Alivus Life Sciences Limited (ALIVUS.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Alivus Life Sciences Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Soumi Rao, Alivus Life Sciences Limited. Thank you, and over to you, ma'am.

Good morning, everyone. I welcome you all to the earnings call of Alivus Life Sciences Limited for the quarter ended June 30, 2025. From Alivus Life Sciences, we have with us Dr. Yasir Rawjee, our MD and CEO and Mr. Tushar Mistry, our CFO. Our Board has approved the results for the quarter ended June 30, 2025. We have released the same to the stock exchanges and updated it on our website. Please note, that the recording and transcript of this call will be available on the website of the company. Now I'd like to draw your attention to the fact that some of the information shared this part of this call, especially information with respect to our plans and strategies may contain certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts and assumptions that are subject to risks, which could cause actual results to differ materially from these statements depending upon the economic conditions, government policies and other incidental factors. Such statements should not be regarded by recipients as a substitute of their own judgment. The company undertakes no obligation to update or revise any forward-looking statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. With that, I invite Dr. Yasir Rawjee to say a few words. Thank you, and over to you.

Thank you, Soumi. Good morning to everyone, and welcome to our first quarter earnings call. I appreciate you all joining us on early Saturday morning to discuss our results. Before we delve into the company's performance for the quarter, let me walk you through the broader industry landscape that is shaping our business environment. . The global industry, the global pharma industry is witnessing stable growth, supported by increasing global health care needs, surge in chronic diseases and advancements in biologics and personalized medicine. Regulatory bodies are also expediting approvals, particularly for critical therapies. At the same time, the industry is facing headwinds from pricing pressure, patent expiries, evolving compliance norms and geopolitical risks. Strengthening supply chain resilience is becoming essential for long-term sustainability. With this, let me turn your attention to our performance for the quarter. We reported revenues of INR 602 crores -- INR 602 crores, which is a Y-o-Y growth of 2.2%. This was primarily driven by our non-GPL business, which grew 14.5% Y-o-Y and 4.1% Q-o-Q, supported by successful new launches. However, this growth was offset by a 22% Y-o-Y decline in our GPL business owing inventory rationalization by GPL. This consequently impacted our generic API business, which saw a consolidated moderate growth of 3% Y-o-Y and degrowth of 7.1% Q-o-Q. Geographically regions like India, Europe, emerging markets, LatAm and Japan contributed to the revenue growth. Moving on to our profits for the quarter. Our gross margin for the quarter was 55.1%, up 400 basis points Y-o-Y, driven by rationalize input cost and leveraged operational efficiency. Our EBITDA margin for the quarter was 30.1%, up 210 basis points. Our EBITDA growth was 9.9% Y-o-Y. Our CDMO business remained subdued during the quarter. Validation batches for the fifth project have commenced. The commercialization is expected in H2. We anticipate a broader ramp-up across all CDMO projects during H2. I am pleased to share that our Dahej facility has received the EIR from the U.S. FDA with an NAI classification following a routine inspection conducted from 26th to 30th of May of this year. I would also like to reiterate that our Ankleshwar facility received its EIR earlier this year after successfully concluding a routine GMP inspection in late January. Now this has been a subject of discussion in many calls in the past, where our facilities have not been audited for almost 6 years. And in this last 6 months, we've had both our facilities, our large facilities inspected by U.S. FDA and we've had successful outcomes of both those inspections. So with respect to Solapur, Solapur facility is expected to begin in Q4 of this year. Our pipeline remains robust with over 569 DMF and CEP filings globally as on June 30. The high potent API portfolio remains on the development part with 26 products in the active grid, representing market size of 61 billion TAM, total addressable market. Of these 9 products are validated, 3 products are in advanced stages of development, and the remaining 14 products are progressing through lab development stages. Looking ahead, we maintain our earlier guidance of mid-teens volume growth for FY '26. However, due to pricing pressures, revenue growth is expected to remain in the high single digits. We anticipate stronger performance in the second half of the year, supported by a recovery in the GPL business and the ramp-up of all CDMO projects. We would like to reiterate that margins will continue to be in the 28% to 30% band in the foreseeable future. With this, I now turn the floor to our CFO, Tushar Mistry, who will walk you through a detailed financial performance for the quarter. Thank you.

