Aurobindo Pharma Limited (AUROPHARMA) Q3 FY2026 Earnings Call Transcript & Summary

Good day, and welcome to Aurobindo Pharma's Earning Conference Call for the Third Quarter of FY '26. [Operator Instructions] Please note, this conference is being recorded. I now hand over the conference to Mr. Varun Mali for opening remarks. Thank you, and over to you, sir.

Thank you, Vandit. Good morning, ladies and gentlemen, and welcome to our third quarter FY '26 earnings call. I'm Varun Mali from the Investor Relations and Corporate Communications team. We hope you have received the Q3 FY '26 financials and the press release that was sent out yesterday. These are also available on our website, www.aurobindo.com. I would now like to introduce our senior management team who is on the call with us today, represented by Dr. Satakarni Makkapati, CEO, Aurobindo Biosimilars, Vaccines and Peptide Businesses and Director, Aurobindo Pharma Limited; Mr. Yugandhar Puvvala, CEO, Eugia Pharma Specialties Limited; Mr. Swami Iyer, CEO, Aurobindo Pharma USA; Mr. V. Muralidharan, CEO, Europe Formulation Business; Mr. S. Subramanian, CFO, Aurobindo Pharma Limited. We will begin the call with the summary highlights from the management followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic actions and other information on our future business, business development and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors may cause actual developments and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances. With that, I will now hand over the call to our CFO for the business highlights. Over to you, sir.

