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

Ladies and gentlemen, good day, and welcome to Glenmark Life Sciences Limited Q2 FY '22 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Soumi Rao, General Manager, Corporate Communications. Thank you, and over to you.

Thank you, Stanford. Good morning, everyone. Thank you for joining us early this morning. We welcome you all to the Q2 F '22 Earnings Call of Glenmark Life Sciences Limited. Today, we have with us Dr. Yasir Rawjee, our MD and CEO; and Mr. Bhavesh Pujara, our CFO. As we begin the earnings call, here is a summary of our results. For the second quarter of FY '22, we registered revenue from operations of INR 5,617.6 million, recording a Y-o-Y growth of 7.9%. EBITDA for the quarter was INR 1,694.3 million, growing at 33.5% Y-o-Y. EBITDA margin for the quarter was at 30.2%. Profit after tax was INR 1,152 million, registering a growth of 59% against the corresponding quarter of the previous financial year. For the first half of the financial year, the revenues were at INR 10,866.6 million, growing at 18.4% Y-o-Y. EBITDA margin for the first half stood at 30.7%. PAT for this period was INR 2,161.1 million, growing at 40.8% Y-o-Y. Coming to our business performance, revenues from generic API segment during the quarter increased by 3.9% Y-o-Y and by 18.2% in H1 F '22. The quarter continued to witness robust growth momentum in LatAm, North America and Japan regions. Our CDMO revenues rebounded during the quarter and registered a Y-o-Y growth of 85.1% in Q2 FY '22 and 25.2% in H1 FY '22. Our regulated markets accounted for 70% of net sales in H1 F '22, growing at 30.1% Y-o-Y. Amongst other business highlights, we filed 5 DMF/CEPs across major markets during the quarter. And as on 30th September 2021, our cumulative filings stood at 412. Our capital expenditure during H1 F '22 was at INR 467.1 million. The R&D expenditure was 2.5% of the revenues of the first half of FY '22. On the complex API front, the first draft product filing with our API happened during the quarter. We have 3 complex iron compounds in our development pipeline. We also expanded our oncology portfolio in Q2 with the inclusion of 3 anticancer drugs. Now we have a basket of 7 products in the oncology space. We have also declared an interim dividend of INR 10.5 per share. Now I would quickly read the disclaimer. Some of the information in the document, 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 and uncertainties, which could cause actual outcomes and results to differ materially from these statements, depending upon economic conditions, government policies and other incidental factors. Such statements should not be regarded by recipients as a substitute for the exercise of their own judgment. The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 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 before we open the floor for the Q&A session. Thank you.

So Soumi, thank you very much, and good morning to everyone. I hope we are coming to the end of this pandemic. At least in India, things are looking very good, and -- but we still need to stay safe. So hopefully, everyone is doing that. Coming to this quarter on our business in Glenmark Life Sciences. So you've seen the results. Both our levers have fired pretty well. The generic business has done well. The CDMO business has also grown quite nicely. And we basically had to deal with a few headwinds, and that's been all over the industry in terms of energy prices, in terms of raw material prices as well as supplies of raw materials. And of course, there are some freight challenges as well. So we've had a set of challenges. And with all this going on, we still kept a very sharp focus on efficiency cost management. And as a result of that, our EBITDA margins are still very healthy at 30.2%. And this is something that I think we take a lot of pride on, and our team has done a fantastic job. And I think we're going to continue this going forward. Just to give you a sense in terms of our execution priorities, again, I'll sort of break it up into short term, long term and mid-term. So as far as short term goes, we want to continue to make sure that our customers are serviced regardless of what happens in the external environment. This is a key priority in the short term. As far as the mid-term goes, again, our R&D focus needs to be laser sharp in terms of our cost improvement projects as well as our filings on the new APIs. And this is something that is happening. In terms of long term, we have 2 big projects coming on, and those are also going extremely well. So Dahej project, like we had promised, is going to come up in quarter 4 of this year. In terms of the number of modules, we probably will have 2 modules this year and then another 2 modules in Q1 of next year. So this should give us a huge benefit in terms of capacity enhancement and help give us a runway of at least 1.5 years to execute on the growing business. In addition, we got the Solapur land allocated in our name. This is 40 acres sitting in an industrial development zone in Solapur and Maharashtra, and this is going to be our greenfield site. So work is going to start -- work has already started. But of course, the early part of the infrastructure is getting started now. But the heavy lifting in terms of the plant and so on will probably begin in December, if not latest in January of next year. So that also is very well on track. And again, we have this site as an additional site for a variety of reasons. One is for -- just to sustain the growth of the generic business, along with a platform for the CDMO business and some backward integration that we are also very seriously evaluating at this point. So this does mean that our CapEx spend is going to be a little higher, right? But with the kind of cash we are generating in the next few years, I mean, this is something that we would be able to do very comfortably. So I think I will stop there, right? And we'll open it up for questions.