Thank you, Dr. Yasir. Good morning, everyone. Welcome to our Q1 FY '26 earnings call. I would like to briefly touch upon the key performance highlights for the quarter ended 30th June 2025, before opening the floor for questions and answers. For Q1 FY '26, revenue from operations stood at INR 602 crores, a growth of 2.2% year-on-year. Gross profit for the quarter was at INR 332 crores, up 10.2% year-on-year. Gross margins for the quarter stood at 55.1%, which is well within our given guidance range. EBITDA for the quarter was at INR 181 crores, up 9.9% year-on-year. EBITDA margin for the quarter was 30.1%, up 210 basis points year-on-year, driven by better gross margins. This is on the higher side of our given guidance. Profit after tax for the quarter stood at INR 122 crores with PAT margins coming at 20.2%. Chronic therapies contributed 70% to the top line in Q1 FY '26. CVS and CNS therapies continue to lead the road during the quarter. R&D expenditure for Q1 FY '20 was at INR 21 crores, which was 3.5% of our sales. On the balance sheet and cash flow movement, Speaking of capital expenditure. CapEx for the quarter was INR 52 crores. CapEx guidance, we have a CapEx approval for the Board -- from the Board of INR 600 crores including carryover of INR 190 crores from FY '25. We continue to remain a net debt-free company, and I'm happy to inform that we have generated strong cash flow from operations of INR 200 crores in Q1 FY '26 with cash and cash equivalent of INR 660 crores on the book side of 30 June 2025. In conclusion, we remain optimistic about our growth prospects, supported by strong demand trends, the addition of new capacity and a robust order book. With that, let us open the floor for Q&A.

[Operator Instructions] The first question is from the line of Ahmed Madha from Unifi Capital.

First, I have 3 questions. First to start with on Solapur, you mentioned around the Q4 time line for the CapEx. How do you see the product filing from this facility coming up in the next year or so? And when can it sort of start contributing to the top line? Can you give a broad guideline on the timing of next year or 2? .

Do you want to finish all your questions? This is okay.

Yes, this is first. Second, on the business mix between the Glenmark long Denmark you spoke about it coming back in second half. So I'm just trying to understand if you're -- when you're guiding for a high single-digit number for the full year, are you assuming the Glenmark business to be flat or a slight decline? Because we haven't seen such a blip in last 8, 10 quarters. So just to understand how you are thinking the growth at between both these businesses, Glenmark, non-Glenmark. And lastly, a very small question on the numbers side. So I see mixes up materially while top end with this 2%, I think OpEx is up some 14%. Is there anything material to take note of. Yes, that's it.

Okay. Solapur will come online in Q4. We'll have to file products probably in the first half of next year to trigger inspections. But we do have a plan for Solapur to do some ROW business. So it's not as if we'll capitalize and then there won't be any business done out of Solapur. We plan to start ROW business from Solapur in first half of next year. . Coming to the GPL, non-GPL, I'm not sure what you meant by the blip here, okay? But look, I mean, the reality is that our business overall right, is not a quarter-on-quarter business. Let's understand that, right? There are -- there is eveness in the demand pattern from GPL. We expect that GPL business will also grow, okay? And so we are pretty confident that this high single-digit growth overall that we are forecasting is very likely to happen, okay? With respect to the OpEx going up, I mean, Tushar will take that.

Yes. So there is no exceptional item on the OpEx front. In fact, it is in line with -- if you look at our Q4 numbers also last year, it is in line with that. It's a normal growth that we have seen in our OpEx.

The next question is from the line of Karan Agrawal from Old Bridge.

Sir, just a couple of things on your Glenmark business. I mean I understand that we can't look at this business on a Q-on-Q basis. But overall -- if overall on a year-on-year basis, if you were to see this business, last 2, 3 years, we've seen this business not growing materially. So -- is that the new normal that this part of your portfolio, probably it's logical to see it growing at maybe 4%, 5% on a year-on-year basis. How should I -- how should we look at this, the Glenmark business?

[indiscernible] it is lumpy, okay? And there is growth. And you've got to -- we've also highlighted the fact that there is a contractual obligation in place, okay, for that GPL business, okay? So we are pretty secure in that sense, right, due to that. But overall, I mean, they have a pretty good business globally, and we do supply to GPL for their global market. So I'm not particularly concerned about this quarter being lower than what we normally see, right? Coming to the entire year, it's difficult to see. But when you look at last year, I mean, it was okay, right? The GPL business grew reasonably, I mean, mid-single digits. So I think, yes, it could be between mid- to high single digits, but difficult to say, I mean, at this point.

Okay. The second question is on your pipeline. If I look at your HP API pipeline, it's been moving up reasonably well. I just wanted to see given the last 2 years, the kind of investments that you've done in basically adding molecules to our grid -- how are you seeing them getting active in the front end? I mean, have commercial supply started for any of these molecules. And from a time line perspective, is this the time line that you would always bake in, in terms of these molecules coming to [indiscernible]? Or there has been a slight delay in terms of commercial activation of these molecules? .