Good morning, everyone. A very warm welcome to Aurobindo Pharma Q3 FY '26 Earnings Call. Thank you for taking the time to join us today to discuss the company's financial and operational performance. of the third quarter of the current fiscal year. Let me begin with a brief summary of the performance. Our consolidated revenue for the quarter grew by 8.4% year-on-year to INR 8,640 crores reflecting sustained business momentum through the 9 months of FY '26. This growth was driven by continuous strong performance in our European operation, coupled with stable U.S. based business and growth market operations. for the quarter stood at INR 1,773 crores, with a margin of 20.5%, demonstrating a 9% year-on-year growth. This quarter demonstrate strong operating leverage fiscal prudence and consistent execution of our strategy. Last year this quarter, we had significant quantity of transient product, and this quarter, this is very minimal. Business highlights. Let me walk you through the key business highlights for the quarter. The overall formulation business reported a year-on-year growth of 10% with a revenue reaching INR 7,683 crores, contributing approximately 89% of the total consolidated revenue. The growth was led by strong performance in various businesses. The API business contributed to 11% of the overall revenue, amounting to INR 9,633 crores, in line with the ongoing market trends and prevailing pricing landscape. U.S. formulation. U.S. revenue stood at $420 million. Excluding gRevlimid, U.S. oral solids remained stable, demonstrating the strength and resilience of our diversified product portfolio. During the quarter, our core business continued to see healthy demand supported by volume expansion and recent product launches. Our U.S. injectable sales also grew by year-on-year by 17%. During the quarter, we launched 9 new products and received salmon approvals, reflecting strong pipeline performance, coupled with sustained progress in regulatory approvals. European business. The European business maintained strong momentum in growth, delivering 27% year-on-year revenue growth amounting to INR 2,703 crores. In euro terms, amounting to EUR 261 million this quarter. Consistent execution across key European market firmly underpins our trajectory to exceed EUR 1 billion in annual European revenue by close of FY '26. Growth markets. Revenue from growth market remained flat at INR 865 crores or 97 million driven by stable volume and strong diversified commercial base across the strategic market. We are continuing to expand our presence in key markets such as Canada during the quarter. ARV formulation. ARV formulation reached INR 376 crores or INR 42 million with 22% year-on-year growth. The continued growth momentum was driven by higher volumes and new tender wins across the key markets over the medium to long term. Operational and financial highlights. Gross margin for the quarter stood at 9.7% in supported by softer raw material prices and business mix, gross contribution stood at INR 516 crores. Excluding gRevlimid, year-on-year basis, our sales have increased approximately by 9%, gross profit by 13% and EBITDA by 15%, respectively. R&D expenditure was INR 409 crores, amounting to 5% of the total revenue, thereby reinforcing our commitment on continuing to build a robust pipeline of high-value products, including complex generics and specialty therapies. Net CapEx for the quarter stood at $79 million, in line with our strategic priorities of enhancing our manufacturing capabilities, strengthening compliance and accelerating automation. We generated a net cash inflow of $18 million during the quarter, resulting in improved net cash position, including investment and appropriating for the purchase consideration of domestic pharma acquisition of $251 million as on 31st March 2025 compared to $170 million as of September 30, 2025. On average finance cost of 4.9% Net profit for the period stood at INR 910 crores after onetime cost due to change in the labor code amendment INR 65 crores. Update on PenG MAP. The ramp-up of the facility is progressing in line with the expectation and is well positioned to deliver a meaningful uplift in profitability over that time. Based on our current production level, we expect to produce more than 10,000 metric tons on an annualized basis over the next 12 months. It is important to note that the yield levels are steady and improving consistently over time. The government of India issued a notification introducing a 1-year CAF on minimum import price. For PenG [indiscernible]. The policy change will act as a very important and positive catalyst event for the company. Finally, we consider this nation by Government of India is strategically important for creating India self-reliance in antibiotics and reducing supply disruption risk and will boost the domestic manufacturing of APAs and KSM. Outlook. As we go and look ahead, we are highly confident in our ability to sustain the growth momentum and consistently create long-term value across all business segments, supported by our strength of diversified operating model, expanding manufacturing footprint and strategic bolt-on acquisition. With the manufacturing capacity exceeding 60 million units on further expansion underway, we are well positioned to support rising demand across various markets while improving operating leverage. Europe continued to deliver the strong and consistent revenue growth. Our operational execution expanding product basket and reliable supply capability continue to drive our performance and reinforce customer partnership. In U.S., we are entering into an important phase of growth. The Dayton facility has successfully transitioned into a commercial phase with manufacturing underway, and we'll begin contributing revenues from significantly from FY '27 onwards. In parallel, [indiscernible] facility remains on track, pending regulatory clearance, and we are fully prepared to scale up the operations. The Lannett acquisition further strengthened the U.S. business and this is subject to regulatory approvals. Our is the China facility continues to progress steadily advancing towards an annual capacity of 2 billion units currently supported by new approval for 10 products and 3 local product approval. We remain confident of achieving EBITDA breakeven in Q4 and significantly meaningfully contribute to the bottom line EBITDA in the next year. Our strategy on PenG [indiscernible] represents a structurally important initiative that will enhance cost competitiveness, reduce external dependencies and strengthen margin over a period of time. We expect to ramp it up to nearly 65% to 70% by March '26 against the last year average of 42%. Already, we have significantly ramped up in January '26. Looking ahead over the next 2 years, our growth will be driven several by several clearly defined and scalable initiative, we continue to build differentiated product portfolio with increasing focus on complex generics across derma, transdermal, [indiscernible], respiratory and oncology with positions us well for sustainable growth over the medium to long term. Incremental contribution from robust pipeline of new product launches, the injectable business continued to show steady improvement supported by supply ramp-up, improved service levels and higher capacity utilization contributing to better operating performance. supply from China operations into Europe are increasing and helping improve global cost efficiency and supporting margin optimization. We are seeing incremental benefit from portfolio acquisition, which in terms of our business in the growth markets and add scale to the overall business. We are progressing well on our biosimilar and biologic strategy. Taken together, these initiatives provide strong earnings growth, visibility and reinforce our confidence in achieving our internal EBITDA margin target of mostly on the higher side of 20% to 21% for FY '26. We remain sharply focused on our execution excellence, operational rigor and prudent capital allocation, which we believe position us for sustained performance and long-term value creation. With that, we would be happy to take your questions. Our senior leadership team look forward to sharing additional insights and classifications.

[Operator Instructions] The first question is from Tushar Manudhane.

Am I audible?

Yes, Tushar?

Sir, with respect to [indiscernible] inspection, if you could share some color in terms of the nature of observations. And secondly, if implementing any measures to address these issues? Will this require some, let's say, temporary stoppage of production or anything of that? Or if you could throw some light on that as well?

Yes. I think Tushar, we have already clearly mentioned stating that these are all procedural observations. There is no stoppage of production, no stoppage of failing nature. And these are procedural and technical, and we are very confident of responding within 15 working days to U.S. FDA. I don't see any issue.

So that way, the production also will be on the continued process per se?

That's right. I think we are very, very clear. I think last time inspection was completely different. And this time inspection it is very positive from that perspective. that we don't have any data integrity issues, which was the issue last time, unfortunately. And these are procedural in nature and procedural means like it requires a 1-week or attended, some SOP changes, some corrections here and there. So absolutely no problem.

