Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Suven Pharmaceuticals Q2 and H1 FY '21 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Good day, everyone, and thank you for joining us on this call to discuss the Q2 and H1 FY '21 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Chairman and Managing Director; Mr. Venkatraman Sunder, Vice President, Corporate Affairs; Mr. Subba Rao, the CFO, Suven Pharmaceuticals. Before we begin, I would like to mention that some statements made in today's discussion may be forward looking in nature and may involve risks and uncertainties. Documents relating to the company's performance have been mailed to you earlier. I now request Mr. Jasti to share his perspectives on the performance and outlook. Over to you, sir.

Thank you, Rishab, and good morning to everyone. Thanks for tuning in on this Saturday. I appreciate it. As you know, this quarter and the half year, as you could see, is not up to the par, that means -- but I was telling all the time that it's not quarter-on-quarter and it has to be year-on-year basis. The numbers are with you. I don't have to go over the numbers, how much is down and all that stuff. But based on the visibility, and we still -- we'll assure you that whatever we have given the year beginning growth projections for minimum of, not less than 15% to 20%, we are very confident based on the visibility we have. So there's nothing to worry about it. There are some incremental costs that have happened. I mean, of course, the profitability is less, not only on the less volume and -- but also due to product mix. It is a phenomenon. One quarter, it will be much better because value-added products are delivered. And also, there is a good increase in the manufacturing expenses, which contributes, mainly the environmental annual, the costs have gone up from the 0 liquid discharge and also from the -- I mean who is taking care of this activity as a third-party also increased the prices. And also some cost increases also due to these COVID-related activities and we had to cut down the number of people, [ so that we had to put more people because of the less number of our daywork ] and now the people has to be replaced to continue this thing and cost increases have also happened. Of course, there is some employee cost increase also. All these led to the reduction in the profitability. But at the end of the day for the '21, fiscal '21, it will be -- the top line and bottom line will be -- certainly, it will be above 15% to 20% growth. That is based on the visibility I have, I'm telling you about that. The second part, I need to bring it up is the CapEx. People are questioning why suddenly so much CapEx and all that stuff and all, and how much additional capacity is going to be created and what is going to be the revenue that's going to be generated and all the stuff. I was always telling that our CapEx and capacity of the liters and the kiloliters does not give you the end point like other pharma companies. So in this new era unless you improve, you upgrade, you modernize the -- both the facilities and technologies, you will not be sustainable. Not only that, I mean, if you want, there are some additional capacity creation is also happening. Before we have not done this aggressively, as you know, at that time until this March, we are a combined company of Suven Life Sciences and Suven Pharma where the money that is generated is being used for the R&D purposes. Now that, that thing is gone and we have no obligation on anything to do with the Life Sciences for funding, so we have taken up this exercise and we have taken our Board's approval in principle approval of INR 600 crores for various reasons like technology absorption and upgradation. And also as you know, this is a 30-year-old company, more than 30-year-old company and the facilities -- like facilities are very old. So we start -- think we should start to modernize those facilities, that means modernizing the existing facility will not solve any problem. That means we want to replace it block by block. So we have taken up -- we are going to take up one of the things, replacing blocks. It means it may not give you additional capacity, but at the same time, will give you additional upgradation capabilities and also better technology absorption, so we kept using new equipment, new automation, kind of semiautomatic, not full automation, all those things can be brought into the system. And also, it can become a FDA approval facility also, eventually everything is converted. So this is one of the reasons. And of course, in the Pashamylaram, we would like to put up additional block. These are all based on the feelings from the customers and our guesstimate that things will move in the right direction. I cannot wait until the last minute. We need to start with activity. So that's another way area where we want to focus. The third thing is the -- this R&D set, there are 2 reasons why I would want to take up this activity. As you know, there is a G.O. that inner-ring road things may have to move out. We don't know where, but we don't want to wait until last minute. And also, as you know, last April, this April, we have some small misfortune in the R&D Center where some of the labs have been gutted in the fire accident. So that we would like to modernize and also include new technology with the R&D labs also like high potency and other things that can be coming in. So we want to do this proactively, and we have not earmarked any funds -- any amounts to anything. This is just a guestimate of the number. So we have taken the permissions from the Board, which is now we'll go into the drawing board and start doing the work. And that's the way it's going to go to the next level. So this is the reason why we have taken up this new exercise. And only thing is don't compare us with other generic pharma companies where people are talking about the capacity, percentage utilization, asset turnover, all those things, which are not applicable to Suven. I think you will appreciate that because plus 40% EBITDAs are not there, if you think, some companies may have. So this is consistently, we are trying to do that. So these are all customer-driven projects. All in all, the things are looking much better than what it is. And now the second quarter, the new projects also started coming in because of the COVID relaxation a little bit. Of course, now again, in Europe and America, it is going up, I don't know what phase they are in. But with the visibility I have for the existing projects, all the stuff, things are looking very good, and we are very confident of achieving whatever we have promised, maybe more. With this, I'll stop at this time. I think I'll take up questions so that we will have a much better clarity. Thank you.

