we have guided that our commercial production will really start in quarter four, so there will be some operating expenditures during the next three quarters, which will have a relatively small margin impact on our EBITDA and PAT during the year.
Thank you.
Thank you. The next question from the line of Dheeresh Pathak from Goldman Sachs. Please go ahead.
This is a basic question from my understanding. In the discovery and dedicated services, which is person-heavy business, there what percentage of the work or what kind of work can be done from work from home, and what kind of work needs access to laboratory equipment or certain high-end computers which a person might not be able to have access when he works from home?
Good question. I think the simplest way to think about it, those are scientists doing research in labs. There are elements of their job, the planning, the thinking, the strategizing, the writing up reports. You could do on a work-from-home basis, we're very happy to enable that for our staff. The core experiments you need massively sophisticated equipment, and you need to be in a lab to run the experiment. That said, I think Syngene as a company, I suspect Syngene as a whole, in the last three or four weeks gone through the fastest, biggest adoption of work from home that anybody could ever have imagined. Certainly, we've moved very quickly. I would credit our IT department by having very good systems in place, the ability to operate seamlessly from home with cloud-based systems in a secure way.
We went from effectively four weeks ago, nobody in the company worked from home to finding the vast majority of the staff set up and working from home. I think some of that's going to be enduring, and that may well be a good thing for being an employee in India and in Syngene. It will be a fantastic thing if we can make it work at a national level. India has more than enough challenges with traffic and commuting. For those of you that know Bangalore well, Bangalore traffic can be a thing of joy and great challenge. If we can shift some people working from home, not all day, not every day, and not full-time. I think we'll probably end up with a mix, with some people working from home on one day, coming into the office the next, as their work depends.
A bit more flexibility. Good thing for work-life balance. Everything we can see about it means that people can be highly productive, providing you get the technology right. We've done a pretty good job on that. A little bit more of a comment around the topic than your question.
That was helpful. Just to get some sense in terms of quantification. Let's say if you're billing your clients for certain hours in a month for one particular scientist, what percentage of those hours do they spend on the labs equipment which cannot be even done as work from home, and what percentage get-
Yeah, no, I get the premise of the question. I don't think we can break it down to that forensic level because it would depend week by week, month by month, employee by employee. To give you a comprehensive answer, I'd have to give you the work schedules of between 4,000 and 6,000 staff. Hopefully there's enough in my answer to give you a direction. Which is we don't see that as an issue. Many of our relationships with our clients are the dedicated centers business, and actually quite a lot that builds on discovery services is on an FTE basis. It's not an hourly charged model. It's a full person per month, per quarter, per year model.
Therefore those staff, whether they're working in a lab, working from home, actually working as we've now done because we put fully enabled digital Wi-Fi in various open spaces in the campus. If you want to grab a cup of coffee and go and sit on a bench in what is a beautiful working environment on our campus, you can still do it. It's billable if it's productive, and people can be productive independent of place. That's really what I'm trying to lead you to. Does that make sense?
Yeah, makes sense. Thanks. One more question. The depreciation for the API plant will start from next quarter or only when you do commercial sales, which is the fourth quarter of FY 2020?
Yes. It actually started towards end of March. There's a very small, but there is a depreciation also in the last year's financials. It will start with full quarter impact from quarter one 2021. Yeah. The guidance that we gave actually incorporated the depreciation impact that's coming out of that.
Sibaji, just one last one on that. I'm very conscious that we're up against a time deadline. We'll take one more question after this one. Just on that simple way for everybody to think about the API plant. We finished the building phase this year. Just about all of this year will be about building its regulatory track record, building its qualification track record. You will see depreciation charge, which will be a net drag on profitability through the year. In terms of it being a revenue driver, we'll see some positive revenue this year, but not enough that it's meaningful at a whole company level. I would be looking to model that revenue from next year and the year beyond, and that's in line with the comments Sibaji made around how long it takes to build momentum in something like a manufacturing asset.
It's a little bit longer than you see in a lab-based business. It has different dynamics to it. We still think it's a good investment to make. It will create value over the life cycle of the asset. That's how I'd be thinking about it from a modeling point of view. With that, if we could take the last question.
Thank you. Yeah.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yeah, thanks for this opportunity and congrats for the good set of numbers. Just again on the CapEx number. You have mentioned $75 million is the kind of spend so far on the Mangalore. I believe the earlier indicated number was around $100 million. Is it fair to believe that $25 million balance will be done this year? Also if you can share, what is the kind of money that has already been invested in the biologic side, both in the research facility as well as manufacturing one?
Sibaji, if you want to maybe make some comments, as you're thinking about that, let's just summarize where we're up to. $550 million program spread over multiple years. The last year of that is FY 2021. We expect to be fully invested with all $550 million by the end of this year. By the end of FY 2020, that was at $451 million. You've got about $100 million of runway in this year to go in FY 2021.
During the last 12 months, so FY 2020, we added $ 108 million of that CapEx. That gives you the preceding year's balance if you were to back calculate. Take INR 100 million.
Say again.
$451. Yeah, no, I'll give you all the numbers. The API was $43 million in the last 12 months. Discovery service is $28. Biologics, 12. The remainder was spread across others. Would you make any other comments, Sibaji, on the programs?
Yeah. I think I know the $100 million comment from the past was the total money we estimated for the fully expanded plan.
Okay. $75 million corresponds to the current level of execution that we have targeted by FY 2021. There are plans in the later stage to expand it further. $75 million holds. Nothing has changed on that.
Okay. The biologic one, on both the research facility as well as the manufacturing one, what is the money so far that has been invested?
We actually don't disclose at that level. I can tell you, cumulatively, it's almost 10%-15% of the money that we have spent in the current year.
No, sir. Cumulatively, I was asking, so far, what is the
If you look at our gross profit, close to 10% of that has been spent in biologics.
Okay. Secondly, Jonathan, if you can help me understand. You have just mentioned that in your presentation that there are several projects that are going on, both in the Discovery Biology services side and a few of the projects on the developmental activities on the biologic front. These are kind of initiatives, like the efforts to build capability or it is based on certain customer requests that you are currently working on?
I'm sorry. I didn't get the question. Please restate it.
Yeah. In your presentation or press release that you have already mentioned that there are various or several projects which are currently going on the discovery biology front. There are validation of new biological targets are currently happening at the research labs. Also you mentioned that that is relating to the CAR T therapy. If you can help me understand that, okay, these are based on some customer's request or it is a capability-building kind of initiative?
Oh, okay. Sorry. Now I understand. Well, it's a bit of both. Remember, we're a pure-play services business. We don't do any work other than for clients. Always, if we're doing a project, we're doing it with somebody else for somebody else. Therefore, they will have commissioned that work. We are doing that for clients. It's not that we're building our own pipeline.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Ms. Jill Deviprasad for closing comments.
Thank you, everyone, for joining today's call. Hope we answered all your queries satisfactorily. If any further questions, please get in touch with me. Have a good day and stay safe.
Thank you.
Thank you. On behalf of Syngene International, that concludes this conference. Thank you for joining us. You may now disconnect your lines.