That's good to hear, sir. And just one clarification from the opening remarks. So ex-Revlimid, we highlighted U.S. sales would have grown at what rate over a year-over-year basis or quarter-on-quarter?

I think we have given it around 9%?

U.S. sales, right?

No, overall.

The next question is from Damayanti Kerai.

Yes. This is Damayanti from HSBC Securities. My first question is again on Eugia. so as you mentioned, the observation seems to be procedural in nature, and it might be resolved within your stipulated time line. But given we are yet to get full clearance from the FDA, what kind of trajectory we should build for or we should assume for the U.S. injectable sales? In your opening remarks, obviously, you mentioned this segment has seen good pickup. So if you can just talk a bit about it.

Yes. Damayanti, this is seasonal in nature, and we will respond. And we are cautiously optimistic about the future of this facility. But ultimately, U.S. FDA has to take a decision in terms of the warning letter. So I cannot comment on what exactly they will do, but we feel confident that we will be in a position to respond. And in my view, probably like next year will be, again, say double-digit growth, with the ramp-up of supplies and other stuff happening from various other facilities. So it should be in that same trajectory until the time the warning letter gets slipped if in case if the warning gets lifted, then it will be a different distinct that we can talk in subsequent quarters but we are cautiously optimistic.

So during the quarter, you mentioned sale -- our injectable sales grew 7% or 17%. Sorry, I missed that number.

It is 17%. That is what [indiscernible] mentioned.

17%, okay. Okay. So that's good to hear. My second question is on your Europe business. So although in reported numbers, I think reported terms, growth looks very strong. In constant currency, we are seeing this segment growing in low double digits for last 2 quarters or so. So with now the China supply improving, how do you see this business ramping up? And say, from current low double digit in constant currency, what kind of growth we can assume once we see higher supplies coming from China?

Can I take this? .

Yes, Murali, yes.

Damayanti, Murali here. Yes, low double digit in itself is well ahead of the market growth rate. So this is what we are tracking. And all of our leading geographies, whether it is France, Portugal, Germany and Netherlands, they're all showing double-digit growth. And of course, with the more launches happening and supplies from China, we expect to grow further. And several launches are lined up, both related to launch and some of the loss of exclusivity products. So we expect further ramping up in the coming period.

The trajectory should improve as China supply picks up, that's what we should look forward for?

Differently. This is not the trend we have been demonstrating if you really observe from the last couple of years, Q-on-Q, and we will continue to maintain that momentum.

Sure. And one last question, if I may ask. If you can update on your [indiscernible] facility. What is the status or update there?

Damayanti, is it because are you talking about injectable facility? Which one are you referring to? .

Injectable one, yes. .

Yes. injectable one, like we have already filed 3 products and some 10 more products are on the filing. We expect a low commercialization to happen in next year, FY '27. And because we are going to file a very, very important products from this facility because we have a cottage line where like we will be taking all the GLP-1 products from there and we'll be filing and we have a PFS, we have a BFS and total, so it will be 8 lines by end of this year, this calendar year, and that is what we want to restrict it to so that the ramp-up should happen starting from FY '27 and we should take full benefits starting FY '28.

Okay. So '27, '28 is a time when we can see significant contribution coming from here?

That's right, Damayanti.

The next question is from Neha Manpuria.

My first question is on Lannett. Could you give us an update on where we are in the approval process from the FTC? And when should we expect the completion of that transaction? And just a follow-up on Lannett, in your view, what would be the rough overlap between the Lenard portfolio and our window portfolio that FTC could probably look at?

Thanks, Neha, for the question. Right now, we are actually engaging with the FTC through our attorneys, and we are very pleased with the progression of the process to this point. We feel confident that this process will be completed early in the next fiscal year, that is Q1 of '27. As far as the overlap is concerned, there are no surprises. There are no negative surprises. That's all I can say because, obviously, this is a very confidential matter. I cannot disclose it. But we're quite pleased with the way it's progressed and like I said, there are no negative surprises.

Understood. So I should assume that there's no risk from an FTC perspective in terms of time lines for the closure of this field?

At this point, we are not looking at it. In fact, we are looking for closing sometime soon. When I say soon, it's, like I said, in the first quarter of '27.

Understood. Understood. That's very helpful, sir. My second question is on the PenG capacity. So roughly, what would have been the EBITDA impact from the PenG facility in fiscal '26? And as we think about the 10,000 tonnes production that you've mentioned over the next year, at what point do you see this actually start reflecting in the gross margins and possibly even external sales? How should I think about how we monetize this capacity?