[Operator Instructions] The first question is from the line of [ Ritwik Mukherjee ], an investor.

Yes, sir. Yes, sir. So sir, there's like one question that I want to ask. Okay, sir. So that is, is Glenmark Life Sciences working towards development of cancer, medicine APIs or anything sort of like that?

Yes, we have 7 molecules, [ Ritwik ], 7 molecules in the pipeline and 3 -- I didn't mention, but in the Dahej expansion, we also have an oncology plant that is coming up and that would start functioning in March of next year, so quarter -- end of quarter 4. And we have 3 products, 3 cancer products that we are going to validate commercially in that plant in the April to June time frame with one customer already ready for all these molecules. I mean not -- I mean one per molecule. So -- and then we've got 4 more, right, in the pipeline that we are developing that will come in later in next year.

[Operator Instructions] The next question is from the line of Deepak Gupta from Reliance Nippon Life Insurance.

If you could share some perspective on customer concentration in terms of what Glenmark -- what is the private's contribution to the total top line for the quarter and for [indiscernible]?

Yes. So Shyam (sic) [ Deepak ], for the quarter, it was about 40%.

30%?

40%, 40%, 4-0.

40%. And for 6 months also would be similar?

Slightly. Yes, about that same level. So the quarter 1 was 41%.

Sure. And if you could share, what is the contribution of the COVID portfolio or API supplies for COVID? How much of that would be contributing for the quarter and for 6 months?

So in the first quarter, it will be low single digit -- sorry, in the second quarter, in the current quarter, it will be low single digit. The first quarter, it was about 12%.

Got it. And if you could give us an update of your 2 facilities in Dahej and Ankleshwar? Any U.S. FDA inspection happening? Or are you expecting any FDA inspection to take this in the near-term future?

Okay. So the last inspection in Ankleshwar happened in July of 2019, okay? And that was the VAI. Dahej happened in November of 2018. So right this month, we complete 3 years, right, in Dahej. But -- so that's 3 years in Dahej and about, let's say, 2 years and 2.5 years in Ankleshwar. So yes, we could expect an inspection anytime in the next few months.

Sure. I hear that. And the last question from my end is, what is the steady state EBITDA margin as the company targeting given the fact that margins have been a bit volatile? Last 2 quarters have been steady, but previous quarters have been a bit higher. So what kind of steady-state margins can we target from the medium to long-term basis?

So given the kind of depth in our portfolio plus a sort of less commoditized portfolio, I believe that in spite of these headwinds that we are facing, we could sort of hover around 30%, 31%.

Sure. All right. I hear that. And so sorry, one another last question from my end is what is the sourcing from China that you do for raw materials currently?

Yes. So it's around 40% that we do. Of course, I must say that our dependence is not 40%, okay? So our dependence is well below 10%, okay? So it's just that we've got these very steady relationships with our Chinese suppliers. They've been around with. They're in our files and so on. So they continue to give us the value that we need. And so we continue that relationship, and as a result, it's 40%.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one, in your opening remarks, I think you called out quite a lot of headwinds in terms of input costs and raw material costs and stuff, including utility costs, but we saw the gross margins have improved sequentially. So just if you could help us understand what has driven that?

Shyam, it's a result of mix. Gross margins -- I mean, of course, there is an impact of input costs and largely coming from solvents. But this quarter, we've had a lot more on the CDMO side and a lot less on the COVID drugs on the Favipiravir side. So as a result, the margins have been better. Of course, have we not had the challenges on the input side and the energy costs, right, we would have done even better.

