Caplin Point Laboratories Limited (524742) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Caplin Point Laboratories Limited's H1 FY '24 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hrishikesh from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

Thank you. Good evening to all the participants present on the call. Hope everyone is in good health. And I wish I happy Diwali to you all. On behalf of Caplin Point, today we have with us Mr. C. C. Paarthipan, Chairman; Mr. Vivek Partheeban, Chief Operating Officer; Dr. Sridhar Ganesan, Managing Director; Mr. Muralidharan, CFO; and Mr. Sathya Narayanan, Deputy CFC. I would like to thank you and pass over the call. Over to you, sir.

Thank you, Hrishikesh and Rohit. Hello, and good evening to everyone. Welcome to our earnings call to discuss the results of Q2 and H1 FY 2024. Please note that a copy of all our disclosures are available on the Investor section of our website as well as on the stock exchanges. And please note that anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. The conference call is being recorded, and the transcript along with the audio of the same will be made available on the company's website as well as the exchanges. And do note that the audio of the conference call are copyright material of Caplin Point and cannot be copied, rebroadcasted or attributed on social media without said written consent of the company. Now I would like to hand over the floor to our Chairman for his opening remarks.

Good evening, ladies and gentlemen. Welcome to you all to our earnings call. As you know well, today's sustainable business [ to call above ], maximizing the revenues and profits, minimizing the costs and risks. You are aware that our profit does not sit in the books, but in the form of cash and cash equivalents. This again is equivalent to our H1 sales. Our way of reducing the cost is to follow our asset-light model in the form of outsourcing from India and China for products that are pure vanilla generics. [indiscernible] are also very, very low. And coming to risk, it's true that we should not attempt anything such as blind risk while deploying our funds, but again, it is a physical risk that made us to notice the unnoticed in the smaller countries of Latin America, and you know the outcome is our benchmark in cash flows and profits. The 3 reasons for our increase in Q2 EBITDA and PAT are as follows: a, oncology sales outsourced; and b, softgel sales increased, c, reasonable increase in the revenue of Caplin Steriles. Now let us look at the growth drivers for the next 3 years. First, the financial year '23-'24, outsourcing of onco business will continue to contribute to our revenue and profit. B, CSL Line 5, which is a new line, which increased the capacity. C, the new registration of softgels will also contribute to the top and bottom line of our current financial year. We are sure of maintaining current metrics such as EBITDA and PAT in financial year '23-'24. Coming to financial year '24 and '25, again, CSL Line 5 and Line 6 will contribute to our growth, which COO will explain in detail. Number 2, increase [ CA ] and [ DAs ]. Number 3, replacement of Line 1 with a high-speed [ pentagon ] line. Number 4, completion of onco oral [indiscernible] such as tablet and capsule will also increase the revenue as we can guarantee the deliveries by handling effective supply chain challenges. Number three, financial year '25-'26, completion of onco injectables in addition to OSD to expanded OSD facilities, general, OSD general facility for the new market. Number three, new and larger geographies of various countries such as Mexico and others, that the increase in registration will also contribute to our growth. Number four, increased revenue from Caplin Steriles. Hence let me assure you that all our expansions such as [ APA ] and Vizag, onco facility in Kakkalur, Tiruvallur and the OSD general facility in Gummidipoondi, and Line 6 in CSL will be completed between 12 to 18 months without fail. Further, our conceptual framework of catering to the bottom of the permit has been ensuring the bottom line enabler for growth. Our goods next to the customer and the warehouse has created a new ecosystem of preventing the supply chain challenges. Hence the customer next to our warehouses buy quality products at affordable price. Further, you are aware that we don't do any intermediates, which really create actually cash flow issues and price erosions. Here since we don't do any intermediates that helps to increase the company's product -- profits and also the price, the best price, which we call it as affordable price to the customer. Let me also highlight the noteworthy new initiative of Caplin Point's stall in CPHI Barcelona and the benefits of it. Although CPHI is a platform for all small and big companies, there are very few companies of our size, who will know all the entire range of products in addition to various R&Ds and CRO. We have spoken of various possibilities of entering into new markets, which we have not visited before. Further, we also have opportunity to import biosimilars and insulin in bulk and do the fill, finish and sell locally and export after completing the Phase III clinical trials, for which we have our own CRO that is approved by U.S. FDA. The fill and finish business was done by many big companies in the initial stages and later they went into their own manufacturing. It's also time for us to understand how many of our people will become the perfect [ file ] in many ways for the company. Hence we conduct stay interviews with our shop floor people in CSL to maintain the discipline, which alone will eliminate the deviations. We also have created a time learning environment where the rules are fixed, players are known, feedback is timely and accurate, practice and relationships are predictable to ensure integrity, quality, safety and productivity in our [indiscernible]. Finally, a quote before I finish. The ordinary gives the world its existence. The extraordinary gives it value. And the value comes from grit, gut, gumption and glory. Caplin achieved the glory and contribute the best to all our stakeholders. Thank you. Thank you very much.

