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

Ladies and gentlemen, good day, and welcome to Caplin Point Laboratories Limited Q3 FY '24 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kapil Yadav from Dolat Capital. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Dolat Capital, we welcome you all to the Q3 FY '24 conference call of Caplin Point Laboratories Limited. I take this opportunity to welcome the management of Caplin Point Labs represented by Mr. C.C. Paarthipan, who is Chairman of the company; and Mr. Vivek Partheeban, who is the COO of the company; and also we have today with us Dr. Sridhar Ganesan, Managing Director; Mr. D. Muralidharan, CFO; and Mr. Sathya Narayanan, Deputy CFO. And now I would like to hand the conference over to Caplin Point management to take the proceeding forward. Over to you, sir.

Thank you, Kapil, and Dolat Capital. Hello, and good evening to everyone. Welcome to our earnings call to discuss the results of the third quarter and 9 months for financial year 2024. Please note that a copy of all our disclosures are available on the Investors section of our website and as well as the stock exchanges. And do 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, would be made available on the company's website as well as the exchanges. Also do note that the audio of this conference call are copyright material of Caplin and cannot be copied, rebroadcasted or attributed in the press or media without specific written consent of the company. I would like to now hand over the floor to our Chairman for his opening remarks.

Thank you. Good evening, ladies and gentlemen. Welcome to our investor call. You are aware that Caplin discovered new pathways in the road less traveled. We also learned that if you are unwilling to risk the unusual, we have to settle for the ordinary. The smaller geographies that are considered insignificant by the major companies have become the center of gravity for our core business. The current cash flow and profits are mainly from the smaller markets of Central America in addition to U.S. now. We are entering into bigger geographies such as U.S., Mexico, Chile and others. The U.S. story will be narrated by the COO, and I will talk now on Mexico. Mexico is the second-largest market in Latin America, and Mexico's advantage is its geographical proximity and cultural compatibility to both South and North America. We have already filed 24 products in Mexico and received the registration of 5 in the recent past. We are sure of increasing our filing to at least 60 to 70 before the end of 2024. We already started outsourcing dossiers from some reputed companies from China. We are also aware that we have been exporting quality products directly from China to Latin America, especially to the smaller market. Now we are moving to the next level of business in the form of outsourcing from China companies for the regulated market. Here, we are using our advantages and experience of catering to the market such as U.S., which helps us to the bigger companies in China for our second innings in the larger markets of Latin America. We also understand that there are some big companies in India which import insulin and other biological products from China in bulk and do the fill and finish before they export to the regulated markets after conducting the necessary clinical trials. We do have plans to identify some good companies to do the same as we also have the necessary wherewithals in the form of CRO, which has been approved by U.S. FDA where we can conduct the clinical trials before we market the products. This will be an asset-light model where we do not have to invest huge money to manufacture the biological products from the scratch. We're also getting into business of manufacturing double-chamber PFS for the Central American market shortly. The machinery will be installed either in March or April, and the registrations may take 6 to 9 months before we hit the market. Here, the volume of business may not be high, but the profitability will be very good as there is only one competitor that, too, is a multinational company. We'll also be starting one more warehouse in Guatemala border, which is closer to Mexico, and many of our customers feel that it's very difficult and expensive for them to come to the capital of Guatemala. This will also increase our profitability and cash flow in the coming years. You are aware that we had a stall in CPHI Barcelona, and the response is really good. Hence, we are planning to go for more and more of these types of stalls in various expos to reach to the B2B customers, too. The COO will also brief you about the participation of the expos in the U.S.A. to understand the uninsured and underinsured customers of the U.S. market. We will continue to focus on the bottom of the pyramid and also the bottom of the business pyramid where the traffic for competition is always lesser. Now let me share a few words about the status of our facilities. We have completed Phase II in our CSL, and the commercial production of Line 5 started in the mid-October of 2023. That's one of the reason of 9-month sales of CSL, which is 40% higher than the previous year. We also have done some work in Phase III where we still defer -- where we will not decided anything in terms of actually starting something, and we are verifying the technical feasibility and commercial viability of fill and finish of biological products, which includes insulin. Caplin one is Onco facility where we are all set for the Indian inspection on the 12th and 13th of this month for the tablets and capsules. We also have, under Onco, registration in Latin American markets where we are very confident of doing business in the initial stage itself unlike Caplin Steriles. Our injectable and API for Onco facilities will also be completed in 9 to 10 months from now. We are sure of going -- doing profitable business in future after the completion of our injectable division and the registration. It's also true that we have been delaying the general API facility in Vizag as we are looking for some niche products other than our own injectable API for captive consumption. Finally, we have appointed an API expert who filed 10 DMFs for some niche products, and he has joined with his team recently. We will now focus on the completion of Vizag API at the earliest. Now let me come to the important area of my focus for the last 2, 2.5 years of managing the CSL facility to make it very unique. My stay in the factory initially and the subsequent stay are closer to the factory made me to understand the importance of perfection for integrity, quality and safety in addition to improvements in productivity. I personally went to the shop floor areas many times in the day and night to find out some disobedient minds whom I removed them later. I went to start this factory next to my village only to help the poor and not to become the poor. I also learned the bottom-up approach, which helps the company to reduce the deviations and OAS, which are very important for any pharmaceutical company and, needless to say, it is pertinent to a U.S. FDA facility. Further, we have also digitized many areas except the 3 important areas, such as logbook, BMR and BPR. Our e-logbook will be completed by May or June. The remaining 2, BMR and BPR, will also be digitized before the end of 2024. In addition to this, we also installed cameras and biometric access control to monitor and review the activities of people in various areas. While ensuring empathetic right to our employees, we also felt that the review, monitor and control are mandatory for ensuring integrity, quality, safety and productivity. The last but not least is that we are constructing a free hospital, mainly for cancer and cardiac care and also prevention and rehabilitation of patients with stroke, which -- for which there is no hospital in the entire district. Finally, today's business is all about chance encounters and how to translate into choice architecture. Our choice and choice architecture will make us to reach our dream destination in the years to come. Thank you. Thank you very much. Now I will hand over actually the phone to Vivek.