See, we have of the 26 high-potent products, right, 12 are already have got firm customer interest, and that's why we are validating. Okay. Otherwise, we won't be validating in the plant. So there is firm customer interest, and this customer interest comes from across the geographies, okay? So with respect to the commercialization that all is timed by the patent expiries. So we should see commercial activity on our onco pipeline on our hypotonpipeline from late FY '27, okay? As the patents in some early markets start expiring. And then the remaining 14 products that are progressing in the lab, there is significant customer interest in those as well. But yes, we've not generated R&D revenue from those as yet.

Got it. And I noticed that the -- you're in advanced stages of adding one more Sucrose molecules. If you could comment something on it?

Yes. So that's going pretty well, right? We have another one about to get filed on in complex molecule, right? And we've got very significant customer interest for that as well. We've got a total of 3, but we are actively considering 2 more to put in the grid. So that's again a pipeline that will become pretty significant in the near future. .

Okay. And from an FY '26 advantage, how are you looking at CapEx, sir?

So CapEx, see Tarang, there is an overflow from last year of INR 190 crores, right? And -- we hope to start our R&D project this year as well. So that plus Solapur coming to completion as well as to big brownfield projects, both in Ankleshwar and Dahej also have to complete. So when you put it all together, we expect to spend about INR 600 crores with the 190 overflow.

Got it. So that plan remains -- I mean, this is what you have communicated in Q4 as well. So that status quo that remains FY '26, correct?

That's right. .

The next question is from the line of Bala Murali Krishna from Oman Investment Advisors.

Just on CDM, even if deposit is commercialized. So what kind of a [indiscernible].

Could you please come closer to the mic and repeat your question, Bala?

Yes, sure, So I'm asking particularly CDMO business. So now for [indiscernible] and we are average of INR 40 crores quarter. So even if the project is commercialized. So by that time, maybe we can have a number like INR 50 crores per quarter or there is some more room also for improvement? And any other -- do you expect any other projects to commercialize in this year or after [indiscernible]?

Okay. So we have another 2 projects that are in the pipeline. But these 5 projects by H2 should all be commercial, okay? And with regard to whether we will clock 50 CR per quarter, that's a very strong possibility.

Okay. So regarding capacity addition. So this year, we are going to add around 40% [indiscernible]. So it's the revenue potential is proportional to the capacitation or like reactor capacity or -- do we see any incremental revenue compared to current capacity?

See, not immediately, okay? Because Solapur is starting off, that will be a large capacity. But a good portion of that capacity is for backward integration. But like I said earlier, that we are going to start ROW business or rather move ROW business to Solapur. So yes, Solapur will contribute to revenue. But it obviously won't be at the level that we get on a per kiloliter from, let's say, Ankleshwar or from Dahej for that matter. So I mean, it will kick in, but it will take some time to bring it to the same level, okay? So we do expect that our FATR will drop a little bit, right? But that's okay. That's a very normal thing, right? .

Okay. The factor is Ankleshwar and Dahej, the 600 KL will contribute to the same level or it is also -- it is not a backward i[indiscernible].

No. Ankleshwar and Dahej is not backward integration. See, the Dahej is largely being done to facilitate our fourth project on CDMO because that demand is going up very quickly. Okay. So we hope to be able to complete Dahej in time to be able to facilitate that business. . Ankleshwar has got so many products. And like I said and we said in our communication that we do have launches. We did have launches in the last 2 quarters, and we do have upcoming new molecules that we'll have to service. So Ankleshwar is largely for that. But yes, in terms of revenue, we expect revenue should -- revenue should come through.

Lastly, sir, I understood that next year you're heading for high single digit, but how this in effect on ton is all these capacities are running -- so what kind of numbers you may be expecting in FY '27, '28 until to [indiscernible].

You asked for FY '26? .

'27, '28.

I think we'll at least maintain that at least, okay? There is upside potential, okay? Because like I said, a lot of the pipeline is maturing in FY '27, '28, I even said even on Oncor, right? Onco will start giving us in the second half of FY '27, we'll start seeing even our onco pipeline growing commercial.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited.

Sir, if we have to think from say 5 years perspective like [indiscernible] a bigger opportunity in emerging. So how do we plan to, one is that you are doing physical CapEx that will help us giving a more sustainable supply to the customer, but developing a pipeline. And second thing on investment in developing a new capability like ADC or biotech? And third, on the process efficiency for flow chemistry investment. So how should we think and when do you think we are and -- how is the second thing is our acceptance and a CRDMO player by the -- our customer.