Thank you, Chairman. So I would like to give a little insight into specifically Caplin Steriles. But before that, our Chairman always talks about identifying patterns whether it is in work or in personal life. When you identify patterns, it so happens that patterns tend to repeat themselves. So as long as we're able to identify them, they can become measurable, potentially manageable also. So as a company, earlier, we were known as a company that was able to convert the top line into the bottom line every 6 years. In fact, I believe we have repeated that twice. So speaking to something similar has come up recently, which is basically the Q2 sales and profits of this current quarter is higher than the full year revenue and profit of 2016-'17, which is 6, 7 years ago. And similar pattern also has sort of emerged from Caplin Steriles where the first half sales of Caplin Steriles this year is greater than full year sales of the entity just 2 years ago. So consistency has always been key to our operations, and we are happy to present another set of consistent numbers this quarter. When it comes to Caplin Steriles, the important news is that we have already established our front-end subsidiary in the U.S. in New Jersey and it's called Caplin Steriles USA Incorporated. Again, speaking to patterns, what we have done over a long period of time in Latin America was when we started we were catering predominantly to the smaller and midsized warehouses over there. But over a period of time, what has really strengthened our company's stickiness and also bottom line strengthening is our move towards supplying directly to retail. So if you sort of draw a parallel, our Caplin Steriles business has been 100% B2B. Now with this front end, we will be starting our potential B2C as well because we'll be catering directly to the buyer. So obviously, what we did over a period of time in LatAm was to make sure that this balance was very finely articulated, so that we're not disturbing the existing business as well, while catering to the next stream of revenue. So that's what we are going to be trying to do in Caplin Steriles USA as well. We are applying for all 50 states licenses at this point. And in the next 6 to 9 months, I think we can start to look at some sort of revenue using Caplin Steriles' own label. Year 2 is likely to be more meaningful rather than year 1. But we will obviously keep you updated as and when things progress. The next point is on CapEx. As Chairman was explaining, our Phase 2 of Caplin Steriles' CapEx is completed and Line 5 which is the Bosch, [indiscernible] called right now line is already running commercial batches over the last couple of weeks. In fact, this machine runs at a speed, which is more than double of the existing lines. In fact it is higher than both the lines combined together. So soon enough, we will also be replacing Line 1, which is a legacy line in our facility with another Bosch line, thereby more than doubling our existing capacity. Within the same Phase II, we also have pre-filled syringe line for which qualifications are ongoing right now, and we'll be in a position to complete that before end of this financial year. When it comes to approvals and revenues, we are expecting another 2 to 3 ophthalmic product approvals in the next 3 to 5 months, which should boost our bottom line for Caplin Steriles because obviously, that being Line 3, the expenses for Line 3 is already factored into our current operational expenses. So we expect revenue and bottom line to be strengthened as and when these approvals come through in the coming quarters. Our order book continues to remain healthy, continues to grow. We just need to pick and choose what makes maximum sense for the company in terms of the right product mix. In terms of approvals, we have 24 approvals so far from the entity of which 18 belongs to Caplin's name. Another 13 are under review with FDA at this point, of which, again, 11 are in Caplin Steriles' name. This comprises of around 6 ophthalmic products, 4 pre-mix bags, which is a niche area without too much competition and 3 injectable products, of which one is a very complex emulsion. In the next 6 months, we will also be filing a good range of niche differentiated products, for which exhibit batches, et cetera, are all completed and they're all waiting for dossier compilations. This mix includes injectable emulsions, injectable suspension, ophthalmic emulsion and also injections in plastic vials, which is another niche segment without too much competition. So overall the pipeline remains robust. We will be filing another 20-odd products in the next 2 to 2.5 years. Going forward, we'll be developing and filing products based on global sales and not just U.S. And this includes evergreen products such propofol, enoxaparin et cetera which are all well received in most countries around the world. And we have our own API developed for these. And once our API plan goes onstream, this will be one of the first few products that we will be looking at filing. We obviously have a very sharp focus towards the larger markets of Latin America, such as Mexico and Brazil. And we'll be targeting these countries for product filings, and we already have several products filed in Mexico. So this brings me to an interesting concept, which Chairman also touched upon, which is CPHI. The fact that we all attended this a few weeks ago. This is a global fair, where -- very well renowned and happens in Europe once a year. We created a very nice looking stall over there. We -- it was very well received. In fact, it brought in almost 1,000 new contacts, and many of them in geographies where we are not present. What we -- how we look at it is even if 1% of these converts into business that will be very good additional streams of revenue for the company. Of particular interest in these are countries like Brazil, where we do not have a presence yet and also MENA region where large markets such as Saudi represents high potential for our company, especially as an FDA-approved plan which enables us to pass back some of our dossiers there. I believe from whatever information that we have received, our own pipeline for Saudi itself could be worth as much as $80 million. And all in all, I believe it is going to be a very crucial and exciting next few years for Caplin Point and Caplin Steriles with many of these new initiatives that we are embarking on. Most important of all is to ensure that we are maintaining adequate fiscal discipline, stay debt free, focus on our cash flow, bottom line and top line in that particular order in all of our areas of expansion. I would like to just hand over the floor to our CFO for a brief highlight of the figures before we open up the floor for questions. Thank you.