Got it. When you give the 30% to 31% margin guidance, how should we look at gross margins? And do you think the CDMO, whatever the uptick that we have seen, is sustainable? Okay.

Yes, I believe it's sustainable, right? With respect to the interplay between the gross margin and the EBITDA, I'll let Bhavesh take that.

Yes. So Shyam, on the expense front, our expense base, whatever you see is quite normal now. So with the gross margins of 50%, 50% -- ranging between 50% to 52%. And then with whatever management we are continuing to do on the expense side, I think we'll be hitting 30%, 31% on the EBITDA margins.

Okay. So helpful. Bhavesh, my second question is just on the industry and how we are positioned on the generic API. If you look at the quarter 2 for the entire pack that has been weak, we have seen actually like up to 10% Y-o-Y decline. Even Q-on-Q has been like a mid-single-digit decline for most of the -- your peers. So have we -- is our portfolio different? You actually called out Favipiravir to be a small contributor. So I'm just trying to understand how are we bucking the trend in terms of API?

So Shyam, this is something we've been sort of highlighting, and it's the nature of the portfolio, essentially, right? So I mean we have stayed away from a commoditized portfolio. And as a result, we've been able to sort of do better when it comes to the cost improvement projects, which have -- a lot of them have happened in these last few months, right, and that's been one big driver. Plus the headwinds in terms of input costs are a relatively smaller percentage of the overall product cost and as a result of that lesser commoditized molecule. So I mean, a combination of that has resulted in us being able to still manage with the growth as well as the margins. Coming to -- just to -- I think you picked that up already, but our quarter-on-quarter growth has also been there around 7%, right? Of course, there was a base effect of last year's quarter 2 because of Favi was very big. And as a result of that, we've been in the sort of single-digit here, right? Without -- if we don't consider having, it would be around, what, 15%, Bhavesh?

Yes.

Yes, 15% if we take away the Favi, right? So growth has been pretty solid, I mean, I would say.

Got it. Last question, Dr. and the team, is on capital allocation. Like you said, again, you're generating quite a lot of cash. I noticed that your R&D has stepped up. So just trying to understand what are the priorities in terms of capital allocation. You highlighted a little bit of CapEx, but I just want to understand how we should think about this.

Yes. So CapEx in the next couple of years is going to be around INR 360 crores, INR 370 crores. This year itself, we will be spending around INR 150 crores. And next year, because of Solapur greenfield site coming up, we'd be closer to around INR 210 crores, INR 220 crores. This is -- most of this, of course, is going towards the capacity buildup. But we are also enhancing our R&D capabilities as well with a lot of sort of newer technologies on flow chemistry and so on to be able to drive that technology piece as well.

Last question here. Okay. Your dividend policy, we have announced the dividend. So just trying to understand how we should think about that.

So decent dividend payout has always been part of our equation, right? So -- and then we think we should be able to do the same in future years also.

Bhavesh, is that like 25%, 30%? Any number that the Board looks at?

Yes. I think that sounds like a decent range that we would be targeting -- we would be aspiring to target.

Thank you. The next question is from the line of Nitin Agarwal from DAM Capital.

The last 6-odd months in 6 to 9 months in the generic industry in general has had significant price compression -- pricing? And how -- as a supplier to the formulation companies, what has your experience been in terms of the pressure that has come back to you on pricing?

So Nitin, price pressure is there. It's something that has always been there. I think as a supplier, this is something we deal with it on a very regular basis. But yes, I think you're probably referring to the U.S. market, right?

Yes, certainly.

And we have had discussions with customers. Now fortunately, like I was telling -- I was saying -- telling Shyam earlier, that, look, we've been able to execute quite well on many of our CIP molecules. And this we've been able to pass on to the customers, right? Of course, there are some molecules, which are still about 6 to 9 months away in terms of the approval process and so on. So there, we haven't been able to sort of pass that on to the customer, but we've given them that heads up that, look, it's another -- it's a matter of another 6 months to -- 6 to 9 months. And we will be able to sustain that pressure for them going forward on those molecules as well. So I think, overall, this is usually the sort of game plan. And we work very closely with our customers to ensure that they continue to sustain their market share and as a result of which our business continues. So that's how we've been sort of working.