Thank you, Chairman. I'd like to give a little update on the Caplin Steriles business, which is much more focused towards the U.S. We've had another encouraging quarter for Caplin Steriles. As you would have seen, we've matched the previous year's full year sales within the first 3 quarters of this year. And with the rate at which the current quarter is heading in, we feel comfortable that we should finish in a fairly strong position for this year. In addition to expansion of capacities, we've also managed to put those capacities to use quickly, which is important, we feel, because we were running on 2 commercial lines and then we were getting quite a lot of approvals, which needed a third line as well to ease the pressure from the first 2 lines. And we've been able to successfully manage that in the last quarter and continues on in this quarter also. More importantly, we have not lost track of our filings, which is important for our future growth potential. We are happy to inform you that we have around 14 products that are under active review with FDA, and we expect most of these to be approved within the next 12 months. Some of these are ophthalmic products, which we have a line that is largely underutilized at the facility. So we will be aiming at launching these products as close to the approval date as possible. The rest of the products under review are all our under active development, are a healthy combination of injectables and vials, ready-to-use injectable bags, injectable suspensions, emulsions and also ophthalmics. We will also shortly be working on a pipeline of pre-fill syringe products as well. So you can imagine that we are trying to cover a broad spectrum of products that are used in hospital and clinical settings. This will certainly be augmented when some of our Oncology injectables start to feature in the coming years onwards. We are also pleased to inform you that our front end in the U.S., CSL USA Inc., is making good progress on the state licensing activities front. In the next 8 months, we will have licenses to distribute our products in our own label in all 50 states in the U.S. We hope to launch around 6 to 7 products in the initial period within the first year itself. And as Chairman was saying, we are going to be attending more and more expos in the U.S., trying to identify the underinsured and uninsured population, which we believe is anywhere between 30% to 35% at this point. And these pretty much belong to the Tier 2, Tier 3 cities and also Tier 2, Tier 3 buyers of the U.S., which is what our focus has always been on, including in Latin America. This also will not have any impact on our current business partnerships in the U.S., which is more of a B2B model, because our partners are much larger in size and they are much more focused towards the GPO-related business. We have also filed several products in Mexico, Canada, South Africa, Australia, et cetera, and we can start to see some non-U.S.-based revenue within the coming 18 months. So overall, we are making good progress on the U.S. side. And with prices stabilizing and also injectable shortages continuing, we feel that our razor-sharp focus on digitalization and quality and supply continuity at Caplin Steres will certainly augment the company's progress in the years going forward. I would like to request our CFO to throw a little light on the numbers before we can open up the floor for questions.