See, as I said, while we have been increasing -- improving the yields consistently and increasing the production this quarter, obviously, the MAD is having with -- I mean compared to the current prices, the MAP prices now a little bit more. So the full impact of it, we will be seeing it from the first quarter because there is already a stock available in the market. which hopefully will get consumed by end of February or mid of March. So you should start seeing the improvements in April onwards.

And what would be the EBITDA impact in your assessment from the PenG capacity this year? I mean what would be a rough assessment of how much burn we have seen from that facility?

I think we should be getting a good EBITDA, and you are already knowing the numbers while we may not like to specifically talk about the EBITDA numbers. But it is well known based on the current market price and the MAP price, et cetera, even assuming some discount, we could see a better improved EBITDA in the coming year.

And is it fair to assume that when you say we'll start seeing an impact of this from first quarter, the facility will break even in first quarter FY 2027?

Let me put it like that. To give you some more color, -- we have already broken on the PenG facility, and we started making a little bit contribution in now itself. However, where we have been losing out is on 6-APA prices where there is a predatory pricing and it is going well below the cost of manufacturing internationally also. And with the current in the MAP, et cetera, hopefully, this should get resolved by end of March or maybe by April. You got it?

Understood. Understood. So I should start assuming 6-APA sales, external sales from first quarter as well in that case?

Correct. Correct. Correct. Because there is enough stock in the market and at low prices.

The next question is from Bino.

So just to follow up, this PenG Benji sale for the quarter, how much was produced and was it also -- was it sold or fully utilized internally?

I think last quarter, we have fully utilized. We are fully utilized and we -- see, we are now -- based on the January production, we are nearly 9,000 to 10,000 annualized number. We have gone to that extent. We have already ramped up significantly in the month of January. And hopefully, this will get further ramped up in the coming months. depending upon the availability of the stock in the market. So we will ramp up in such a manner. There is no over material available like that.

Understood. And last quarter, whatever was produced was used internally?

Yes, it has been everything -- I mean barring few tonnes, right, we have mostly consumed it internally. But one good thing is the yields are improving, the production has stabilized fully. And it is a question of we need to put more fermenters and then produce the maximum capacities of 2 things. One is utilization of all the fermenters. And the second factor is the yield improvement, yield improvement we have been achieving, progressing well. And full deployment of the fermenter. We are in the process only. We will do it as we ramp it up the way -- the time we need to ramp it up.

Got it. Sir, what I was wondering is, last quarter, the MIP was not in place. So the market price was low. So using our in-house PenG, did it really help the margins because from outside, you would have problems?

As I told you, PenG, we have been -- I mean, we are making breakeven or slightly slight profit. It's a concern of 6-APA across the market and the resulting amoxicillin price, which has really put the entire market at loss. So that is getting corrected. Hopefully, by April, it should get corrected fully.

No, no, you breakeven. I understand that. But since the market prices were lower, for the entire product basket, not just PenG or 6-APA?

Yes. So we incurred loss and that loss has been -- that loss has been observed as part of the EBITDA margin.

Okay. Got it. Second, the quarter gross margin about 15%, 9.5% is one of the highest, probably higher than some of the quarters where generous contribution of generic traveled was then. So what has led to this kind of strong margins? And how sustainable is it?

I think we have been consistently -- I mean, is it meant for me or any specific business you're asking?

No, no, overall gross profit.

Right. I think with the improved performance of the PenG and the related products, I think our loss -- whatever the losses we have incurred has come down and which will turn into positive. And this will help overall [ Gander ] also said, no, is the injectable business is expected to go up and every business is working and Murali, he is working on your double-digit growth, et cetera. So all put together, I think we should be able to show a sustainable improvement in the EBITDA margin and the overall profitability.

Got it. And one last more question. There is this product, [indiscernible], which is opening up for generic competition soon anytime now, are we part of that first-to-market launches?

Yes, we'll be launching, and we have already prepared for the launch.

Okay. In this quarter itself, right?

That's right.

[Operator Instructions] The next question is from Tarang Agarwal.

A couple of bookkeeping questions. We've been seeing a reasonably elevated tax rate for the last 4 quarters. And second, just following up on the earlier participant, not specifically for PenG but really, various capacities are in the process of ramp-up, Lyfius, Fuel, Aurate China, Dayton, Reily, steriles. So just wanted to get a sense on what's the EBITDA burn of all these businesses, which are in the ramp-up phase, probably for 9 month FY '26 or your estimate for FY '26?