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

Yes. I have a couple of questions. So in order to meet our yearly guidance, it looks like the second half, the margin profile has to be substantially high. So I want your comments on that. And you'd also told us that the annual sales gets booked in the initial quarters, the profit share typically comes in the later quarters. So just wanted to reconfirm the understanding. The second one, in terms of CapEx, yes, you had clearly explained that we cannot look at our fixed assets turnover ratio like we look for other pharma companies. But out of the INR 600 crores, what is towards capacity creation? What is towards upgradation? If you can give a broad split, that would be very useful.

So I think you're asking the same question which I have answered already as far as the CapEx is concerned. I said, we have taken a principal approval. These are various things which we're going to do. And I also said, there aren't going to be purely capacity expansion. It is also the quality upgradations and technology absorptions also included there. So I'll leave it there because there is no question because we have not yet finalized the thought process on the numbers where we will go and all that stuff. I think that we'll explain to you. So the profitability...

And time line, sir?

Everything. Everything will come in due course of time because they want -- we have not taken -- as I said, we have not finalized our thought process on where it's going or what and -- when you are saying time line. So all these things will come for the next time. Meanwhile, we are working on those things. With respect to the profitability, yes, based on the visibility of the projects and all that stuff, yes, we are certain that the gap will be filled in.

So the increase in freight costs, is it affecting you, sir? We hear that airfreight, sea freight costs have gone up substantially. So is that the reason for the lower profitability in Q2?

It is not substantially. It is also a part of the reduction in the profitability, as I said. But also -- it is also product mix. This time, the value-added products are not made. That's what I was telling you. The future orders, based on the visibility we have and the orders we have, the value-added products are coming. That's why the gap will be filled up. Yes, there is an increase because of the COVID-related activity, but not substantial.

Yes, that's good to know. Sir, one of the things that you mentioned was there are 2 specialty chemical projects as well as one in ANDA that could be commercialized by Q4. Are their time lines the same?

Yes. It is on target.

Sorry, sir, I couldn't hear you.

It is on target.

On target. Okay.

[Operator Instructions] We take the next question from the line of Arun from [ J.S. Khanna]

I would like to know that there were a few media reports, which had reported that you are looking for strategic sale of your Suven Pharmaceuticals business. What would you like to say about that? And please clarify upon that.

See, these things keep coming whenever we're sort of getting some funds into the company. This came 1 year ago, 9 months ago, every time it comes in. I'm not going to comment on the rumors, and nothing is happening as of now.

The next question is from the line of Ankush Agrawal from Stallion Asset Management.

So first question is on the formulations business. If you can give some stats on our ANDA pipeline in terms of how many we have filed, how many are under development, commercial and approved? And also if you can give the royalty figure for this quarter and FY '20 as a whole? That was the first question. And secondly, sir, in our latest annual report, there have been 2 qualitative -- hello?

Yes. Tell me.

Yes. There are 2 qualitative comments that are mentioned. I'll state the same for you. First one is creating a basket of formulations for our CDMO customers. And second was expand customer profile to local markets for multinationals. If you can give some color on what do you mean -- what does this statement imply for the future business, that would be helpful.

In the future business, what I was telling is, there is a possibility that we can align with our CDMO partners. When the product goes into the generic, we can go to the both API manufacturing for them for certain regions or global, including the manufacturing the formulations and supply for the certain regions. This is what the opportunity which we are evaluating with the CDMO -- I mean the innovators where we are working as a CDMO. That's what it means. With respect to the ANDAs, so far, we have...

11 filed.

So far we have filed 11 and 4 are coming. One is the old one, Taro, which is now becoming more or less nonevent because of the reduction of the sales that is happening and then 2 more are there right now and 2 more are going to be, what you call, launched before the end of the year.

Okay, sir. 11 filed. 3 are commercial that you meant, and 2 more you're expecting by end of the year?

Yes.

Okay. And sir, how many are approved out of this 11?

Which one? Out of the 5 only. 5.

Okay. Only 5. And if you can give the royalty figure for this quarter and FY '20?

This quarter is INR 2 crores, our FY '20 only based on the sales. Right now, I mean, only 2 of this, one on the small and one is okay product. The other 2, we have to see when it's launched based on that. Right now, we cannot give any royalty figure prospectively. Only...

No, I was asking for FY '20.

FY '20, there is nothing now, other than the royalty that we've carried...

But that is last year. I know....

Royalty -- other than royalty...

No, it was only INR 6.4 crores totally for the whole year.

I know. But there is any profit share with them -- there is no profit sharing?

No. There is no profit sharing.

That's what I am saying. There's no profit share in FY '20. It's only royalty on the Taro.

Got it. Sir, just 1 clarification on the first comment on the formulations for the CDMO customer. Did you mention the comment that once the product goes generic, that is when you're looking for this formulation in the API business?

Yes, yes.

Okay. So till the time it is on patent, you're only focusing on the intermediate part, right?