And in your experience over the last 6-odd months, what has been your performance in terms of getting your clients onboard for the existing products?

Okay. So Nitin, you've seen our LatAm and Japan growth -- I mean, we haven't reported it separately, but there's been very significant growth in LatAm and Japan. And that's where we've added a lot of business, right? I mean huge increase in our business in both LatAm and Japan. We've added customers there. We've added new projects to new -- to existing customers as well. So that's going very well.

Okay. And again, so just taking forward. So when I look through the next, say, 2, 3 years, from a driver perspective, the driver for business for us. I mean, there are 2, 3 things there. Obviously, you put on launches to be confident of our growth. And on the existing portfolio, new customer additions along with growth in the existing customers. I mean in terms of ranking, how would we put these 3 sort of drivers, which is going to -- in terms of the salience of these drivers of our growth going forward?

Okay. Nitin, it's a very -- I mean, to be very specific in terms of the order and so on, it's going to be difficult. I mean, our job, I think, as a business is to drive on everything, right? So geography, we are giving a lot of focus, right? New customers in existing geographies also we are giving a lot of focus, and additional projects with existing customers also continues. So all this put together, plus the CDMO driver is a big one, right? That -- all these 4 put together, I think, is where the base will also grow. And the new launches and the CDMO fees will also grow now. I can't say what will grow more, but I -- if I had to make a guess, I would say that the new launches are going to contribute more followed by the new customers in the new market, right? And CDMO would be sort of along with that. So the CDMO right now is a smaller base. So I don't -- even though we are doing well there in terms of its overall contribution, it would take a while before that builds up to a significant sort of number.

Got it. A second thing, one last one. On the CDMO, over the last few quarters, what's your experience in terms of the kind of conversations we've been having with customers? And what's been changing in these conversations, sir?

Okay, excuse me. So basically, see, I had mentioned that we've got 3 commercial projects, 3 commercial which are also growing. And we've got a fourth one that is going to get commercial very soon. We are expecting quarter 4, but it may spill over into Q1, right? This is the one that I said that the customer had wanted to file in about 57 markets. Okay. So the conversation basically is around what more can we do to sort of help them, right? And the challenge for them is the doctor-patient kind of interaction. So when that improves with the core -- now you've heard that again, Germany yesterday has like 38,000 cases, right? And the mortality is also pretty significant. The U.S. is around 75,000 cases, right? So again, the -- that sort of free-flowing doctor-patient interaction is not happening. And so while our customers are pretty bullish, right, that is changing, they're also being a little careful with us saying that this is going to pick up, but not as fast as we anticipate.

The next question is from the line of Aejas Lakhani from Unifi Capital.

Congratulations on an outstanding quarter. I think given how peers are supporting, you've executed phenomenally. So kudos to you and your team on that. Dr., two questions. My first one being, again, and I want to probe a little more on this quarter because of the macroeconomic environment also, has there been any raw materials that you had, which had a low base effect, which have also played a part in this quarter's performance? Or is it just been what you mentioned on the call earlier in terms of your abilities to manage costs, all of that and...

Aejas, I'm not sure. Are you saying in a positive way or a negative way?

No, no. I'm asking you in a very much positive way on this, Dr. I'm just trying to still decipher a little more about how we are able to extract such margins in this environment. And I'm trying to really learn that has there been any lower cost raw material source, which was available for us for a longer duration, which has helped us at both the gross margin level and to maintain this EBITDA? Or it's been a steady quarter of business as usual and it's been the efforts of this team on the OpEx side, which has helped us to maintain these margins?

So Aejas, I think we explained the dynamics around the gross margins here, right? So we face challenges in terms of input material price rises. However, our business mix has been much better this quarter. We have lower contribution of COVID products, and we have higher contribution of CDMO.

Got it. Okay. And just a follow-up on that. You mentioned 40% is raw materials from China, right? Is that correct? Because you said 10% also then.