Subu, this person is for you. I think he is asking EBITDA burn because of various initiatives.

Can you hear me now?

Yes, we can hear you.

Yes. So Tarang, the first question is on the tax rate. What has happened is today, CuraTeQ, Lyfius all these are independent companies. right? We have incurred losses on account of the ramping up and other things and curate on account of the R&D cost and other things, right? So ideally for the losses, we should have taken your tax credit, but we have been very conservative in our accounting. So we are not taking the tax credit. Once they started making profit, we expect that tax credit with retrospect. So that is the reason why you are seeing a higher tax rate. Otherwise, the tax rate for the entire company. In fact, Lyfius, the tax rate should be around and loss of 15%. So we will move as that over a period of time, we will be around 25%. But today, we are in a ramping up phase and that is the reason you are seeing it. So nothing to worry about it, okay?

So there's a deferred tax asset that's getting created, is it, for all these?

No, we are not creating the deferred tax asset. That is the point I'm trying to tell.

Okay. Got it. .

Okay? If I take the deferred tax asset, if I created automatically, I should give the rate to the P&L, which are not right? In terms of the EBITDA impact loss, as I told you, we are incurring losses in some of these, which will get translated into profit in the coming quarters. We are not specifically giving any number, but we'll be making profit coming over the period of time.

Got it. On the biosimilars business, we saw an announcement around vaccine restructuring. And second, I was curious for Lucentis, is the Phase III through EMA waved?

This is Satakarni. I will answer your first question. With the [ Auro Vaccines ] merger, the intent is consolidating and improving our utilization of the existing capabilities that we have built in our vaccines. Essentially, the idea is to retain some flexibility to repurpose the capacities that we have built there from 2018 to the COVID period, as these capacities, some of them can also be needed to support the future biosimilars road map. So in the nutshell, from the Board and management. This is more about us looking into operational efficiency and agility, but not a change in strategic direction. So I hope this answers the part 1 of your question. What was part 2?

For ranimizumab, is the Phase III waved in Europe?

So [ ranibizumab ] is a product that goes into the eye. So it's an ocular product used for wet AMD. So essentially, you need to inject the drug into the retinal nerve that requires a small minor surgical procedure, which is done in a clinical setting. So the Phase II is not waived for such products because you can't do a PK/PD study of such ocular products or it gets injected into the retail and nerve of the eye in healthy volunteers. So you will not have any warrantees to do this study. And hence, a Phase III for products like ranibizumab will not have a waiver. Is that understood?

Yes, yes. Understood. Last question on the U.S. generic business. Up until calendar year '24, OTC was doing about $100 million of revenue. Just curious, how has that played out for calendar year '25 and what's your outlook for calendar '26?

Thanks, Tarang. We don't normally talk about the dollar value for spirit business. But I can tell you for the last couple of quarters or 3 quarters, OTC has really picked up, and we are looking at it as a fast-growing segment within the U.S., and we are -- we expect very good momentum in the sales and volumes for the OTC business.

The next question is from Shyam Srinivasan.

And sir, just again on just the biosimilar journey now in the next 12 months, what are some of the milestones and timing that we need to keep in mind? And any way to kind of assess how large this could be for us over time, maybe fiscal '27 and over time?

Shyam, in terms of milestones, Shyam, in the last quarter, we have announced a first Canadian approval, which is an important milestone for us on the back of the 4 biosimilar approvals that we had in the European economic area. So we are preparing some momentum in Europe and growth markets through these approvals, which will be translating and converting into launches in this year. We have already built our first product in the previous quarter. We have -- we are trying to execute multiple things. [ Belcola, ] which is bevacizumab biosimilar is already launched in the U.K. Daz. [ Bliss ], which is our trastuzumab biosimilar, was launched in the Baltics territory to a partner. This means we are moving from the readiness or the development phase to real on-the-ground commercialization. Beyond this, we also -- our economics -- our strategy in European economic area, exchange far beyond simply selling biosimilars through our subsidiary. So we aim to achieve comprehensive coverage across European economic area across LatAm markets and also in Canada. In fact, in LATAM, we are making stepwise and disciplined approach country by country. We just won a tender in Mexico, which we have to service in this year. So we have made a strong start with Mexico. We are also making a foray Brazil. In fact, we have a GMP and Visa inspection announced in May, which will then lead the path towards approval of at least 4 products. So over the medium term, with the omalizumab and denosumab, biosimilars that I was providing guidance for which I have to complete the validation campaigns and then start filing them from June, July in both Europe and U.S., the capacities will get freed up and the commercialization readiness will become more real. I believe '29 -- to answer the second part of your question, as I've always stated, '29 would be the inflection year for biotech all the efforts that we have made in bringing 4 biosimilars into the market in the last 1 year and with 2 or 3 more ready for filing in both Europe and U.S. We expect to ramp all this up, convert this into some sort of commercial momentum by 2029, which is an inflection year, I believe. Does that answer your question?