Thank you. Thank you, Mr. Vivek. Good evening to all of you who have joined us in the call. I welcome you all once again. This is Muralidharan, CFO. One more quarter with gratifying results. The 9 months have been pretty good as we have already reached FY '22 sales in the 9 months of FY '24. CSL, our subsidiary, has also reached the entire FY '23 results in 9 months of FY '24, which is a commendable achievement. And also, as we have been talking about sustenance of contribution margins on the PAT level, we are way above what we have promised to the market. We said we'll be around 55% average, we are at 57.1% for the 9 months. And we hope that we'll be able to maintain around 55%, 56% for the coming quarters as well. And as far as the PAT is concerned, we are at 26.4% as against the 25% what we said we would be able to sustain. Even the one-off quarters will have higher margins and higher profitability. And what is heartening here is the sales have grown by 15%, which is about INR 163 crores in terms of numbers, but the profit of the -- profit before tax has grown by INR 90 crores, meaning that INR 117 crores increase in contribution, 75% of which has directly flown into PBT. Since we have been very discrete in handling our expenses, about a couple of years back when we took over the channel partners and then brought them into our fold, there was some concern about the expenses going up and whatnot, it is all bearing fruits now and everybody is contributing. And then we have been able to contain the expenses at a manageable level, and that has shown in the flow of 75% in increase in contribution margin to the PBT directly. And as far as the other numbers are concerned, which is there already with you for a while now, and I won't take much of your time. And if there are any questions to be asked, we will be more than glad to take those. Thank you, Mr. Vivek.

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

[Operator Instructions] We have our first question from the line of [ Rohit Singh ] from Nvest Analytics.

Congrats on a good set of numbers. My question is on towards the -- like do you see any kind of near- to medium-term risk either due to Red Sea crisis or any other specific reason to maintain our growth trajectory going ahead? Because like you mentioned in your presentation as well, due to Red Sea crisis, we have been shifted to CIF model from FOB model. So can you please put some color on that, what is the situation right now and how it is going to be in upcoming quarters?

Okay. Thank you. Red Sea issues will not have any major impact to us, the reason being we have our stocks next to the customer. If you look at our stocks, actually, we always keep our stocks -- sufficient stocks next to the customer in our warehouses. We also have stocks in transit. In addition to that is we also actually have some of our consignments -- or most of our consignments are not routed to Red Sea nowadays. There is one issue in the [ format ], there is a slight delay, like now 7 to 10 days delay is there, and also a slight increase in what we call freights. These 2 things can be handled very effectively by way of increasing the prices. So the product that already reached to the warehouse, we are now in a position to increase the price because of this issue. So it's going to actually help us in terms of profit in the future. So far, we don't have any major issues. And on top of it, I would like to tell you one thing which is very important in the form of liquid assets of the company. Today, we have liquid assets to the tune of INR 1,550 crores, whereas our total revenue is only INR 1,290 crores. I'm sure this will clearly show you that we have a very healthy, actually, balance sheet. Thank you very much.

That seems good. And sir, like you mentioned about the biologics importing into India and then doing some clinical trials, so can you put some more color like what kind of opportunity do you see here or whether it will be done via Caplin Steriles or we are looking for a new facility thereon?

This, of course, we can either do it there or as a new facility depending upon the viability. What I have found and, in fact, I have checked with some, actually, consultants and I also met a couple of people who are actually -- who have been doing this business by way of importing from, actually, China from good companies. And then what they do is, as I told you in the course of my speech, they do the fill and finish, and they do the clinical trials depending upon the country. If you want to launch in India, then you have to do clinical trials in Indian people, for which our CRO will be very useful. If you have to launch in other countries, then of course, you'll have to do clinical trials in that particular country before we launch the product. But not many companies of our size will be in a position to think of actually getting into this business. The reason being: a, we have exposure to China market, which you are aware that we have been doing business for the last 15, 16 years; b, you're also aware that our cash flow is very comfortable to import and then do the clinical trials and export also to any country wherever there is an opportunity. Is it kind of for a -- is it okay? Hello? Are you able to hear me, please?

Yes, sir, we are able to hear you. I think Mr. Rohit's line is disconnected. We will take the next question from the line of Satyam Sharma from Narnolia Financial Services Limited.