No, no. What I was saying is that the dependence is not 40%. You see, there's this narrative, right, that has built up over the last 1.5 years or so that, for some reason, we are not going to be able to get materials at all from China. So there's always been that effort from our side to derisk, okay, and not depend completely. So while we've done that and done it very effectively in the last almost 2.5, 3 years, right, where we've got now distributed suppliers from China as well as from India and some even from Europe, right, we still continue to work with our Chinese suppliers, like I said, and we buy -- what we are buying is at around 40%. But if for whatever reason, the Chinese supply shuts down or whatever happens, right, we're not going to be stuck because we have a distributed supply chain, and that's less than 10%. I mean the dependence on China there is less than 10%.

Got it. Okay. Okay. And Dr., one last thing is Solapur as a site, could you speak a little bit about the infrastructure because this is the first time I've heard a pharma company expanding into Solapur? So could you speak a little more about Solapur?

Sure. Aejas, we already have a small facility in Solapur. This is a Mohol site. Okay. And the thing is that we had to -- we wanted to do a fairly rapid execution. And so when we were looking for a place, there is an industrial -- there is an MIDC in Solapur, so where a lot of industries operate, okay, already. And the infrastructure there is in line with any other industrial development -- in the industrial area. So we didn't find that to be -- we found that to be at par with pretty much everything else. And because we have a couple of facilities in the neighborhood, so the Mohol site and the Kurkumbh site are there, in terms of being able to execute rapidly is something that we found advantages, right, going forward. That's why we are pretty confident even now that in about 15 to 18 months, we'll have a functioning facility in Solapur. So it's a good place. I mean -- and the other thing about it is that the land is pretty cheap compared to other places, I mean, other industrial areas.

The next question is from the line of Vikas Sharda from NTAsset.

A couple of questions. One is that, how is the order book or pipeline looking for CDMO business for the second half of the year? And secondly, when we look at the interim dividend declared for first half, I mean, should one take it more like a one-off or recurring in terms of payout or execute amount going forward?

Okay. So Vikas, I'll let Bhavesh take the dividend question. I'll come back to the CDMO question.

Vikas, I didn't get your question. Can you repeat the second part?

Yes. So I mean the interim dividend, when we look at it, it's INR 10.5 per share. So does this one look at it as a base in terms of payout or execute amount going forward? Or it's more like one-off with the IPO?

Yes, we would aspire to maintain a decent payout ratio. I think this year, whatever, 25%, 30% we work out to that and see our cash flow pattern. If you see, we are generating close to INR 450 crores, INR 500 crores cash flow pre-CapEx, right? And our CapEx plan after we account for it, we have good profitability and good cash flow generation. So combination of these two will guide our dividend payout going forward.

But you said that for the first half, it was out to be over 50%.

Yes. But then this is the interim dividend, and this is for the year, right? So I'm -- we are looking at it more as an annual -- from an annual perspective, because timing of dividend is a function of how we look at our cash flow, right, in terms of phasing. So we have our investment plans, which are going to get activated going forward. So that's how the timing part has been addressed.

All right. So it's more like an annual dividend, not just for the first half?

We will see how it goes. But yes, probably that would be the case.

Understood.

So coming to the CDMO piece, Vikas, I expect this momentum to continue, at least this level of momentum to continue for the next 2 quarters as well, because there are 3 projects driving it, 3 commercial opportunities driving it. Of course, the fourth one, like I said, is likely to hit us in Q4, but may spill over into Q1. It all depends on the approvals coming through, right, for the customer. They filed in a lot of markets.

Understood. And one more question on Favipiravir. So could you talk about the revenue growth for this quarter, excluding it from the base and the top line in this quarter? And secondly, I mean, as the contribution of Favipiravir has come down, still the sales to Glenmark Pharmaceutical is 40% for the quarter. So I mean, I would have expected it to come down. So why is that so?

So Favi -- so first part, Vikas, so Favi was a high base, okay, particularly in the quarter 2 of last year. So just if you adjust for that in both the quarters, we have growth between 13% to 15% in the top line.

13% to 15%?

Yes.

Okay. And secondly, about this 40% sales to Glenmark Pharma despite this Favipiravir coming down?