Thank you, Vivek. Good evening to one and all, who have taken time off to participate in this call. Good evening, once again. Wish you all happy and safe Diwali in advance. As far as the financials are concerned, it has been a very good quarter, not only a very good quarter, a very good H1 I would say and all the parameters we have fared much better than the last year corresponding period. Gross margin from 54.3% to 57.4%. And we we're -- EBITDA 32.4% to 35.4%. EBIT 29.3% to 32.6% and PAT 24.2% to 26.3%. Our Chairman has already explained the recent surge, the increase in the contribution margins on account of niche products. There are 2 kind of niche products. As he mentioned, softgel Line 2 has been operational and then value-added products and we have got some good orders from oncology products which has also added much value both in terms of top line and bottom line. And one more -- apart from what we have said in the press release, what from making the 2016-'17 turnover passed in 1 quarter, which is Q2. We have also realized that without understanding, realizing we have achieved the entire year 2020 revenue in fact in H1 of '23-'24. That is [ INR 863 ] crores was our revenue for the entire year FY '20 and [ INR 415 ] crores was the PAT for the entire year 2015. Whereas we stand at INR 838 crores, which is very close to FY '20 in terms of revenue. And in terms of profits we have already surpassed. We are at [ INR 219 ] crores as against [ INR 215 ] crores. So as Chairman spoke, we are hopeful for continuing the trend and only one caveat that 57.4%, I think, may not be sustainable in the long run. We will always hope that it should be anywhere between 55% and 56% and PAT of about 24% to 25%. That will be a realistic to make a target that we would set ourselves and would always work towards -- under the guidance of Chairman, the management team to surpass the targets what we are setting to ourselves. And as per our line of thinking, with the inventory closer to the customer, our inventories have gone up, which may temporarily result in cash flow from operations taking a dip, but that doesn't matter. The year-end would be the same. We have about INR 95 crores of inventory in transit to our various subsidiaries, which would get converted into cash in Q4. So these are conscious visions and then receivables also are slightly higher. There are 2 reasons. [ CSL ], we put surpassed the entire year's revenue in H2 -- H1 of our current year and the payments will get realized in the month of November and December. For the information of the audience listening, we have already received about INR 110 crores in terms of collection in the month of October and to date in Q2. So though the receivable date has slightly gone up from 97 to 100 days -- 103 days, there is no cause for concern. There are no bad debts or unrealizable amount from the customers. Same is the case with out inventory, where there are no expired goods or obsolete stock which we carry, barring very miniscule percentage of our entire inventory. And the results are there for you to see. And then I leave it there and then if there any questions on the financials, I would like to -- we'd like to take them and answer them. Over to you, Vivek.

Thank you, sir. We can open up the floor for questions now, please.

[Operator Instructions] The first question is from the line of [indiscernible] from Invest Analytics Advisory LLP.

Am I audible?

Yes, please.

Congrats for a good set of numbers. Like in your commentary, you mentioned the inventory has gone up and the trade receivables are also high. Can you please repeat the reason for these 2 things?

The inventory -- whenever the inventory is high actually in a model that we have, this is an opportunity to increase the cash flow and sales. The reason is the inventory is not lying in the head office, most of the inventory lies next to the customer in the warehouse. And the rest of it, they are in transit. The amount of inventory, which is there in the head office is very, very minimal. So rise in inventory doesn't cause any issue actually to us. Number two, what is that you asked?

Trade receivables.

Receivables are there, yes. See, coming to receivables and inventory, our bad debts from inventory loss are very, very minimal because any customer who buys our product, he always comes back because of our range, volume, variety and novelty. For example, we have registered 550 to 560 products in 6 to 7 countries of Central America and Caribbean. So when the customer has to come back to you, he will definitely pay you. Otherwise, he will not get actually the goods, which he has to sell on a day-to-day basis. That's the advantage of having warehouse next to the customer. That's the reason in course of my free speech, I also told you there is no intermediaries in our business. We are the manufacturer, importer, also in many areas, we are the wholesalers.

So going forward trade receivables will remain at this level or will we further come back to the normal level?

No, we'll continue to actually have the same metrics.

So just one point. I think industry average is anywhere between 90 to 120 days. So I think we are still in very good shape. And as you would have seen our increase in cash flows over the last couple of years, is testament to the fact that we have a very strong hold on this. And as Chairman said, inventory in our position cannot be comparable to another company in the same, because it actually is inventory at our warehouses in Latin America in other places. So it's not that it's sitting in our factory, right? So obviously, this can be liquidated very quickly.

That I agree. Actually, I was looking to a CFO or divided by EBITDA ratio kind of. So Caplin has always been maintaining such higher ratio. And this time, I think H1, it is somewhere around 42%. So that is why I was asking from the cash flow conversion point of view, like EBITDA means this ratio will further improve or how it is going to be? You must have tracking internally also this ratio is going down, right?

Yes. We are comfortable and in spite of it actually, the slight dip, I would like to tell you also is like this. In 2 countries, especially in Guatemala, there were some political issues, 10 to 15 days, there was nothing actually happening. However, eventually, the sales was increased to $3.8 million, which we normally do alone in every month. And slightly, there is a dip in collection, which you would see actually an increase in this month. Number two, in Dominican Republic, there is actually issue between Dominican Republic and Haiti. However, the sales has increased. The dip also not actually very broad. It's very, very narrow. So this type of issues, it happens to every company. The cash flow, if it is not actually that good, you would not be in a position to have INR 825 crores as cash and cash equivalents. I hope you'd agree with me.

Right, sir. Right. And sir, there has been a delay in our expansion of injectables in oncology, like from '24 earlier to now it is Q2 '25. So similarly, there is a quarter delay in oncology API as well. So is there any specific reason for the delays?

Oncology, tablet and capsule, I'm sure we'll be able to actually start the commercial production in the next 6 months. Although I told you, in general, everything will be completed in 12 to 18 months. That's only applicable for [ factory ] as a whole because if you look at oncology, there is tablet, capsule, injectable and API. And the API in Vizag will also be completed in 6 to 8 months or maximum 9 months. The rest of it you know like OSD in general. And in addition to onco, OSD, our injectables -- onco injectables, the machinery on the way. That will take a little time. See anything which is going to actually cause a little delay will not have any impact actually on our fundamentals.