Okay. Let me go a step by step, okay? So let's talk about CDMO 5 years, right? I mean, we will be a very credible player in the CDMO space in 5 years, simply because we are already seeing that momentum. I just mentioned that apart from these 5 commercial projects, we have 2 now an active discussion and very likely that we will get those 2 projects, okay? So if we keep that kind of hit rate, right, then we are talking of a pretty significant number of projects in 5 years' time, okay? Now with respect to ADC biotech, see, these are all good things, right? But we feel that the chemistry platform is something that will give us a faster payback, right, on our investment if we continue to stay with the chemistry platform, okay, and leverage that to build an even bigger portfolio, right? Now this, again, has a benefit for our CDMO business as well, okay? We don't anticipate getting into any kind of biologic platform at this point, okay? Because the number of opportunities that are available on the chemistry side are also very significant. I mean to flow chemistry, we've had some very good -- in fact, one of our flow chemistry projects is now commercial. And we've made a huge impact in terms of cost, okay? And so our confidence level in leveraging flow chemistry is very high. We currently have 3 projects that are in the pipeline in flow chemistry. Now what this does is that it gives us a very strong position in some key molecules, okay? And it will impact our bottom line very significantly. And as we gain more market share because of our cost position, we are likely to impact top line as well. So the thrust will be in flow chemistry, right? And that could just continue.

Okay. So what kind of -- I mean, investment that may require, again, I mean, building a normal, I mean, he process chemist vis-a-vis [indiscernible] chemistry and how do we -- for next 3 years, we have a strategy to invest.

So the good news, no, Bharat, is that in flow chemistry, right? The investment typically is about 1/3 of what we do in [indiscernible]. Okay. So again, the payback on that investment is also very quick, okay? This is the experience. Now I'm saying 1/3, but it could be even half depending 50%, but I don't expect it to be more than 50% of a batch on the commercial side. In R&D, we have to make investments, but then those are small. And then once you made the investment in R&D and build a broad platform for flow chemistry equipment, then that keeps getting used for newer projects as well. So it's investment light also, I mean, it's not investment heavy flow chemistry.

So when do we see at the end of the third year now since you saw a kind of a benefit that you expect? Maybe a broader contour, if you can -- that is one. And second, now with backward integration of Solapur, what kind of benefit that we expect in '27? .

So like I said, right, it would be initially a bottom line improvement because of backward integration and because of the use of this technology, okay? But top line benefit would take a little longer to come as we gain more and more market share. So that's where we we believe that will get benefited. In 3 years, definitely, we'll see a very significant benefit.

Sorry to interrupt Mr. Bharat, may we request you return to the question for a followup question. The next question is from the line of Nitin Agarwal from DAM Capital.

It's been about almost 1.5 years now since the ownership change happened. You had time to rethink in through how you're looking to grow the business and the opportunities, which have been there. I mean, is there a value been communicating the same since -- for the last few quarters. But -- is there any -- any dramatic cost changes, any improved opportunity spaces that you begin to see that can impact our business as we go forward. I mean, is there any -- what I really need to ask is, is there a I mean, is there a major difference in the way you're looking at the business as we're probably 6 months back in terms of opportunity?

Definitely, Nitin. I mean look, we spoke about this. But I mean, the thing is we've got to we've got to look at different things and many things so we make a jump right into something because then we are committed to that. So we've been evaluating quite a few things. And our net cash position is pretty strong. So you can expect that we would be making some very deep place depending on our evaluation and how we move forward. It takes a little bit of time because, again, I said -- the one thing that you've got to understand about Alivus, right, is that we've got a very deep pipeline. I mean 165 very good molecules, right? And we've seen the sort of -- with the launches, the kind of response that we are getting, right? And we want to be able to not leave that as is, but in fact, use those -- use that pipeline that we've built over these last 5, 6 years to leverage other things. right? I referred to CDMO as one area, but that's only one area, okay? So we are in the process of evaluating what we need to get into apart from what we already do, right? So it's work in progress. I can't say much more.

Okay. And now just clearly trying to put some quantification around whatever the way you're thinking. 2 things on a, how big do you think CDMO gets as a business for you in like 5 years -- 3 to 5 years as a proportion of business?

So if you recall, right, we had said that today, it's about 6%, 7%, but we'll take it to around 12% to 15%, right, in 4 to 5 years' time. And again, that confidence level is very high because we are seeing more and more projects getting added, right? And the potential is pretty strong, right, both in life cycle as well as specialty.