I think you need to understand. Not for the same product I'm talking about. They have their own -- okay. I forgot to tell you. It's a life cycle management of my customer, some of the customers are having products, which were not a part of it and these are already commercial for a long time and some of them are getting into a generic mode. So now when they know us long time, now that they know that we have the capability of formulations also and we have these facilities to manufacturing the API also and they know our capabilities, now we are pitching with them that we can do the life cycle management by doing both the API and the formulation for them. So that is cost effective for them in order -- I mean instead of doing themselves, which is a little bit costlier, as you know. So that's what I mean.

Okay. Got it. For a separate product line for your existing customer?

Yes, yes. Then additional 12B.

The next question is from the line of Abdul Puranwala from Anand Rathi.

My first question is related to the profit share amount what do we get from Rising Pharma? So earlier we used to say that for the full year FY '21, the share could be close to INR 45 crores to INR 60 crores. So is that all guidance also maintained for the full year FY '21?

No. Because as you could see and this all depends on the -- we have seen 1 quarter before 2 quarters last year, and we thought things will move in the direction, but it's not in the same line. But that is coming in the consolidation. But that profit share is not going to accrue to us. It comes only as a dividend whenever they pay it. So when we say profit share, we are talking about the products we sell, not necessarily the Rising or other customers where we get the profit share into stand-alone company. That's what we are talking about. Rising, it can go, if they have 1 product launch, certainly, there's a good spike in things and the value addition is there, then you have better profit margins and then you get the profit -- I mean profit allocation of 25%, whatever the net profits. But INR 48 crores is what we're talking about based on the first 2 quarters of last year, but it was not to be -- right now, what is the total we have?

Right now for the first 6 months INR 19 crores.

INR 19 crores. It's going to be around INR 40 crores maybe put together for the year against the INR 48 crores, I mean not much. It can happen also.

No, last year, 6 months, it was INR 20 crore. Against it is INR 40 crore. But for the full year, it was INR 48 crore. Because we don't know next few quarters how it is going to be.

Sure, sir. And sir, my second question is in relation to the clinical projects. So until last quarter, we were maintaining that there was some slowdown in the activity of addition of the clinical projects which we have seen. So are we now getting some additional queries or this improved visibility is due to we have some commitment from the customers relative to the pickup of...

Not commitments, there are -- new projects have come in the second quarter, I told already in my introductory remarks. And -- because there is a lock -- I mean [ a lockdown or other ] in Europe and America last 3 months. But now we don't know what happens from this quarter onwards, but the second quarter is much better compared to first quarter. We have some projects that came in.

Sure, sir. And my final question would be on the other expenses. So in your opening remarks mentioned that other expenses are going higher because of the environmental expenses and the norms to be maintained. So would we see a similar run rate going ahead for the full year as well?

Yes. But profitability, as I said even with this expanded expenses, we're going to maintain it.

The next question is from the line of Rahul Picha from Multi-Act.

Sir, on the ANDAs, we have right now 3 molecules under commercial supply. And if I'm not wrong, we had 2 during Q1. So have we launched 1 during this quarter?

Not yet. This quarter -- next quarter, we will launch, hopefully, 1 in third quarter, if not certainly, in the fourth quarter. 2 together, 2 will be launched before the end of the year.

Okay. So, sir, of the total 3 that are under commercial supplies right now, one is the old one, which is with Taro and 2 is from the new pipeline. Is that correct?

What? Say it again?

Total we have 3 molecules under commercial supplies right now, right?

Yes.

And of that, one is the old molecule, which is with Taro, correct?

And the other one is for 2 different customers. The other 2 are for 2 different customers.

Okay. Okay. And sir, in the last quarter, we had said that formulation sales were INR 4 crore and how much was it this quarter?

No. You're talking about the formulation sales for this quarter?

Yes.

Yes, it is about INR 10.18 crores.

INR 10.18 crores. Okay. And sir, regarding the profit share, has that come in or it is yet to flow in Q3 or Q2?

Partly it includes, but the rest will flow in the following quarters.

Okay. Okay. And sir, the royalty amount that you mentioned a little while back INR 2 crores for this quarter, so that would include the profit share amount?

Yes, that probably includes INR 2 crores.

Yes.

Okay. So INR 2 crores is the profit share?

Yes. Out of the INR 10 crores, INR 2 crores is the profit share.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

So first question, sir, in your opening remark, you said that you're maintaining your 15% -- 15% to 20% or more revenue and profit guidance for the full year. So if I work out the math for H1, effectively, you are saying around a 63% growth for even a 15% revenue growth for the full year in your revenues. And -- so 50%, 60% growth is what you're implying for H2 of this year compared to H2 of last year. So is that the right assumption, sir?

See, I don't compare with any quarter-on-quarter, okay? I'm talking about year-on-year.

Yes, sir, for the full year, if we work out the math, taking into account H1 performance of this year versus H1 of last year, then for the remaining part of H2 over last year's H2 comes out to 60% growth in revenue and 50% growth in PBT. If that is what you're implying, sir, 60%, 50% growth?

60% growth, which is...