Correct. And in addition to that, just one more point is especially on oncology. There are 2 points here. Number one is we are not denying the company any opportunity to create this, because we are currently using outsourced manufacturers for some of these oncology orders that we are servicing. Number two is the API piece of it being delayed doesn't really impact us too much at this point because there is API available from outside. So it's still status quo. When our own API comes in, our cost control and our compliance and everything gets even better. It doesn't -- it's not the other way around.

And can you give a number like where we will end in FY '24 in terms of consolidated revenues? Like Line 5 and Line 6 will also come in Q3 and Q4. So what is the expected internal number that we are targeting for FY '24?

Better not to actually quote the numbers. It's a public company. It's better to underpromise and overachieve.

[Operator Instructions] The next question is from the line of [ Rishi ].

So regarding your aspiration for new markets of Brazil and Mexico. So how has been the progress for that market? And what -- probably what sort of portfolio -- product portfolio would be taking there like U.S. you will be leveraging the U.S. injectable pipeline or Central American portfolio? So what are your thoughts on that?

Yes. I will tell you about the rest of the world and South America. Coming to U.S., I will ask the COO to explain everything. New market, as we told you before, the bigger geographies involves long time for registration. However, there are emergency orders, which of course we also get approved, and we have been exporting that too. And our registration in Chile has reached to a level of 100 plus. And shortly, we are going to open a warehouse there. And coming to Mexico, there are 2 ways to do business here. One is private market, other one is actually the institutional sales, the tender business. Most of the people who do tender business, in fact, they come and met us actually, our people in CPHI. In fact, my elder son is in Mexico, and he is meeting all those people. The advantage of going through actually this type of people for tender business is, they have the extraordinary context, actually in that country. And moreover, being a foreigner especially in tenders, we don't want to go directly into that area because there are certain issues which may affect actually people personally. So coming to this business, especially in South America and various countries, we are doing the registration. In addition to the registration, the one which really helps us is the expansion of projects in the form of softgel capsule. And next year, we are planning to go for actually a PFS in double bearer syringes. These are the things which will also increase our revenue. The registrations, yes, in the newer geographies, it takes time, unlike actually ROW market. Now I will ask COO to explain about the U.S.

Yes. So your second question was around the portfolio, and I will just explain. So obviously, there are 3 streams that we are practicing. Number one is, like you said, the -- the Caplin syringe portfolio itself, I think whichever product that makes sense for Mexico and Brazil, we will focus on that. In fact, several trials have already been submitted and now that [ Indian ] approval also has come through for Caplin syringe, we'll be filing more wherever that -- those things are ready. Number two is there is something else that we realize, which is there are many EU-GMP and other high regulatory body approved facilities in India that don't really have any sort of a presence in Latin America, especially in Mexico. So we identified 2 or 3 of these companies, in fact, 2 from India and 1 from China as well, who have been giving us their dossiers to file in Caplin's name. And in due course of time, when some of these products get approved, we will start outsourcing. It is very similar to what we did in some of the smaller markets of Latin America. And finally, our own OSD facility, hopefully, which will come through in the next 12 to 18 months like Chairman said, will also be used to cater to this market. So it will be a wide portfolio of injectables, ophthalmic, outsourced manufactured products and in-house OSD products. So we will be targeting a wide portfolio as explained.

And sir, would we require a front-end sales force on the ground in this market?

Of course.

Yes, go ahead.

No, you please go ahead.

Yes. So obviously, our mantra has always been -- remain close to the customer, right? So in fact, as Chairman was saying, my brother is in Mexico, as we speak. He's made 10, 15 visits over the last 1 year itself. We will be assembling a very good field force over there, very similar to what we've done in other parts of Latin America. Of course, in the earlier stages, we will be focusing much more on the product registration because this will obviously take around 9 to 12 months' time in most cases, while we lay the groundwork. We will be meeting all the distributors, existing parallel markets, et cetera, that are over there. But yes, we will be certainly having our own front-end presence over there.

Is it fair to say that these regions will start contributing post FY '25, around FY '25?

In the next 18 months, I think we can start to see something meaningful. We already have over $1 million business in Mexico from last year itself. But yes, if we are looking at some meaningful numbers, I think you can expect it in about 18 months and beyond.

The next question is from the line of Gaurav [indiscernible] Shah from Kotak Mahindra Bank.

Sir, my question is to the CFO. I see a bit of cash on the balance sheet in September. And so basically if I look at the breakup, it is in the form of bank balances. Now I presume if it is in a current account, it is not only the interest, how do we manage this money? Do we keep company informed of investments? And also in terms of the ROEs, the ROEs and ROCs have been dipping. Probably the reason could be the it is a good problem to have to have a company generating cash. But what is our large ticket plans or the big ticket plans of CapEx? Or do you plan to do some buyback at some point of time?

Yes, CFO, you may please go ahead.

CFO, still on the line?

I am audible now?

Yes, yes, yes. Go ahead please.