Sir, I have one question. Like in presentation, you have mentioned that you are converting from FOB to CIF. Is that will be like margin-dilutive? Or what is the issue with this?

I will request my CFO to give you the reply to it, please, to give you the answer.

Yes. As we said, it is only to address -- actually, there's no really impact on the margin assets. There are 2 things we are trying to achieve by way of converting them into CIF from FOB. One, being a corporate group, we are able to mobilize the -- optimize the freight cost and are able -- we are able to pool the goods and then our container forming will happen faster than earlier, right? And then availability of ships also will be faster and then we will be able to reach the goods earlier to the port. Actually, as we have mentioned in the past, we have a warehouse in Guatemala. The other countries can be serviced from there. Once the goods reach to Guatemala, there, some of the countries it goes by road; one country, it can go by ship. The Ecuador is the farthest. Other countries, it can go by a maximum of 2 to 3 days. When we are able to pool the goods for Guatemala, we're able to get earlier consignment, earlier ships availability and then also freight advantage. This is the reason, I think.

Yes, sir. But I think like it will be more efficient, but on margin side, other expense will increase or it will be like stagnant?

There's nothing to worry about on the margin side because the freights we were incurring earlier will be slightly incurring lesser only.

I would like to add one more thing. Except 2 countries, most of the countries are connected by road, Guatemala to Honduras, Guatemala to El Salvador, Guatemala to actually Nicaragua, Guatemala to Panama, Guatemala to actually all these countries, they are all connected by road, except Dominican Republic and Ecuador, as he rightly said.

Okay, sir. And like you have told earlier that we will have INR 300 crores revenue from Caplin Steriles. So we will be able to achieve in FY '24, INR 300 crores?

See, now we are all set actually in the form of achieving something, either it's closer to that one or maybe this reason -- the only issue, sometimes there is a supply chain problems, which you are also aware. Today, we have orders. We have enough capacity to actually manufacture. To be very honest with you, there is one API which we are expecting now. We may get it -- 99%, we will get it. If we get it, yes, we will be able to achieve something closer to what we have committed or exactly what we have committed. If that is not available because you know very well, especially for the U.S. market, it's not like other countries where it can use actually API, which has been actually, what I call, mentioned in the dossier. We cannot -- we are not allowed. And even if you want to change the API, that takes actually its own sweet time. So this is the only issue which we have now. Everything depends upon maybe a week to 10 days' time when we will come to know. I would ask actually the COO also to say a few words on that.

So Q3 number for Caplin Steriles, Q3 numbers?

So we're at about INR 210 crores. We've, in fact, completed whatever target that we set to achieve for ourselves. In fact, we are confident that Q4 also, we'll be able to achieve. But like Chairman said, there's one particular raw material that we are expecting, but so far so good. We don't want to project a negative picture or anything like that. But even if not, we'll go very close to that INR 300 crore number.

Okay, sir. And congrats on the good set of numbers.

Thank you. Thank you very much, Satyam. Thank you.

We have our next question from the line of CA Garvit Goyal from Nvest Analytics Advisory.

My question is on the delays happening on the -- our CapEx plans, particularly on the general APIs and Oncology API and the OSD facility. So is there any specific reason? Like in this particular quarter, we have changed our presentation, and I think there is a delay of 2 quarters as compared to the last presentation. So can you please put some color on the delays happening on this ground?

Yes, I would like to tell you, as I told you in course of my speech, then general API, we wanted to complete it for the captive consumption. Later, we have found out that there is an opportunity for us actually to add some more. And that, too, we were looking for a niche, actually, product, which, of course, we have found a person, as I told you before. So now that actually it will be speeded up. And it's true it was delayed, that's the reason I've mentioned in course of my, actually, speech also. Coming to Onco, we thought of doing it actually in the existing facility. And we have been told by, actually, our Head of Projects that we could do it there. But later, we felt it will not be that viable in the sense, this is a product API, you need more land. When you expand at a later date, we'll not be in a position to accommodate the API there. So now what we have done is we have bought land in the form of 18.5 acres in an industrial estate called Thervoy. That's why we have decided to start it, and we are going to start it now and we will be able to complete it in the next 9 to 10 months' time from now.

So we are completely shifting our Oncology plan, that's what you're saying?