0 Yes. Can I just ask one sub question before I go to the second one? This budget announcement of this Bio. Dr. Satakarni, anything -- I know it's early and maybe the details are not yet out for biomanufacturing in the country. Anything that you have any insights or industry discussions or if you were to say or recommend to the government, what would be some of those things?

A very interesting question. I get asked this question in the last 2, 3 days. Broadly, Shyam, I speak for myself and not for Aurobindo here, broadly initiatives like biopharmacy are directionally positive for the sector. If executed well, and that's my takeaway. If executed well, it has the potential to strengthen the ecosystem, biotech ecosystem. In terms of -- from the fine script, what I read in terms of skill development, the clinical trial sites and how we go about conducting clinical trials and the availability of these sites, faster translation from development to manufacturing, and let me remember the predictable regulatory and quality environment that the government wants to create around this initiative. So for the biosimilars and biopharma industry, I think the biggest takeaway will be an improved ecosystem maybe into the beginning of the next decade if it is implemented well. The challenge is, therefore, -- can we develop a stronger local capability in clinical development? When I say clinical development, do the trials that we do for complex biologics and biosimilars and new chemical entities in India stand the scrutiny and rigor of the agencies like FDA and EMA are many companies going to achieve that sort of skill. That's question one. Then I believe this also helps build stronger local capability in single-use and critical consumable supply chains. As you know, during COVID, the industry in general has suffered from dependency on the best on single-use bags, filters and resins, which are so vital to delivering a drug then purifying them or producing them. And hopefully, the commentary in the biopharma sector about skill development because there's a lack of human sources pool right now that can really help us compete with the evolved industry in the West. So I believe these are the 3 big takeaways, an improved ecosystem in terms of local capability building and process and clinical development, innovation, single-use, critical consumable supply chains, et cetera. So what is important again to summarize is the regulated markets will continue to require extremely stringent quality systems and trigger in GMP, GCP compliance, so the success of biopharma Chet will depend on the execution, so let's wait and watch. It's just been, I think, 2 weeks. So let's wait and watch. I am supportive of the tailwind it brings, especially when -- when people like you asked the questions, which means you are looking forward to the tailwinds that we will bring. So let's wait and watch that it translates into real results.

Sir, just my last question to Subu-sir on the balance sheet our net now net cash. I know there's a Lannett acquisition still. But I just want to understand from an outlook perspective on M&A or what are some of the key priorities for us apart from CapEx and dividends? What are some of the key priorities for us as we look forward?

So Shyam, which I told you earlier also, we are not going for any major greenfield project other than whatever we committing to Theranym, which is the biologics, which Satakarni is staying firm, right? Otherwise, we are not going for any major organic. In terms of the inorganic, yes, we keep on looking at it, but it is not that we need to do it urgently, et cetera. If we get the targets at the right price that right price and to our strategy fitting into our strategy, we will look into that. I think this is the main thing, actually, in terms of the capital allocation.

The next question is from Kunal Dhamesha.

Can you hear me?

Yes, Kunal.

Sir, just one question on the NG and since the prices of those imports had started coming down at the start of FY '26 or the end of FY '25. And we have imported of 6-APA and [indiscernible]. So is it fair to say that some of the gross margin improvement that we are baking in from the internal consumption from our facilities already there in the numbers because we are already getting a lower price imports, right?

Kunal, your question is right, actually. That was a scenario 1 month to 1.5 months back, but now the prices have started going up, okay? And whatever may be the production, which we are anyway not going to buy it from them unless it is required absolutely essential for various reasons, right? We will be producing and our cost of production is also coming in line? So we should be seeing an improvement in the gross margins very clearly going forward, right? That is the thing. .