As regards the banks and bank balances, they are not in current account. Just to confirm, they are in the form of fixed deposits. Fixed deposits in the accounting credit, which has come with the award of an cash and cash account INR 825 crores is figuring in about 4 to 5 places in the balance sheet. It is not in one straight line. And there's no funds which is idle and it's not yielding even interest. So the -- even the balances in Hong Kong, which was not giving very good returns, now we are -- it has started giving a return of 5.5% to 6% tax free, okay. So pretax, it will be equivalent of 8% in India terms, okay? So that is as far as the deployment of the funds is concerned. Secondly, for the ROE and ROCE as we have been in the expansion mode for the last 3 years, which will all bear fruit in the coming years. Just for the information of the audience in the call, we have spent about INR 459 crores to be precise in the last 3 years in various projects. And another INR 370 crores is identified as we speak today, which is very visible to be spent the next 12 to 18 months as our Chairman explained. So we are also -- as we have told in the past, keeping our ears and eyes open for any opportunities that are available in the market. So it is always better to keep cash, which is yielding return and if you see our other income, the interest income has gone up substantially. So that means that we have been deploying it more productive assets, and we're not taking anything idle, I would say for sure. And these are funds kept for CapEx and also for any other opportunity that may come up in our way. So our focus has been cash flow and the cash flow, cash flow. The -- I can repeat 3 times, Chairman first primary objective is to have cash flow. So no borrowing.

The next question is from the line of Sachin from Svan Investments.

Congrats to the entire Caplin team for showing us such good numbers. I have 2 questions. So one was on the U.S. business, the Caplin Steriles business. So you had guided for INR 200 crores of revenues for the current financial year, but I think the current momentum is very strong. So what type of numbers are you looking for the current financial year? And secondly, for the next financial year, if you could give us some type of sense what type of growth you are looking? And we had also aspiration to reach $100 million revenue by FY '27, if I remember or '26. So if you could just also comment a bit on that aspiration of $100 million revenue for Caplin Steriles.

Yes. So I think the INR 200 crores that you're talking about, we already achieved that last year. What we said was we will grow well. Of course, obviously, there is coming off a smaller base. We will obviously be growing well this year. We don't want to put a figure to it, but definitely above industry average figures, what we will be targeting for Caplin Steriles this year. And when it comes to overall -- over the next 3 to 4 years, targeting 2027, a $100 million figure is something of a benchmark for us. We remain confident that we can get to this figure or get very, very close to this figure. And we are putting in all efforts to make sure we get there.

Sure. But in terms of your EBITDA margins in Caplin Steriles, what type of upside do you see from the current level? And the 70-30 mix that is there currently between milestone and revenues, how do we see that changing over the next 2, 3 years?

Yes. So when it comes to the -- I'll answer the second question first. So milestone and profit share, I think, is a very healthy mix. Because if you see, we are not a company that does a pure play CMO. And we don't do any development for other companies either. So we are a company that develops and tries their own products, and so far has been licensing our products to front-end partners such as [indiscernible] and all these people. Going forward, I see that same thing a little bit more towards the product revenue because we'll be having our own front end, and we stopped doing exclusive deals a few years ago itself, right? So as long as our front end gets established, we will have lesser and lesser inclination to do licensing deals with others, because we want to be selling all of it by ourselves. This is going to obviously strengthen the bottom line as well because all of our B2B business that we do right now, there is a profit share to our front-end partner. So obviously, I see -- without giving any numbers away, that 70-30 will start to tilt much more towards the product revenue and lesser towards the profit share revenue in the years going forward.

But over the medium term, will it stabilize? If will be like 80-20 or it will be like -- more like 90-10 over the next 2, 3 years, where do you see it stabilizing?

I would safely assume 80-20 would be a more reasonable figure, at least over the mid term.

Sure. And on the EBITDA margins, most of the high quality...

Sorry, I did not [indiscernible]. So EBITDA margin, especially for us, you will have to look at it a little bit differently compared to others because of the fact that, again, I repeat, we are not a CMO. We develop and file our own products. So our costs, right, when you're talking about PDUFA fees, the filing fees, A, B, and C, specific fees, all of these are significant for a company our size. But as the revenue continues to grow, as the bottom line will get strengthened and our EBITDA number, if you took away all of our R&D expenses, et cetera, that we do not capitalize, we expense out, our EBITDA numbers are actually very similar to the parent company's number, right? So this will start to reflect as the revenue catches up a little bit more, and our filing starts to go down and we focus a little bit more towards complex products alone. Today, we have a lot of simple solution products. So the numbers in terms of number of ANDAs we are filing and all that is higher compared to what we would be doing, let's say, 24 months' time, right? So a shorter answer to your question is, if we remove all of these heavy R&D fees and everything, our filing fees and all that, our numbers are very similar to our parent company's numbers.

Sure. I understand that our accounting is far more conservative, but that's the way I think we have chosen to be. So in that scenario, when do you expect that our reported EBITDA margin should start to [indiscernible]? Will it take another 2, 3 years? Or do you think that could happen much faster going by the type of traction we are seeing in the operating near benefit plus, the product benefit that we should get?

Yes. I would be safe and assume that 2-year hence, right? Because I think this year, already, we are profitable. In fact, last year also, we've turned around the profit despite the heavy expense out. But 2 years hence, I think, would be something for us to look forward to.

Sure. My next question was for the CFO. On this Slide #18 that is mentioned a CapEx of INR 600 crores to INR 650 crores where we outlined 6 projects. So if you could qualify sir, how much of the INR 600 crores to INR 650 crores has already been spent? And how much is pending completion?

Yes. As I just answered the previous querying. As we explained, that INR 459 crores has been spent since last 3 years, okay? And as we speak today, INR 370 crores, we have visibility, not everything is crystallized. We have visibility about INR 370 crores, of which about INR 200 crores, INR 250 crores is [indiscernible] for onco, which is yet to take some shape, about INR 50 crores is the plan we have for that. And the OSD general, what Chairman said, will consume about INR 150 crores over the next 12, 18 months. So INR 370 crores of this INR 650 crores, INR 700 crores is inclusive of what is spent and then what we see in the next 18 months' time. So that's what you would have spent in the last 3 years, plus next 18 months.