No, we're not shifting the Oncology. We have never started. We are starting our Oncology tablet, capsules, as I told you. The commercials will start by, actually, March, before March. And injectables will take 8 to 9 months. The machineries are on the way. We will install the machineries and actually do the registration on the... [Technical Difficulty]

Sorry to inform you, the line for the management from Paarthipan has been disconnected. We will reconnect.

Yes. While you reconnect, I will just explain what Chairman was saying. My line is audible?

Yes, sir, your line is audible.

Yes. So as Chairman was saying, when it comes to the Oncology plan, the initial aim was to have it as close as possible to the formulations plant, the initial formulation plant as well. But now what we decided, because as we expand into oral solid dosages also into Oncology, this might require an expansion of capacity. So we've decided to put this project into the Thervoy industrial estate where we are going to start out our OSD plant also. So in the next 9 to 10 months, we will see most of the progress being completed in that.

So that's what I was saying, like is it the same place or the same land where we are expanding on or the place has been changed? That's what I was...

No, it's a different place, different place. It's a -- the one that we are -- we have already completed the OSD, the oral solid Onco facility, and also where the injectable one is going to come from. That's called Kakkalur, and this is a different place to the one that we are going to start our Onco API one. That's called Thervoy. So...

See, to be very precise, we see that our Head of the Projects was actually interested in doing it in the form of a pilot plant in the existing facility where we are starting our tablet, capsule and injection. But later, we felt the pilot plant may not be enough, and we expand actually our operations to various countries. That's why we stopped at that facility, that is Kakkalur. Now we are moving to Thervoy industrial estate.

Understood, sir. And sir, I think I was not able to hear you properly. You mentioned about the reason for shifting from FOB to CIF. So can you please give some highlight on that?

That, I would request my CFO to give you this one.

So what I said was that FOB to CIF is for 2 reasons. One, as there has been some disruption in the logistics and supply chain, the voyage time also has been going up as compared to the previous times. We thought it will make a prudent idea to put all these consignments, pool all the consignments and then shift it to Guatemala on FOB basis to a CIF basis so that they reach them and then get redistributed by road. As our Chairman was saying, it's about 2 days', 3 days' transit time from Guatemala to these countries by road. Only 2 markets, which are Dominican Republic and Ecuador, are taking longer time from Guatemala, we'll address that. So we'll achieve 2 things: one, optimization of freight; and also making things -- making sure that these goods leave faster. As the Chairman has been mentioning very often, our strength has been that having the inventory closer to the customer. Even today, when we say that we are not disturbed or affected in the near future because of this Red Sea issue is that, that we have enough goods available in our own warehouses in the market such that the sales would not suffer.

So you are saying via this route, we will be able to take the products faster as compared to the sea? That's what you were saying?

The route doesn't change, route doesn't change. There are 2 things. If we were to make like a form a consignment only for one market, it takes a longer time, and availability of ships are that much limited. When I am pooling all the goods and send it to one particular warehouse, these will be available. I will be able to form containers faster than earlier and the immediate available ship, I can ship out the goods. I am not changing the route. That is not possible also.

I will just add 2 points here. See, note that around 30%, 32% of our containers go from China, which actually takes a different route. And even from India, the one which used to take the Red Sea route, now the transit time has increased by about 10 days, as Chairman said, because they avoid that route and they go across the Horn of Africa. So that's also a reason. So the consignment is not at risk, but it is delayed by about 10 days. So rather than shipping into each and every country, we pool it and then ship it to one country and move it by road from there. That's basically what we are trying to achieve.

We have a next question from the line of Alisha Mahawla from Envision Capital.

First question is on the LatAm business...

Sorry to interrupt, Alisha, your line is...

It's not very clear.

Am I audible now?

Yes, it's better.

Yes. I just wanted to understand on the LatAm business, last couple of quarters, it looks like the growth has moderated quite significantly. But at the start of the year, we had spoken of various new products that we will be starting, Softgel, et cetera. There was also a 4 million Onco product that I think was supposed to start from H2, but we're not seeing any pickup. Is there anything more specific that's happening in the LatAm market for us currently?

Can I -- Vivek, are you able to hear properly? Because this one, I'm not able to hear properly.

Yes. I mean I was also not able to hear very well. I think the line is a bit...