Okay. And on the non-CDMO part of the business, I think this is a business where, relatively speaking, you had more -- I mean, CDMO is lumpy. And once the contracts are signed, it's going to take off. But the non-CDMO part of the business, most of the peers also have been struggling with the generic API growth in general. Structurally, I mean, is this -- is it a double-digit growth business? Or this is a rate single-digit growth business on a more sustained basis? How should we think about this business.

With our pipeline, it's definitely double digit in the future. I mean, of course, there's the GPL element, right? And they don't have that many launches as we are seeing in other markets. And with our non-GP business. But that's okay, right? I mean we did the seating, we did the work, that work continues in terms of seeding, right? And so we're seeing that already. I mean you've seen the last 3 quarters of Q3, Q4 last year, plus this year, we've had a good number of new introductions, okay, into the various geographies. So API business with us is, again, due to a fairly deep pipeline and a good geographic spread is likely to continue, right, pretty strong.

So I mean to recap, obviously, the CDMO will take its own course as the contract had signed up, and I presume with the confidence that you are indicating the scale and size of some of these newer contracts should probably begin to inch up as you go forward, right?

Yes.

And you still believe that API, despite the GNP sort of scale down scale up that keeps happening, it's a double-digit growth business on a sustained basis for us, at least for the force of the future. .

Yes.

And the margins should be in the same 20%, 30% bracket around that, that we should be -- that's a model that is continued. .

We lost PLI, right? But we are still delivering those margins. So I mean that should give you some idea, right, in terms of the basically, the strength as well as the sustainability.

The next question is from the line of Avnish Badman from [indiscernible]. .

Just one very quick question from my side. I just wanted a little bit color on the CDMO business. Doctor, you mentioned in the last call that it's more of a life cycle management business. Can you just talk a little bit more about that? I mean, all your customers' innovators. And when you say life cycle management, are they approaching you more for cost reduction? Or are they approaching you when the patents have, I mean, just a little bit more color on that side, please?

So yes, you're right. I mean in life cycle, the cost reduction element plays a big role, okay? And obviously, we've got to demonstrate sustainability as well because typically, these life cycle management projects come from the innovator who is moving to from an in-house API to their -- to a different API. So that element is important. Cost is important. Sustainability is important. I think we've proven that to our customers. Project 4, project 5 are both life cycle projects, and they are significant in terms of their value, right? But like I said, there are 2 more active projects that we are discussing and those are specialty and life cycle. So we are seeing reasonable traction even on the specialty side, okay? And the good thing about specialty is they do get a period of exclusivity, right? And so margins can be very good, okay, in that space. But we are open to both. The thing with specialty is that we need to do a fair amount of optimization on the molecule, okay? Whether it's polymer, whether it's a salt, whether it's a certain very narrow particle size range to help the formulator. So there are all kinds of nuances that have to be built into the API in order to facilitate a good formulation that is being targeted.

Okay. And typically, innovator takes decision from moving from in-source to, let's say, a CDMO partner is when the patent expires or there could be other reasons also.

See, that depends on how conservative they are, right? I mean like we have this Japanese innovator. This is a project #5, you know about this, right? That -- they took that call only after the patent expired, right? But then there are other innovators who come in earlier and sort of want to be ready with the variation approvals, site additions and stuff, right, just before generic launch. .

Makes sense. Last question on the API side, if you can just give a little bit color on the product concentration. I mean top 5 products would be what percentage of the revenue?

35, I'm making a guess, an educated guess, okay. We're not very dependent. I mean.

No, no, I just wanted a ballpark figure. That's fine. It works.

The next question is from the line of Tarang Agrawal from Old Bridge.

Just a follow-up. You made a comment in your initial address that the gross margin expansion is a function of lower pricing of raw materials? And at the same time, some operational efficiency is getting created. So if you could just elaborate a little bit more on that. Second, it does seem like there is pressure in the API market, but simultaneously, the pricing in the intermediates and raw material market is also very favorable for you. So does that mean that you're deploying more to color more inventory? How are you looking at it?

I think, Tarang, you answered your own question really. So there is a benefit okay, on the raw material side, but it's not all -- it doesn't all come from there. Like we said, right, we've had launches very good margins on the launches, right, okay? And operationally also, we've been working on newer infrastructure. All that is now kicking in, in terms of better energy efficiency, better realization on second gen processes and so on, right? So all this has come together, right? And that's why we were able to see 55% gross margins right, as a result of [indiscernible].

Got it. And second, I mean when we see the non-GPL business growing by 14%, that would have probably been a function of almost 20%, 25% volume growth in that business, correct? Would that be the right way to look at it? .

It's actually 18% volume growth.