No. But sir, last 3 years, no. If I go by your slide, this is confusing for me. On the Slide #18 of your presentation, you have mentioned that the Caplin has allocated INR 600 crores to INR 650 crores, and you have mentioned 6 projects. So of this INR 600 crores, INR 650 crores on these 6 projects that you outlined, how much we have spent? Is that INR 250 crores is the number that you are mentioning is instead of these 6 projects?

Sorry, I didn't get you.

I will just clarify, Sachin. This is -- you need to take in too what period of time. So obviously, if you're looking at whatever CapEx that we started from 2020 itself, this is going to be close to INR 800 crore figure, right? So some of this was brownfield. So we took away that brownfield figure out. And then most of the new initiatives, including Phase II and Phase III of Caplin Steriles, we've mentioned that INR 600 crores to INR 650 crores. A shorter answer to your question is more than half of it has been already spent, and the remaining half will be spent, I would say, over the next 18 months as Chairman was saying, 18 to 20 months.

Yes. But as per the presentation, all the projects will get completed by Q3 FY '25, which is like 12 months from now.

Yes. So we want to be comfortable when we speak, right? So some of these are very, very close to completion, like the onco facility is around 3 months away from completion, and there is an opportunity for us to pass back our OSD facility as well. But again, we want to be a little conservative because some of this requires qualification timelines and everything, right? So CapEx completion is only one part of it. In pharmaceuticals, where you need to qualify on the equipment to start commercialization as well. And some of these areas that require licenses as well to be received. So the CapEx completion is only one part and then there will be definitely a 6-month period, which will be what will be required for us to ramp up to commercialization then. So that's how you need to be looking at this rather than black and white into what number alone has been mentioned over there.

Sure. And what is the type of peak revenue we can achieve once fully utilized this INR 600 crores, INR 650 crores of CapEx can generate for us?

Yes. So obviously -- go ahead, Chairman, please.

Can I say a few words on this, please? See, the most important here is one area which is true completion of the facility. Second most important area here, especially in the OSD, onco and OSD General, we love to actually invest on the bioequivalent and bio availability. It's not the question of money. It's a question of timelines. We have to complete the R&D first, then go for the [indiscernible] , when the patent is through we want to file the dossier. So especially in the regulated space, it takes a long time. Luckily, we have been very successful in the ROW market, especially in LatAm. So we will start the business to start with in the LatAm market. That alone will give us very good actually returns. So we are sure of actually continuing the same EBITDA and other things going forward. And exact numbers today is very not easy to predict.

But a ballpark estimation, the INR 600 crores should let give a INR 1,000 crores, INR 1,500, very ballpark number, not a very specific...

Like if you ask me in 5 years from now, if you aim actually at least INR 4,000 crores to INR 5,000 crores. But if you ask me what will happen actually in '24-'25, I'm sure we are aiming for a sale of actually INR 2,000 crores or closer to INR 2,000 crores. That's only way I can tell you.

Sure, sure. And sir, one question was seeing some of these new large markets that you have been talking of Mexico, Brazil, Chile. Sir, what is your vision for the next 3, 4 years there? And how large do you think they can be for Caplin as a company overall?

These markets what when you are thinking of opening up your own actually company there in the form of companies or a subsidiary company. The number of registrations which are in the form of like 20-30 doesn't give you actually big volumes. It should reach to a level of, say, 100 products. If it reached to a level of 100 products in Mexico, it will take at least 2, 2.5 years, maybe 3 years. At that time you think of actually like something extraordinary. It can even go up to $75 million to $100 million also. The reason being half of the business, which is in the form of tender business, we will not directly involve, but we know people who can influence the decision makers and then not sell the products. They also, they are interested in quality products. And they know that we have been selling our products in Central America, which is much closer to Mexico. Guatemala is just 1 hour drive by flight actually to Mexico. And again, cross-border business, although we are not interested in that one, people who live in the border, they come actually and buy and go also. So most of the people, they are aware of quality of the product also. So once we complete actually different buckets of products in the form of oncology, then general products, injections, various injections in the form of liquid injections, and then your ophthalmic products, [ vacs ]. All that put together, I'm sure we're aiming for something extraordinary. But again, this is what I could say. Say, if you ask me '24-'25, yes, we will do INR 2,000 crores. Again, there is a market in Mexico, which takes time. Sometimes it may be sooner, sometimes, it may be later, but not actually, it is something which is [indiscernible] , we are sure of doing it. It is a possibility, but the question of timing ranges between 2.5 to 3 years maximum to do the maximum business.

So basically next 2, 3 years, it will be slow and steady we have to get more products registered. So FY '27-'28 is when we can see larger contribution from this [ project ].

Exactly. That's one way of looking at it. The second way is Mexico, there are a lot of opportunities to acquire companies. But the meaningful acquisition also will add value to us at the same time. Now we are focusing more on completion of the projects. We don't want to add one more facility outside the country. And that's why we are not interested to go for anything in the form of acquiring a facility in places like Mexico or Brazil also. We'll complete everything here. Then we will have to consolidate our efforts whatever the balance between consolidation and expansion also has to be very meaningful. There are opportunities, there are challenges. But at the end of the day, the people really back us also. There are things which can be delegated. As you know well, the promoter creates it and the professional comes to protect it. And today, after COVID, the environment, the ecosystem has not been that extraordinary. You will have to understand the people well. Take care of them very well. And we will have to wait for that to happen also. We can't be in a push and progression make things happen. It's not that easy to be very honest with you.