Can you please repeat? I don't know, I think line is not very clear, please, very clear because only where LatAm, LatAm again, I wasn't able to hear. Please, sorry to...

No problem, sir. I hope I'm audible now. Is it better?

Yes, please.

Yes. Sir, I just wanted to understand the LatAm business, the growth has moderated to a very large extent versus what we used to do earlier, which was 20% plus. Now we're doing low double digits. At the start of the year, we had said there were multiple initiatives, new products that we're starting, Softgel, there was a 4 million Onco product that was supposed to start from H2, but we're not seeing any significant pickup. So I just wanted to understand, are there any other challenges or what is happening in our LatAm core geography right now?

Let me answer to these questions briefly because we have been telling to actually our investors, ours is actually a company which is driven by the profits and cash flow. We are not very keen to increase the top line. You know very well, top line is vanity; bottom line is sanity. Cash is actually cash, and the bank is king. If we want to increase the business, we could have increased. And what has been happening actually is in the form of like strengthening the bottom line. That's the reason I mentioned to another investor that our liquid asset is in the form of INR 1,550 crores, which is much more than actually the revenue of 9 months. So when such is the case, I'm sorry to differ with you that we have saturated in Central America, Latin America. But again, definitely, we will now -- we'll do well once we enter into the bigger geographies of South America, like Mexico, Brazil, Chile, Colombia and all. But these countries, as you know well, it takes time to complete the registrations. And then these are countries where you will not be in a position to do big business with the 10, 12 products. We have to have different buckets in one big basket, which is going to happen actually, say, 1 year or 2 years from now. That's the time we will do, again, extraordinarily good business the way you ask. But to my knowledge, I also feel sincerely that our bottom line and cash flow is very, very comfortable.

Understood, sir. And while I do understand that you've always been most careful of the profitability of the business that we do, just wanted to understand where the next leg of growth will come from, which you have explained will be once we enter the new geographies for which the work is ongoing. My second question is on the gross margins, which sequentially have declined. We did about 60% in Q2, which has come down to 56%. Could the CFO, sir, please explain this?

Yes. I'll just answer your first question, then come to the second question. Actually, the growth has been about close to 11% of the conventional business. You have to have the 2 factors in account. One is the base effect, okay? So on the larger volume, we are growing at 11%; on the lower volume, we were growing at about 17%, 18% in the past, right? That is one thing. Secondly, on the gross margin, if you have attended our con call last quarter, we have already addressed that. Last quarter -- we have been only promising around 55% as sustainable gross margin. Last quarter was a boon, so 60% we could get because of some good orders on some institutional business on Oncology area, and the 60% was realized and we said we cannot expect that to be repeated going forward. So that is the reason why we said and then if you see 9 months, we're at 57%. And 55% is what we promised, 56% is what we have achieved. As far as the PAT is concerned, we have promised 25%, we have achieved far more than that. So this answer -- I think to the last question, this will address the point.

Let me also add some more points actually to your question because since you mentioned what is the path forward. See, the status as of now to actually 5 years from now, I would put it this way. See, like 1 year, 2 years, 3 years, 4 years, 5 years is a period where we sincerely feel that we'll be in actually a very, very, very comfortable position in the form of sustainability and scalability. The reason is we have an asset-light model, and we also have the asset right in the form of vertically integrated company, where we'll be manufacturing intermediates, APIs, formulations of all sorts of formulation starting from OSD, Onco, then we'll have liquid oral suspension, ointments and all that, including various kinds of injectables. Then we are also moving from smaller geographies to larger geographies actually of markets, which means the volume of business is always high. For example, the population of all these companies -- or all these countries put together in Central America is 10% to 20% of actually Mexico, which means Mexican market is 10x higher than what we are doing currently there. It may not happen, and you know very well that these cannot happen overnight, it takes over time. So which means that's the reason I'm telling for it. So let me also tell you, in the next 2 to 3 years, we will have all the facilities. And then second, maximum registrations will be completed in majority of the countries in the next 3 to 5 years. And then the facilities will not be actually manual. It will be digitalized, and it will also be integrated with CCTV cameras and other things so that it becomes easy for us to review, monitor and control everything. In addition to this one, as I told you, we'll also think of going for an asset-light model for products which are biologicals, which is biosimilar or, what do you call, insulin. These are things even the big companies, initially, they used to import and test the orders, and they all went for their own actually manufacturing. Of course, they are all companies which have deep pockets. We also will be in a position to do it after we test the waters with actually importing of insulin and other things, for which we have the necessary wherewithals, which I told you in the course of actually my speech. Then the surplus cash. Today, we have around INR 800 crores. Even if you spend INR 300 crores, INR 400 crores, INR 500 crores, in the next 2 years, we'll have INR 1,000 crores. That's the time we will think of acquisition of brands, acquisition of actually companies for domestic business. And in addition to that, we always look for something unique in the form of acquisition of distribution companies, which will make us understand where we will have to sell our generics because generic is a business, there is nothing in the form of marketing. Generic business is based on supply and demand. You only need to understand how many products we have, what is the cost at which we'll be able to supply. And the quality-wise, once it is approved by U.S. FDA, everybody thinks that quality will not be an issue. It's true also. So what is important is the distribution channels and the places where this can reach by avoiding the intermediaries. Then coming back to one more thing in the form of LatAm, I'm sure in 5 to 6 years from now, we will be the #1 company. In all humility, I can claim that we can do it, the reason being in the smaller geographies where all these 6 countries put together, population is less than Tamil Nadu, we are doing close to INR 1,000 crores to INR 1,300 crores. Once we get into the bigger geographies, as I told you, in the years to come, we will be the best of the best business, and we are sure of becoming #1 also in these countries. These are the few things I would like to convey to prove that we are a force to reckon with in the years to come.