See, overall -- I think if you put a Excel, it may give you 100% growth also, okay? That is the Excel sheet. Let us make it very clear, actually. The guidance what was given was, based on the overall performance, we have given a whole year 15% to 20% growth on the top line. That is what is going to be achieved. Next 6 months, it is going to be achieved, it is based on the visibility that we have given the guidance.

Okay, sir. That's what I was trying to clarify. For the full year, you are saying 15% to 20% growth in revenues and profit before tax.

Compared to last year, yes.

That's correct. Yes.

Okay. Okay. So that is one, sir. And secondly, sir, the INR 600 crore CapEx, which is you are planning. So my question was that given that we have already embarked on this INR 320 crore CapEx, where the fruits of that CapEx is yet to come to us. So isn't it better to kind of wait for at least this INR 320 crore to start generating something for us before embarking on another very big CapEx plan because effectively, it takes away very large cash flows total almost INR 1,000 crore for a company of your size, sir?

Sitting from that side, you can say whatever you want. But the thing is, as I said earlier, in order to keep on staying in the business, things are changing. You need to upgrade yourself. You need to get the new technology yourself. You cannot sit on your laurels. And you're saying, I told you already, don't compare us with the regular day-in-day generic kind of a thing. We need to do proactively things. We need to plan properly. The INR 600 crores, I'm not going to do it today itself, okay? It will start and then it takes time. It will take 24 to 36 months minimum, okay? So we need to do proactively. This is the technology upgradation, facilities upgradation, replacement, that R&D, which is a must. And even in R&D, the new technology has to be built in and new equipment has to be brought in. These are there that has to be done. I think we take that call. And I think we don't expect -- everybody's wishes, I cannot follow because everybody has a different way of thinking, why can't you go to the generics way, then you can do INR 1,000 crores extra turnover and all that stuff. This is what we do best and that's what we are trying to do and what we know -- what we are trying to do is we know why we are doing it. It may not be liking to the more of the people who are on the line, but that's the way we're going to do it.

And sir, this given where technology stands and your understanding of the same, our old plant, as you said, some of them were even running for 30 years. So has that useful life now changed? Like how -- like this INR 600 crore CapEx would be good for how many more years for us and given how things are changing rapidly, as you mentioned, so what is the sort of life for this new asset as per your best understanding as of now?

The buildings will be for 20 to 30 years, right? And 30 years ago how they have built in, those things. We've got -- as far as the equipment inside is concerned, this is a normal wear and there, that will be there in any replacement CapEx. What we are trying to do is building by building, replacement of the building or building, when you take out everything, all the pipelines will go, they will not be useful -- even the equipment will not be useful. So you have to replace with new equipment and all that stuff. So it will -- the buildings will go for at least 30 years, if not more. Because unlike olden days, you don't deal with civil -- I mean what you call, the steel structures where they get rusted and those days things are different. And now the requirements are not there. All those things has to be taken care of now. So this is a necessary evil. I think to survive in this business, you need to constantly upgrade. All that upgrade does not really to increase the capacity that need to be understood.

Understood, sir. And finally, on the employee benefit expense. This quarter, I think it was fairly high. So is it because of addition to our workforce? Or we had a salary hike or any explanation on that point?

It's a combination there. A little bit addition -- see what happens is during the COVID time, we cut the number of hours they work. So that means we need to bring in additional number of people. So then all these things, some additional employees has to be brought in and same people will be given less offs. And I mean, not a continuous work, but there are overtime phase. Things are all involved. And also increase -- it also involved the increments that are given during the quarter also. It's multiple things.

[Operator Instructions] The next question is from the line of Manoj Garg from White Oak Capital.

So, sir, just to understand your perspective, like when we look at other CDMO company out there, a lot of companies have spoken about increased number of inquiries and good, I would say, order acceleration over the past 3 to 6 months. And while you also highlighted that we have seen some momentum improving in quarter 2 over what we had in quarter 1. But if -- I would like to just pick your mind that how are you seeing overall response from your customer? Have we been able to add any new customer in our kitty over the last 6 to 8 months, sir?

I mean the traction of the projects and the products are very good. I mean visibility is good. And as I said, the second quarter, we saw the people came out of the COVID and started doing some projects. And with respect to the customers, we have added only 1 customer during the last 6 months.

Sure. And sir, with regards to the pipeline, while I understand the pipeline, the projects have a long gestation period. But just seeing between the pipeline, movement of the projects from preclinical to Phase I to Phase II to Phase III, is there anything significantly which you would like to call up on in terms of how the movement of the projects happening between the phases, sir?

Yes, movement is -- as I was telling -- last time as I was telling, the movement is good. Otherwise, we will not be able to get revenue generation. Maybe I told last time that people are concentrating not on too many projects, but whatever the projects they take in, they are prioritizing as a single project. And if it is good in the clinical trial, they are moving into the next stage. In good olden days, 5 years ago, they used to have 2 or 3 products in the same category. Even though if 1 product is good at 1 stage, and they may not have prioritized it and if I happen to be in that thing, it was not a movement. But now it's not so. Things are moving very good.

Sure. That's helpful. And just the last question from my side. Of this new incremental CapEx which we have outlined, are you also going to add some more capacity on the occupational exposure level for where we already had 1 plant, which I think is going to be commercialized this year? Are we adding more capacity in and around that area?