And sir, the when you would have made the representation to the government, what would be the basis of that? Would that be like the cost of production plus a decent profitability is on that basis, the government would have decided based on your presentation or there are more factors in the consideration?

Kunal, your question is absolutely right. Actually, this is a question. But since I'm private to certain information, which has been worked along with the government, I'm unable to disclose anything further on this.

The next question is from Jigar Valia.

Yes. One question is with regards to the Lannett acquisition, the settlement amount of the fines by is it final or it can increase and it get adjusted in the price or not?

The settlement of Lannett is their liability. And Aurobindo is in no way table, nor does it change the math.

Okay. So the price also remains the same, while these will be settled in dependently?

Yes. Till today, I mean, until the acquisition happens, and any liability till the date will be that of Lannett.

Okay. With regards to the PLI amount, when and how much are we expecting to come from the government?

So it is like this, Jigar. As per the government, it is INR 240 crores for every 10,000 tonnes right? And as and when we produce the quantity, it proportionately, it will come.

Got it. And we are already at INR 90,000 you've mentioned kind of?

Absolutely. You can see, I mean, hopefully, everything goes well. we should be able to see the full year next year, we should be able to see the full amount.

Great. One question I'll take now is you mentioned capital allocation. buyback figure, given there has been some tax testing as well. And last time we did it at 1,450, now the price is lower and of course, there is a slight tax benefit for the non-promoters?

Yes, it's a very good mean,this is a very good option which came in the budget. Probably the entire management mean top management, promoters, board, everybody is aware of that. I think this is coming with the effect from first April. Let's wait and see. We have another 2 months' time. This needs to be passed by the parliament and any changes, anything we'll take into account and this it appropriately. The Board will consider these and then see in the best reason depending upon the circumstances.

The next question is from [ Harshit Tyou'd ].

Sir, am I audible?

Yes.

First of all, congratulation to the surge side that have been the management team for the IP on the PenG part. Sir, just 1 help, which I wanted on the modeling purpose. We have got 25 for PenG. But sir, if we do the calculation, to PenG equals to 1 6-APA. And most of the formulation plays source 6-APA or the amoxicillin where the prices are similar to the market. So from the modeling purpose, should we take the prices at $25 per kg? Or we should reduce it down, keeping in line to the ratio and MIP that you got on the amoxicillin and the 6-APA?

Your question is very good, but you should ask some of the consumers to get the right answer. Certainly, I would not like to give you any number, now.

No, I'm not looking for exact numbers, just directionally say lower than 25?

I think directly, I have already said the prices have started going up to what level it can go up, where it in. We do not know. But certainly, we are very confident about it. .

Okay. So because PenG 6 implies 6-APA implies $50 prices, but we got the might of $37 odd prices. So if we take in modeling the $25 price and it implies to $50, while actually, it will be $37. Is it right understanding, sir? .

You're right understanding. But certainly, when you buy PG solid and then convert it into 6 cap, there are additional costs in old, et cetera. But the way our process has been done is we will not do solid PenG we will convert it at the liquid level there is a saving coming. Okay?

Okay, sir. And the second part, as the Eugia plant inspection has just completed. And are there any other plants which are due for inspection or which you think can be for the inspection for, let's say, next 6 months or 1 year?

No, these are all unknown started. We don't know when they will come and what they will do. So there is nothing called prescheduled inspections mainly from U.S. FDA. So very difficult for me to comment which plants might get audited next.

The next question is from Nitin Agarwal.

There has been a significant depreciation of the rupee against the USD as well as the euro over the last few months. there are numbers fully reflecting -- are already beginning to reflect some of the impact of depreciation? Or how should we think about it next year?

I think one other thing -- the depreciation is not -- because of the translation effect also the depreciation is going up, right? And that is also one of the reason. You're talking about the rupee depreciation on the top line? Or what is your exact question?

Yes, sir, the rupee impact of the rupee depreciation on our P&L, what kind of gains can we get and it's already being reflected in the numbers?

It's already started reflecting on the numbers, right? Whatever -- whatever sales happening at the end customer that either the Europe level or U.S. level, et cetera. we translated the average rate for the quarter, right? And so the numbers are reflecting the actual this one. If there is further depreciation of any currency, et cetera, against dollar or appreciation against dollar like euros, et cetera, that is also will get reflected going forward.

Sir, my question was like is there a lot of the gross margin improvement? Can you -- is it fair to assume a fair bit of that has come on because the depreciation of the rupee against the dollar and the euro?