And I absolutely agree with you that I also believe that Caplin will be the #1 company. Just one last question, sir. Sir, lastly...

Sorry to interrupt ma'am, may I request you to rejoin the question queue as there are several participants waiting for their turns?

Sure.

[Operator Instructions] We have our next question from the line of Sachin Kasera from Svan Investments.

Congratulations on a good set of numbers. Yes, I had a couple of questions on Caplin Steriles. So what would be the current capacity utilization at Caplin Steriles?

Yes. With the addition of this new line, we are at a good shape right now. See, the thing is we don't do much CMO business at all. In fact, what we have signed in 2017, '18 periods, we do a little bit of CMO. But the rest of the capacity, I would say, more than 70%, 80% of our usable capacity, we are actually using for our own. Now with Line 5 that's come into place, we actually have expanded the capacity by more than double. So we are actually good till about, I would say, next 4 to 5 years at least. We don't need any further expansion. But of course, we will have to see as and when the business comes in. And then if at a certain point, we feel that there are some good opportunities that can really strengthen the bottom line and top line as well when it comes to CMO, we might look at further expansion, which is why we have a Phase III where we have completed the shell and we've left it -- or basically, we've slowed down a little bit just to understand how well we'll be able to utilize the existing capacity before we can move there.

And once this Line 6 is completed, what is the peak revenue we can do in Caplin Steriles? Can we do like $120 million, $150 million in the next 3, 4 years?

See, we never get into numbers on these, right? So obviously, especially in the formulation facility where we have a multiproduct unit, it's very difficult to predict what the peak capacity is going to be. And obviously, as you know, the U.S. is a very dynamic space, right? So what is at 10 today is at 15 tomorrow or 7 the next day. So we don't want to restrict ourselves to a certain number or something like that. What we see is that with the pipeline that we have in terms of R&D, with the pipeline that we have in terms of what is under review by FDA, we are fairly well covered till about '27, '28 at least, 2027 and '28. But peak revenue, we've given a number out in public domain. We feel fairly confident that we can get to that number within that period or probably 1 year after that.

I'd like to add one more thing here. Since we are planning to go for our own front end, we will follow the policy of pick and choose, not necessarily we'll have to actually manufacture all and fund these. We will go for products where the profitability is good. That's how we'll choose also once we establish our front-end presence in the U.S., which is in the initial stages, which is in the nascent stage now.

Sure. And sir, you mentioned that this year, we could be closer to INR 300 crores, somewhere there. Any sense you could give us how is the next year looking like for Caplin Steriles? I believe we have some private equity investors there now that it's become very profitable. Are we looking to buy them out? Are we going to go for IPO, if you could give us some sense on that on Caplin Steriles?

It's too early to take a decision on that. They are comfortable, we are comfortable. We are only focusing on actually business now. We are not thinking of actually who will buy whom or actually how to go for a public issue, please.