The next question is from the line of Nikhil Jain from Galaxy International.

Are you able to hear me?

Yes.

Okay. Sir, this question is related to the U.S. market, the Caplin Steriles. So congratulations on getting the approval for Rocuronium through Lupin, where Lupin is the marketing partner. I just wanted to understand our philosophy of, let's say, partnering in the U.S. market because I understand we are still doing nonexclusive deals. We are also having our own distribution setup, where we are targeting, let's say, not the most competitive distribution part of the chain. And we are also having our own label, right? So how do we actually -- how are we ensuring that there is no conflict in the chain and the customer is not confused because the same product should not be offered by multiple entities, right, Caplin themselves or Lupin or some other partner or whatever?

So I will answer this in 2 parts. Number one is you spoke specifically on rocuronium bromide that was probably because Lupin jumped onto the press release for that one, right? So obviously, these are non-exclusive deals. And Lupin is not the only company that we have licensed the product to. There's one more as well. But at the same time, these are completely nonexclusive on both sides, right? So whenever Caplin decides to enter the market with its own label, we are free to do so. In every one of our agreements that we have signed so far over the last 5 years, we're ensured of this. Now number two is, again, drawing a parallel to what we are doing in Latin America. We don't want to go to the very large [ GPOs ] and distributors and then try and sell our products, because that is a space that's sort of crowded with this point, right, including the Lupins of the world. What we want to do is there is a certain amount of market. And depending on who you speak to, it could be anywhere between 20% to 30%, that is outside of these very large GPOs and [ IBMs ] and stuff, where we can actually sell our product. Even if it's smaller volumes, we can actually sell it for higher margin. And it could become a very sticky business as long as your supply continuity is maintained, right? So that's what we will be doing. And we will not be competing in the same channels because we will not be operating in the same channel. Even the kind of people that we recruit in the U.S., we are very clear to them that we don't want to be going to try and test the model of going to a GPO, crashing prices and then entering with our label. That's not what we want to do. And even in Latin America, is we never went to the largest distributor over there and then tried to give them anything exclusively. We went to smaller distributors. We went to smaller wholesalers, we went to retail directly. So we want to sort of try and replicate something similar in the U.S. as well.

Right, right. But how do you ensure that there is no conflict, right? So because you are trying to cover all the distribution channels, some through partners and some yourselves.

Yes, that's what I'm trying to say. We are -- number one is, even if there is a conflict, there is nothing that prevents us from doing anything, even if we choose to do with the GPOs. But having said that, what I was trying to say in my earlier response is that we are not going to be operating in the same channels where some of these larger companies operate. Because they typically go through very large GPOs and healthcare networks and stuff. We want to be playing basically in the Tier 2 and Tier 3 spaces. So by default, there will not be any conflict.

One more thing actually I would like to add here. I hope you'd agree with me in war and business definitely, there will be conflicts. We'll cross the bridge when we reach there in the form of a conflict resolution. That's the only way out. You can't predict everything actually now itself. I hope you would agree with me what I said.

The next question is from the line of Chirag from RatnaTraya Capital.

Congratulations on continued execution. I had one bookkeeping question and a larger question and first is the bookkeeping question. If my numbers are correct, we did around INR 46 crores of sales in the first quarter for Steriles and INR 75 crores of sales for Steriles in the second quarter. So both quarters, could you tell us the EBITDA for Steriles?

Yes. CFO can answer this, please.

Yes. This is Sathya Narayanan here. The EBITDA for the current quarter Q2 of 2024 is INR 10 crores. And for Q1, it was around INR 2.5 crores. So please look at it in the manner, which was explained by [indiscernible] that this is after charging off all the R&D expenses and the ANDA registration fees, everything which we expense out immediately on the currency.

First quarter -- sorry, sir, I couldn't hear that number. Could you repeat that number again?

INR 2.5 crores.

Yes, perfect. Okay. Understood. And the second question is a little bit broader. We'd love to hear the chairman's view on this. Is that we have a bunch of expansion times going on, right? So we have oncology, API, backward integration, Steriles there's an expansion. In Latin America, we are doing geographic as well as product expansion. In all of these 4, 5 areas, where is it that the team feels there is the most amount of stress or the most amount of sort of delay or the most amount of uncertainty? And where is it that you feel that we are almost close to sort of -- we're very close to what we were -- conceptually where we were, we are very close to the end?

Yes. I would like to actually say a few things. Of course, this will help to understand where we are today. In general, I hope you would agree with me what is important, one cannot be too [indiscernible] to endure. Endurance is the key. When we have the great, definitely whatever delay in shopping section usually, it will be completed. Not that I don't want to say there is no delay in the form of actually projects. Project overrun, cost overrun is part of any business. But at the end of the day, we are not -- not been borrowing money from any banks. It's all happening from our own actually internal accruals. Second, the biggest challenge that we face, it is actually getting the licenses and other issues, sometimes people issues. This, of course, you can't change. You live in a world where the pedestrian walk on the road and the motors is driven on the pavement with impunity. So these are the individual liberty that come in the form of social anarchy. What you can to avoid that one? So anything that we do, I would put actually this way as long as you are the great and your model is not in the form of borrowed money and borrowed systems, we're not sure of completing this. When we complete it, yes, it takes time, it takes actually a certain amount of pressure to the promoters for the company. Eventually, when we make it, we will also actually whatever we believe, we can see it actually.