Whatever we're going to do in the pure capacity expansion, that will be taken care of other requirements. You don't need to put the same thing. There may be different requirements. As I said, we have not formalized -- I mean we have not formed our thought process yet. But this is what we need to do for the long gestation, I mean -- these are all long gestation projects and we need to do proactively. And we look at the -- our pipeline and all the customer requirements. We will also try to include those things not only in the regulatory compliances -- not necessarily for FDA, but it is the customer regulatory compliances, but also technology-based activities. It's -- same thing need not be, but it's a multipurpose block anyway.

Sure. And sir, like you also have outlined in your notes that you would also be looking for some technological acquisition or capability enhancement. So would be great, sir, if you can outline that, what are those areas which you are looking forward in terms of...

Developing many area, but we have not formalized which one is the first one to go through. So things are going and it's in a thought process. That's what it is. We have taken the provision from the Board to have this much amount of money to be spent over the years and also for the purpose, how do we raise the money, whether it's in-house or some QIP. And all those things will be taken care of in the next 3 to 4 months.

The next question is from the line of [ Ankit Gupta from Bamboo Capital. ]

Sir, we have been following our company for 5, 6 years now, and you have been known to be a very conservative guy over the years. And sir, embarking on this INR 1,000 crore -- around INR 900 crore CapEx, including the INR 320 crores, which we are currently undertaking, sir, any thoughts on whether the capacity expansion part on where we are actually increasing our capacities? Is it that we have more projects in the pipeline? Our existing customers are coming to us with more products. Any thought process on that, sir? And that is why we are embarking on the capacity enhancement as well in the INR 600 crore CapEx that we are taking?

See, I think you keep on going on the capacity and capacity. From the beginning, I was telling this is not a capacity expansion proposal. It also includes capacity expansion, but includes the modernization and replacement of the old block and also the relocation of the R&D center, which is going to be a huge problem because we need to move out from the inner-ring road to outer-ring road. So all this included. So it's not purely -- maybe only 20%, 25% only goes to capacity expansion, the rest of them are going to be qualitative in nature, not a quantitative. So without that, [indiscernible] who will show up, I mean if you don't upgrade yourself to the modern requirement, keeping it as 25-year-old, 30-year-old facilities will not be good. And also to put in new technologies that will not fit into that. So all these things have to be taken into consideration. So don't take this as purely, what you call, the capacity purpose we are doing that. Yes, but whatever capacity we are doing that is only with the withstanding that projects will move into the next stage and with the good traction that is going on. And we expect that to happen also. But right now, I can't give you a guarantee that it will happen tomorrow or day after.

Sure, sir. Got it, sir. Sir, on the pharma and the agrochem side, any new products that will get commercialized in FY '22? Any hope that the pipeline will move from Phase III to commercial stage on the pharma side. And agrochem, any new more molecules that we have added and that we plan to launch in FY '22, apart from the earlier plans that we have?

Yes. In agrochem, as I was telling you, there is one product that will move into the commercialization in the fourth quarter. That will come into -- so that will really -- that will be moved into fiscal '22. Similarly, I see this 1 molecule also moving into Phase III, additional molecules, that also will give us some revenue in the next 6 months.

The next question is from Cyndrella Carvalho from Centrum Broking.

Congratulations for spending your time with us and explaining all the capacities and the R&D investments that you are bringing into the company. Sir, I just wanted a few clarifications from your side that the -- this quarter that we are seeing, you also highlighted that we have seen some improved demand in terms of new projects, improved project requirements that are coming in. So are we seeing this in this quarter? Or it should be more reflected from the -- in the second half?

No. We have seen it in second quarter itself and it's continuing as of now. The only thing I said, now that there's going to be a lockdown both in U.S. and Europe, what will happen to the fourth quarter, we don't know. But as of now, there things are moving well compared to the COVID days of the first quarter.

Okay. And sir, in terms of our Specialty Chemical area, what number we have guided earlier, we maintain that as well, right?

Yes, ma'am.

Okay. And sir, just on the -- again, on the R&D side, the capacities that we are bringing in, what are the recent technology-based requirements that you see in our company, which is most required, if you could highlight on that, that would be very helpful?

No, we have not yet finalized any of the things. This is only expand -- I mean this funding, I mean, only the principal approval we have taken. As I said earlier, that we are in the process of getting in touch with the customers because we have some thought processes. So which one should be the first one to go into the implementation, we'll -- in collaboration with our customers, we'll prioritize those things. All these things will take another 3 to 4 months. So this is not going to be tomorrow. We're not going to do this tomorrow itself. But it takes another -- I mean it will be over a period of 36 months.

That's excellent, sir, and helpful. So we'll get more clarity next quarter or maybe somewhere there to understand where we are going. And sir, in terms of, if you want to call out what is the COVID-related expense this quarter? Do we want to end the incremental additional spend, if you would be able to?

We have not taken any separate spend after those things because these are all embedded in various aspects and separating them is difficult, and we have not done any exercise like that.