Sure. And can you give us some sense on financial next year, how is it looking for Caplin Steriles?

As the COO said, it's a very dynamic business, especially the U.S. one. As he said, what is important is actually is to increase actually the buckets, various buckets in the form of liquid injectables and then now we have -- we started getting approvals for ophthalmic products. We'll be getting some more products in the form of bags and then we also will go for actually our Onco injectables at a later date. So all these buckets will form one basket. That time, what will happen, the situation will totally change. The U.S. market actually is for companies who can give a variety and actually novelty to the customer. And now it's changing. Some of the big guys, in fact, actually they approached us, and Vivek will be able to tell us about this, 1 of these 3 companies which has approached us, and he has already tied with them and is -- I think you can tell about our...

Yes, yes. So see, of course, we are very confident that next year is going to be quite a reasonable growth as well, right? But we don't want to put a number to it or we don't want to put a percentage to it. We know that we have a very decent pipeline, of which multiple products will start to get approved over the next few quarters. Of course, some of that is not in our hands. What we expect to receive, let's say, in April might end up getting approved in June or something like that. So which is why we don't want to give out a certain number or anything like that. We are very confident about where the company is going. And then another 1 year hence, I think we will have a very decent basket of products. Now with all of these approvals coming through, we are starting to get more and more visible in the U.S., which is why I think it is at a very good time for us to launch our own label in the U.S. And 1 of the 3 largest distributors in the U.S. has already tied up with us on about 5 products now, and we are in active discussions to create a private label for them for another 4 to 5 products also. So it is, again, in the nascent stages, and we see that there is a certain level of disruption that is happening in the U.S. also with companies such as Civica and all of them coming and then making deals directly with manufacturers and stuff. So we think that there's going to be more opportunities in that direction. I mean we don't want to confine ourselves to the GPO space or the CMO space or anything like that. We want to be open to all ideas. And so far, so good. We'll be patiently cautious about what we want to do in the U.S.

Sure. And just for the last question on...

Sachin, sir, sorry to restrict, can you please join the queue for follow-up questions?

Sure.

So the next question is from the line of Shrinjana Mittal from RatnaTraya Capital.

Just a small bookkeeping question from my side. So can you help me with the EBITDA number for the Caplin Steriles business for this quarter?

I'll request CFO Sathya to -- did you hear the question?

Yes. Yes, sure. Thanks, Vivek. This is Sathya Narayanan here. See, the EBITDA for Caplin Steriles for this quarter ended 31st December '23 is INR 11.7 crores.

Right. And just a small follow-up to that. So if we exclude the Steriles business and if we see the business ex of Steriles, so the EBITDA margin for the 9 months is somewhere around 36%, 37%. So is it fair to assume that our core business, like ex the Steriles, margins are going back to the pre-COVID range, like before '23, 35%, 36%?

Yes. As our CFO had explained, I think it would be difficult to look at the company on a quarter-to-quarter basis. So the base number that we are comfortable giving out is that our gross margins are always between 55%, 57%. And our EBITDA, PAT and everything has been very similar, 35%, 36%, and then PAT has always been around -- hovering around the 25%. We are today a global company, right? And whatever small size we are still, we are still a global company. I don't think you can net off this and stop that because that might not present the right picture. Are we growing in the right direction? Are all levers of growth firing up in the right areas? That's what we have to look at. So we have a consolidated -- we are consolidating our positions in all the areas where we are operating in.

See, one more thing I would like to say here about this Caplin Steriles, see, our profitability is actually fluctuating because of the fact of the filings. The filing fees today is $240,000 per product. We are in the process of increasing our filing. We are also increasing our R&D. Most of the companies of our size, they do only CMO. They are not actually companies who are going for their own products. We are not the CMO. We're companies, which are similar to the medium and big companies. Maybe we don't have that kind of actually reach now, but we are sure of actually reaching to that level maybe, say, 2 to 3 years from now.

That was the last question. I would now like to hand the conference over to Mr. Kapil Yadav for closing comments.

Thank you, everyone. Thank you, all the participants. Thank you, management, for taking out time for this Q3 earnings call. You have answered all the questions. Thanks for that, sir. Thank you very much.

Thank you so much.

Thank you. Thank you, Kapil and Dolat Capital.

Thank you, Dolat and Kapil. Thank you. Thank you very much.

On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.