Yes. So Vikas, Favi was there this quarter. It did move away completely. We did around INR 30 crores worth of Favi, which is around 5%, okay? So without that, it will be around 35%, right, 35%. So this is something that historically has been the same. I mean, because we've got quite a few APIs with Glenmark Pharma, right? And 30% to 35% is something that we see on a very regular basis.

[Operator Instructions] The next question is from the line of [ Jeeva ], an individual investor.

What is the current capacity utilization, sir, of our plants?

[ Jeeva ], we are operating at close to 90%. In fact, it's even higher than 90%, depending -- I mean, depending on our mix, but we are at 90 plus. Between 90% and 95% is what we are operating.

Okay. Okay. So turning in the upcoming expansion plan, we don't have any capacity constraints. We can operate -- we can with the constraint?

Yes, I'm hoping that with Dahej expansion coming online, 2 modules coming in Q4, that will help us serve a lot less than another 2 modules will come in Q1 of next year. So that's going to add an extra 240 kiloliters of capacity, and that's going to be quite significant. It will give us a runway of at least another year, 1.5 years before we need fresh capacity.

Okay. So for our next major growth capacity utilization is much lower, sir. Until then, we can't expect significant revenue growth?

[ Jeeva ], can you repeat your question here, please?

Yes, so the capacity expansion commission, we don't see any significant revenue growth rate, sir, still because we already have a 90% capacity in place, sir.

No, but that's mix driven.

Yes, yes.

So I mean we always have a choice, right, to offload some lesser margin products. That's something that we do. Plus we've got 2 smaller factories, the Kurkumbh and Mohol plants, where we've got some ability to sort of move some of the [indiscernible] products. So we kind of worked that way. We're not going to get hampered in terms of capacity in the next 2 quarters, but it's running pretty full is what I'm saying.

[Operator Instructions] The next question is from the line of [ Aditya ], an individual investor.

Congratulations on a good quarter. I have a couple of questions. One is, when would you expect the FY '25 capacity that you're building out? When do you expect closer to 90% of full utilization? And what would be the mix between the CDMO and API at that time?

See, right now, the way how the CDMO and generic API is growing, it's pretty much growing at a similar rate, but CDMO is sort of picking up a little faster, right? With respect to capacity in FY '25, we'll have Solapur running. And Solapur, we've got, I mean, 40 acres and we can do a lot in Solapur. So -- but we'll do it in a calibrated fashion so that it tracks what we are seeing in terms of the demand. That's how we'll be building it out. But having said that, just to let you know, I mean, even both our approved sites, right, the FDA approved -- FDA inspected sites, that is Dahej and Ankleshwar, both these sites also have -- we have an ability to expand there as well. Just to give you a sense, in Ankleshwar alone, we've got around 20 acres of land that we still have and we can expand. Okay. So if necessary, we would also trigger that option because it's clear, right? I mean it's an inspected site, and it would take a very minor approval to bring on that minor variation filing to bring that capacity online in one of the inspected sites.

Got it, sir. And sir, in that case, are there any number of molecules or size of molecules that you have in the pipeline expecting to launch in the next 2 or 3 years?

Yes, I mean every year. Every year, we've got like 3, 4 molecules. We have 2 very big launches coming up, right, in quarter 3 and then quarter 4. So launches are something that's very regular, and these are big launches, right? We've got multiple customers here.

[Operator Instructions] The next question is from the line of [ Manoharan ], a retail investor.

This is regarding the raw material, sir. So you said actually in the presentation, right, we see there is some backward integration that's going to happen in Ankleshwar facility. So out of -- will that change the landscape of our raw materials? So you said 40% getting it from China.

[indiscernible], you need to move your mic a little away from your -- from how you are speaking. Your voice is not clear.

Is it better?

No, just move away a little bit, [ Mano ], a little softer because...

Okay.

Yes, thank you. Thank you. Yes, please go ahead.

Sir, my question, sir, on the raw materials. So with the backward integration that we are planning, will that change the landscape of the raw material that we are importing from China? What will be the impact? And what is the landscape there, sir?