The next question is from the line of [ Avneesh ] from UR Group.

I just have 2 questions to ask. On which area of the business has seen the highest growth in terms of API formulation? And my second question is there's an increase in current assets and inventories for this quarter. So I just want a clarity on this is as well.

What is that second one?

No, I didn't get your question clearly.

I just want to have an idea as to which area of business is seeing the highest growth in terms of APIs and formulations? And second -- my second question is there's an increase in current assets and inventories in this quarter. So I just want an idea as to what exactly that will increase in current assets?

See, when it comes to current assets -- you are talking about the current assets?

Yes, next year.

So there is nothing much has moved, right. See, only the inventories have gone up by about INR 22 crores, whereas the receivables have come down by INR 11 crores. If you really look at overall, it's a minor moderation. That's what has happened. And when it comes to the -- of course, mutual fund investment, there is a growth [indiscernible] crores. That is there actually. And we have cash. The current assets includes only this part of it.

Well, like if you compare from 31st of March to 30th of September, the current assets have gone from 5,400 -- INR 5,462 lakhs close to [INR 8,600 lakhs].

INR 33 crores -- it has gone up by INR 33 crores.

Yes, yes. Correct. So just...

That is not cash -- there is a mutual fund, that also has gone up by INR 33 crores, right, because of profitability.

Okay. Got it. Yes, yes. Got it. Got it. And second is on the growth of the business, which area is seeing the highest capture in growth in terms of business?

There is nothing like highest thing now. Everything is -- except the Specialty Chemical, which is more or less in the same range, both CRAMs and the formulations will grow in the same range of 15% to 20%.

Okay. And any patents coming up for the APIs as well? Any -- is the company planning to file any patents for new APIs being developed this financial year?

No.

The next question is from the line of Anand Bhavnani from Blend AIF.

I have 2 questions. Sir, with regards to the commercial CRAMs, I guess in the previous calls you have mentioned that one is antidiabetic, another one is rheumatoid arthritis. So if you can give us some sense of how you are seeing each of these commercial CRAMs products? Which one is scaling up? And which ones do you to see that they might not be able to -- you might not be able to be the best supplier, somebody else is already high priority supplier? Can you give us some guidance on the already commercialized molecules, how do you expect them shaping up?

As of now, things are looking good, and we expect the growth to continue, but it cannot be on a quarter-on-quarter basis, not even year-on-year basis. It maybe sometimes in 9 months. It maybe repeat order may come. Sometimes it may take 18 months to done it. And we cannot tell how it is behaving based on the sales, then only we get the repeat business. As for earlier concern, we will be not a single source. You were thinking that do we lose anything. No, but as one of the partners, we will be getting our share. It's all dependent on the market dynamics. But as of now things are looking good.

This is for all the commercialized products or like a particular opportunity in any particular product?

Yes. As I said that these are all...

Across all.

Across all the things, but at the same time, it may not be at the same time. So that's what it means. That's what I was trying to tell because repeat of the -- in the same range, as a matter of fact, it's going to be a little bit better than what was originally there, but it's in the same range. But I don't see any slowdown as of now.

Sure. And sir, for our specialty product, we see that globally agrochem -- agri prices are up. So do you see -- given that our specialty product goes into agrochemical, do you see that it will be able to have higher growth over the next couple of years given the agri prices are up? Is there any indication from a customer to kind of ramp up and keep our production capability at target level?

No, as far as production capability stands at, we'll be getting enough in advance. Now it is for us to create another block and all other stuff. That's not a problem. As you know, we have, as I said, 2 more products that are under development, one will be commercialized sometime in '22 -- I mean '21 calendar, '22 fiscal. And the other one will be sometime in '23 year, '24 timeframe. Thing are -- I mean, with respect to the existing molecule, they are -- as I was telling before, they are in the same range, 5% is likely. So more than that -- that's what the guidance they had given to us.

Last thing. Sir, with respect to CapEx, in our previous calls, we used to consistently check with you as to the outlook for CapEx. And broadly, the sense where we might not need much CapEx beyond the current INR 320 crores CapEx for '22-'23, we might not need CapEx. So suddenly in 2 quarters, your thought process has changed a bit. You now talk about adding technology and refurbishing the plant. So why has there been a sudden change in the thought process to this end?

There's no sudden change. I don't tell what are my thought process, which I don't formalize myself and have passed to people. And the other [indiscernible] someone was telling, you are so conservative, never spend money, anything. So times are different and spending is different. And now that it's a pure-play CDMO, there is no problem with respect to the commitment to the other side and all that stuff, and we can expand ourselves and go. So these are all the things in mind, but it has to come to a certain time then only we can take a decision. And as you know, this is our only CapEx just for the sake of capacity expansion. But this being a 30-plus-year-old company, some of the buildings have to be replaced. And when you replace, then you need to do a little bit better layouts and automations and even including new technologies. But bulk of the activity also goes to the allocation of the R&D center itself. But when you do the R&D center, rebuilding the new technology labs also has to be brought. As I said, it is not a thought process. I will not be able to give you unless myself has a tough call on it. And these things are all there for a long time, but we had to wait for the opportune time. And I don't have any obligation for anything else and I don't mind spending money. So that -- see, this is a catch-22 situation. You have to have the infrastructure in place in order to service but not after getting the project, so you cannot do it. And this is also the requirement at the global customers, especially in the CDMO field. They expect you to, even for the early stage intermediates, to have an approved kind of a facility. So these things are all taken into consideration. And to sustain in the business model, I mean, it's not a thing like a commodity where you can do -- churn out things. And here, it is more of a qualitative in nature, which we need to do it and at an opportune time. And also, we see what's happening in the market, and we see the traction that is happening. All these things and figures point to where we take up these decisions.