Understood. Anything in specific amongst these 4 or 5 where there is the most amount of stress, oncology, backward integration, Steriles or [ geography ]?

It's like this actually. I have read one -- this year, I would like to come here by car. So this is an incident which happened in 2014. What they have understood poverty runs in generations. The gene poverty has been actually incorporates a cognitive issue on the lake of our mass in the gene, hence on individuals, it runs into 3 generations. So anyone who starts his life as an entrepreneur from a small, actually beginning or if he is not part of the business community, his pressure is bound to be there. But the pressure that we had when we didn't have money is much more than actually the pressure that we have today, when we have money in the bank. And though the money is not borrowed money. It is taken as, so borrowed in the sense of that. Unless and until, you understand something which not many people know, you will not be in a position to do things which will be effective. So it is not that the pressure, which is going to break you. It is how you take it. What -- how do -- what do you make it? And how you take it that really matters. That's what I would like to convey to you.

The next question is from the line of Alisha from Envision Capital.

Most of the questions have been answered. Just 2 small questions. One, on a sequential basis, that is Q2 on Q1, there is a dip in our LatAm business. If you could just explain what this will be due to?

Sorry. Sorry, I didn't hear properly. Can you please come again?

Sure, sir. I was just trying to understand that if I compare this quarter versus last quarter, which is Q1, there is a dip in the LatAm revenue. It was about INR 350 crores in Q1, which has now become about INR 335 crores. Just wanted to understand what caused this dip? Are we seeing any slowdown pressure, any logistical issue causing this event?

Logistical, there is not a major issue, but again, you must have seen the newspapers. The incumbent president and the new president, there are some issues in Guatemala. That, of course, that has come to a grinding halt for about 10 or 12 days or maximum 15 days. But again, people have to buy medicine. They would prefer to buy medicines only when the medicines are next to them in the [indiscernible]. With the result that 15 days of work actually has come in with that. In fact, we have done more business than before. Slight dip in the receivables. That also is not in the form of actually 50%, 60% reduction. It is in the form of 10% to 15%, which will happen actually in the next month. And coming to what you said in the form of quarter 1 versus quarter 2, I will request the CFO to clear that.

CFO?

Yes, yes, yes. Madam, you asked for [indiscernible]. I will put it, there is a price dip in the few parent company system. So as we said, it will be more than made up in the current quarter. Overall growth is there and will be more than made up.

Sorry, sir, if I couldn't hear you. Your line is not clear. Can I request you to please repeat this answer.

No, no. What I was trying to explain to you is the recent dip has already been answered by our Chairman, explained by our Chairman. There is no concern. It is a very, very marginal. That will be more than made up in the current quarter.

Alisha, just one point I would make. In pharmaceuticals, especially when you're doing business in multiple geographies and stuff, I think comparing quarter-on-quarter is a bit of a misnomer. Year-on-year is much more -- in fact, if we ask us internally, we look at our performance 3- to 5-year basis. So quarter-on-quarter, there will be minor dips or increases here and there. But I think the -- like CFO said, that's much more of a rounding rather than anything else.

So absolutely agree with you that it would be Y-o-Y, which would be on a more medium-term basis. It's just that for all the newer initiatives that we have been talking about, this seemed kind of strange and hence I thought of clarifying it. My next question is just, is it right to understand that the next step-up in the LATAM business will now only come once some of the CapEx that we've been speaking about [indiscernible] which should be towards the end of the year or early next year?

Yes. Go ahead, Chairman.

No, you take it.

Yes, so obviously, with many of the initiatives that we are taking up right now, there will be a gestation period, right? But there are 2 ways in which we are attacking them. Number one is if you look at the oncology space, we are not exactly waiting for our facilities to get ready and then start registration then. We actually started registering many of our products several quarters ago, which is why over the last almost 6 months or more, you can see that there are several oncology products that we've supplied to emergency tenders. We're actually supplying to private markets also in 1 or 2 markets and such. So we're not denying ourselves an opportunity to fill that gap over there. As and when our facilities come through, this is going to enhance the business. It is going to enhance the supply chain. Number two is where actually -- we have a breakup. Of course, not everything can be put down and opened up to public. As I said, many of this is confidential information, but we've actually been able to grow quite well with the existing markets, with existing products, but a little bit of tweaks to our offerings, such as [indiscernible] softgel, prefilled syringes and everything. So it's not that all of the growth will depend only on the new CapEx coming in, that will be augmenting our growth rather than depending entirely on it.

Got it. Got it. And just one last bookkeeping question. There is a spike in other expenses and it's quite sharp sequentially. What would this be with respect to?

The CFO can answer this, please?

Are you referring to the current quarter or sequential or the H1 itself, madam?

No, no. Q2 of this year versus Q1. So INR 73 crores versus INR 55 crores.

As we have explained, we have filed a bit more than 3 ANDAs as compared to the last quarter. Each ANDA consumes about INR 2 crores. So that thing and our R&D expenses have also gone up. These are the primary reasons for increase in expenses.

[Operator Instructions] As there are no further queries from the participants, I now hand the conference over to Mr. Vivek for the closing remarks.

Thank you, everyone, for joining us and taking time off and understanding our company and your wishes mean a lot to us. Once again, thank you all, and have a very happy Diwali, and we'll be in touch with you. Thank you.

Thank you all, and wish you a very happy Diwali. Thank you. Thank you all please.

Thank you. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.