Yes, it's a very good question. I mean, see, obviously, right, we can't -- I mean, the situation that -- the way how we look at it is that it's not going to completely normalize, okay, which means that we have to sort of control our own destiny, right? So this plan that we made to get into Ankleshwar for some backward integration is very well in line with that. So our plan, right, is to sort of protect the top 20 molecules, which would drive about 80% or even more of our business in the next 2, 3 years and look at all backward integration options for these top 20 molecules. So we started that work. And right now, we've got 3 molecules ready to sort of get it to the plant. But like I was telling [ Jeeva ] earlier, the issue is that we do -- we are -- from a capacity perspective, we can't take our backward integration molecules immediately into the plant. But considering that this is only an intermediate capacity, it will come online in about 7 months' time. So we are literally going to be groundbreaking this month, okay? But by June, I would have 250 kiloliters of capacity built out, right, which would help us to backward integrate about 3 to 4 of our key molecules. And this would have a huge impact on our margin profile, but more importantly on supply reliability and -- I mean supply reliability would be a bigger thing where we would -- it would help us. So we are getting into BI in a big way because it's becoming very uncertain. I mean -- and while we hope the situation will normalize, right, we can't sort of live with that hope alone.

Okay. Sir, that was helpful, sir. My second question is, in one of the TV channels, I saw you actually you're saying that raw material size was increased like anything, and we are talking to clients to mitigate the risk, right? So we are trying to increase the price. Any problems there? Any updates that you can share with us, sir?

Yes, sure. So some clients have agreed, [ Mano ], right? Because very clearly, right, they see -- they are aware of the macroeconomic situation. And we've been able to convince them that they should pass on some of that -- they should take on some of that cost increase on their side as well. But for most customers, what we have been able to do is we've been able to bring in a cost improved process, right, and get it qualified at the right time through the customer. And that has helped in a big way to be able to sustain these challenges on the raw material side. So it's a mix of both. We -- some customers have agreed to take on the price increases, right? And for some, where they had challenges sustaining their market share, right, we have been able to sort of help them with the next-generation process. It's only in a few cases where neither was the customer able to agree to increase prices now or be able to sort of help there. But then those processes are going to become commercial in the next 6 to 9 months, like I explained. And so hopefully, we'll be able to cross that bridge also pretty soon.

Sounds great, sir. My last question, sir, out of this 40% raw material input that we're doing from China, right, you said 30%, we are not completely dependent on China. So are they locally sourced? Or is it like, again, it has to be imported from somewhere else?

No, these are local -- so we've got a sort of distributed thing between China and local.

Of the 30%?

Yes.

Okay. Okay. So I'm saying if you are not taking it from China, this 30%, we will be taking it from India itself or outside India?

Okay. Most of it is from India, but some we have even got from Europe and a couple actually even from South America.

The next question is from the line of [ Aditya ], an individual investor.

So forgive my [indiscernible] -- more candid nature of this question. But with the high ROCE growth trajectories and the high margins that you guys have, the valuations don't seem to make sense. And you're speaking to a few people, what it seems like the peer they have perhaps is unfounded. There will be a possible corporate governing issues. Anything -- any steps you guys are taking off kind of laying the sales in the minds of investors?

Could you repeat, [ Aditya ]? I'm not sure I picked that up. I didn't hear, but I'm not sure I got the sort of drift, right? Could you please repeat the question?

So with the kind of business that you guys have created with the ROCEs and the margins and the growth that they're looking at today, the valuations don't really make sense. And you speaking to a couple of guys in the investment community, one of the possible concern there would be about a possible corporate governance issues, even though that might be unfounded. Any steps or any views that you guys have in terms of how you can help all these sales?

[ Aditya ], I'm not aware of any corporate governance issues, okay? And as far as the market goes, right, it's a good time to buy, I would say. So I mean I'll let Bhavesh answer in more detail there.

So [ Aditya ], I think we have that corporate governance practices in GLS. We have independent Board and all our governance in the area of corporate governance, in the area of compliance, in the area of business conduct. I think we follow the best practices.

[Operator Instructions] As there are no questions from the participants, on behalf of Glenmark Life Sciences Limited, we conclude this conference call. We thank you all for joining us, and you may now disconnect your lines.