The next question is from Sachin Kasera from Svan Investment.

Just 1 question on ANDA part of the business. You mentioned that you have filed 11 ANDAs. How many we plan to file in the second half and in FY '22, sir?

Another 3 to 4, we try to do it, if everything goes well.

And next year, sir?

Our target is about 7 to 8 per year. We'll update at various stage and we are slowly going.

Sure, sir. Secondly, sir, of the existing ongoing CapEx of INR 320 crores, how much is now pending CapEx?

About INR 75 crores or something like that, which will be spent within the next 4 or 5 months. Because Vizag plant, we are going to start validation this quarter on. And the FDC, where the formulation plant will be coming, we will start validations of that in the fourth quarter. With this, the CapEx will be finished for the existing operations.

And sir, are we having -- getting any good visibility of this existing, this INR 320 crore ongoing CapEx, now that we're almost on the order of completing it. How are we seeing the visibility for utilization of this INR 320 crores CapEx?

See, the thing is already we started doing things in our pilot plant, which is not enough for the formulation. That's why upgradation thing. And with respect to this thing, it is a capacity expansion. It is for royalty products. And we see this -- by '22, we are seeing that 1 more project from the Specialty Chemicals is coming in. There are -- we are taking permission from the existing partners to give the new projects and the new facilities so that, that will be qualified also. So visibility is good, but you had to be proactive, and you have to build your capacities 24 months ahead of time, as far as I am concerned, my business model is concerned. Not -- so these are the things which we have done. So things are looking good here.

So we can assume in 24 months, we should be able to reach a good utilization. That's a reasonably good estimate.

Not necessarily everything fructifies, but yes.

[Operator Instructions] The next question is from the line of [Venkat] from 3Sigma Financial.

I wanted to ask you only 2 questions, but I think -- I wanted to escalate that the anchor is not doing a good job by limiting people asking only 2 questions. So sir, I wanted to ask you, first one is, how is the domestic and export mix?

What is that, again? I couldn't hear you.

Your voice is not audible properly.

Yes. So I wanted to ask you how is the domestic and export mix?

Domestic and export?

Yes. How is the domestic and export percentages?

No, we are export. Most of our things are export. We have very less domestic.

Okay. Fine. Fine. Sir, the next question I wanted to say is, I'm just summing up whatever was discussed on this additional CapEx that you are talking about is mostly like replacement cost, improved efficiency, technology upgradation, which will be useful for R&D and 20% will go for CapEx improvement, right -- that's a capacity improvement. So is my understanding right, sir?

So, what you said in the first is okay, but there is nothing called 20% increase in capacity kind of thing. We didn't say that.

Yes, I'm sure. What I'm saying is I am just summing up to replacement cost, improved efficiency, technology upgradation for R&D.

Yes, that's better. We have not -- unfortunately not worked where goes how much and all and what it is, and we'll get back to you after a couple of months.

That's fine, sir. Sir, I wanted to escalate. The anchor has to limit to only 2 questions because we have been waiting for so long, sir, questions that are repeated, and people are asking multiple questions. So just respecting other's time is what I want to suggest, sir.

The next question is from the line of Darshit Shah from Nirvana Capital.

Sir, I just want to understand, I understand you've stopped giving phase-wise details of the products moving into different clinical trials. Sir, any product in the CDMO pharma space which you think could probably move from Phase III to commercialization if at all successful in the next 12 to 24 months?

There is always a possibility. There is a product, which I mentioned last time ago, 1 project in Phase III, which we are supplying, that may move into '21-'22 timeframe -- '21 calendar, I'd say. Similarly, there is another one that just moved into Phase III that we'll be supplying in the next 6 months.

So that's for agrochemical or pharma space?

Pharma.

Pharma. Okay.

[Operator Instructions] The next question is from the line of Viraj Mehta from Equirus Portfolio Management.

All my questions have been answered.

The next question is from the line of [ Vivek Gautam ] from GS Investment.

I just wanted to know about the -- from 3 to 5-year perspective -- 2, 3, 5-year perspective, how -- what's the opportunity size we have? And do we depend on -- we are enhancing our marketing capabilities to get more business or is it more word of mouth? And any role model we have, like Lonza or WuXi? Can we have something of that, sir, because we have a 30-year head start also?