No, no, because everything will get translated into other cost, everything we will translate into the average rate. So it is not that only the top line we are translating, Other things we are not translating. In fact, if you really see now, you look at the other expenses. Typically, it used to be around INR 1,700 crore, INR 800 crores because of the translation effect, et cetera. It is now at INR 2,000 crores.

Right, right. And the last 1 on this for Europe, what kind of sourcing do we do is what proportion of our supplies are done from India? And how much do we source in Europe itself?

Murali, do you like to take the question or can I answer?

Yes. No, maybe I can give a high-level update . Almost over to 60% of the sourcing happens from in-house sources. And steadily, we are also transferring the third-party products, the key ones to sites. And the balance comes from third-party sales.

And last one, sir, on U.S., sir, how many new approvals or new launches are we expecting in F '26?

Can you repeat that question, Nitin?

So how many new launches are we expecting in the U.S. market or in F '27, sorry?

So approval is one thing, and then we have the launches because some of the launches could be what is approved, we be launching later. So we launched about 9 products in the last quarter. ending number. So we believe a similar kind of trend would continue for the next 12 months. On a yearly basis, if you multiply, that's what we can look at?

Last one, what CapEx should we assume for the business for F 27?

I think other than the biologics CapEx, which I mentioned, where we are trying to I mean, aligning with the strategy of the biologics. I don't think we'll be incurring anything around $150 million to $200 million because we are not planning for any trainee. Maybe some acquisitions, et cetera, may come, right? That is -- I mean, that is one-off depending upon the target. .

And how much money is spent to be spent on the biologic CDMO or biologic CCM business over the next couple of years? .

Nitin, so the CapEx into the CDMO business, [indiscernible] right now is about USD 120 million, USD 130 million over the last quarters. So buy may correct me. So that's where the CapEx expenditure stays unless -- we have a few business deals and we decided to expand our CMO offering and build additional capacities. But right now, what has been spent on Terranum or what will be spent on Karan in total with the spend that was incurred over the last 6 to 7 quarters is all put together will be, I think, USD 120 million to USD 130 million.

The next question is from Jigar Valia.

A follow-up on the previous question only with regards to this 120, 130. how much would have come in by now and how much would come in FY '27 and it's fair to assume that these are for 2 products? And if there is a product addition then another INR300 cores, INR 400 crores of additional would with every new product?

I will answer your part 2 of the question and we'll ask Subu to answer the specifics of the budget later. So part 2 of your question, this deal was signed for 1 product in May 29, 2025. And then we added second product schedule somewhere towards the end of, I think, 3 last fiscal. So essentially, this is for 2 products and the CapEx that the total CapEx projected is around $120 million to $130 million for both the products, the capacities of both the product together. Subu, can you answer more on the CapEx flow?

Yes. J, the CapEx now as Sakani says 100 million to 120 million tied probably we may be incurring anywhere between EUR 80 million to EUR 120 million in the current the next 2 years. .

Got it. Got it.

Yes. incurred certain things already. Depending upon the level of progress Sakani is going to make in this accelerate the antiprocess in this Q4, the balance will be incurred in there going forward. .

Bulk should come in FY '27.

Correct.

Got it. And just one last question is with regards to -- is there anything if you can help us overall how should the U.S. market NCs look for margins look for the next year, maybe dollar terms or whichever. And should we, with this CapEx, et cetera, is there something on the RO returns or the ROC or ROE that we may want to comment on?

So Subu, you want to talk about the margin of the year? .

No, no. You see, we are -- we are not giving any specific margins for any business over margin certainly. You can take it the bands, Swami.

Yes. So the next year, the coming year, I think it's not different from current year. Actually, we are looking for some improvements in terms of numbers -- overall numbers. So obviously, when the numbers improved, the margins would also be better. We are not seeing anything that's going to be negative at this point of time.

Okay. Okay. It was more like a double-digit something which is possible or which one should expect double?

Double digit of what?

Growth, U.S. growth. .

Overall, solids is sitting at a base of about $1 billion. And then yes, in specific segments, we might have but if you see the overall solid at $1 billion, it's very difficult to achieve buttons. We have got land that's going to be we acquired hopefully, with the FTC approval. And that can create synergies and that can help us better business deals. But as you grow bigger, it's going to be difficult in terms of percentage of growth.

There is only one person left. With that, you can close it. He also left.

Ladies and gentlemen, on behalf of Aurobindo Pharma, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar. Thank you so much.