Yes. 30-year head start, but we are not in this business all the time this way. And at the same time, I mean the role models are also there but our -- but business model is also different. And next 5 years looks good. Otherwise, we will not be doing what we are trying to do in terms of upgradations and the capacity expansions and the technology absorptions and all these things which we are taking because we see good traction that is happening. And also expansion of the business model, which we have done. We were not there in formulations ANDAs, and we are doing that. And with the new technologies and upgradation of the facilities, new opportunities will pop up and that will give us a better traction. And we see very good things. Otherwise, we will not be able to think of spending this kind of money.

Marketing expenses, are we putting an addition? Or is it more of additional manpower? And how do we get more business, sir?

Which one is that?

Marketing expenses.

Marketing new sales orders, sir.

See, the thing is that when it comes to Suven, we don't have specific marketing per se. What we have is project management, and we have a team set up in U.S., where we have project management office, where our team, which is more from the technical point of view, talk to the customers. We are basically R&D as well as the procurement specialized in R&D. That's what we do. We are not like bag -- taking a bag and going around and marketing ourselves.

So what happens is these being R&D projects, the customers would like to have a -- because this is a weekly and bi-weekly teleconferences and during the daytime, if they have some question on the project then they can call the people who are in the U.S. rather than waiting until the next day because at that time we are sleeping. Similarly, now we are thinking of -- with the business growing, we are thinking of putting the same project management team in Europe also. I think that will be done within the next 6 to 12 months.

[Operator Instructions] The next question is from the line of Ankush Agrawal from Stallion Asset Management.

Sir, just 1 clarification. You just mentioned that total formulation sales was INR 10 crores, out of that INR 2 crores was royalty. And if I'm right, last few quarters, you've mentioned that the formulation we give at cost and later on, we get royalty out of it. So would this assumption be right that out of this INR 10 crores, the INR 8 crores is what we have given at cost and this INR 8 crores will generate royalty for the next quarters coming up?

See, no. We need to understand that royalty is only from Taro, okay? The other ANDAs, it is like we sell the product with a margin and we get the profit share. The profit share is really based on the sales happening at the customer end. If the sales happen the following quarter, we'll lake some profit sharing. If the sale happens the following -- in next few quarters, it will happen that way. As and when the sale realization happens, then the profit sharing happens. So to make it very clear, the past -- I would say, last year, it was only INR 2.32 crores, what we reported, you are talking about corresponding previous 6 months. It was INR 2.32 crores of royalty only from Taro. There was no formulation sales. This year, the past 6 months, formulation sales of INR 18.88 crores, which includes Taro royalties, a little bit of profit sharing and ANDA sales. I hope that is clear.

The next question is from the line of Pallavi Deshpande from Sameeksha Capital.

I'll just ask -- this question was with respect to your ANDA. So you mentioned about filing 3 to 4 every year. So in the first half, have you filed any? And -- else will we be filing all of these in the second half?

Yes. And I think it's barely first half and we are expecting to file these in second half.

Okay, sir. And secondly, sir, you mentioned about hiring. Are new hires done? So how many employees would have been added?

In Europe?

Yes, sir.

Yes. To start with 1, and it will be 2 people maximum, not much. Because it's a project management. These are technical people.

The next question is from the line of Gokul Maheshwari from Awriga Capital.

Just a couple of questions. So one is on ANDA. You mentioned that the potential size would be $2 million to $4 million for the initial ones, and for the ones which could be filed later on, this potential could be larger. Is that understanding still correct?

Yes. That is what's our thinking. I am afraid, while all depends, it can be, whereas $2 million to $4 million is a maximum that can happen, but not all of them will be in that range, some of them will be less than $1 million also because the value -- volume of the business is not there or whatever it may be. So that is our guess estimate, but we have given a guidance of -- how much this year we have given?

No, ANDA, we did not -- we said about $2 million to $4 million per product, but 4 products max.

Yes, that's in a -- I mean, not necessary every product is in the range, if you want that clarity.

But the later on ones would be higher because we are spending more time in terms of doing the...

Yes, when you do -- eventually, 505(b)(2) and all that stuff that will be a couple of years away from now, that -- the value will be much higher.

Okay. Okay. Great. And secondly, just 1, what would be the expected effective tax rate for FY '21?

What was it, again?

Yes, it is going to be normal as we see. It will be around 24%.

The next question is from [ Rahul Garg ] from Shifa Family Office.

My question is regarding this INR 320 crores of CapEx. Is that completely new capacity or we have technology upgradation as well? And second question is about appointment of CEO, which you talked about earlier, has that been fixed? And would you like to completely rule out the tech sale?

Okay. When it comes to INR 320 crores CapEx, yes, these 3 were addition of the capacity. One in Vizag, JNPC Vizag we added 1 more block. And then other one is earlier approved capacity which you added 1 more block in Pashamylaram, and formulation facility -- there's a new formulation facility adjusted to the current one what we have. That is INR 320 crores, there is an addition of the capacity. What is the other one, the next question?

Appointment of the CEO, the professional set of which Chairman has spoken about earlier, I guess.

Yes, we are looking, but unfortunately due to this COVID, things have not panned out the way I thought of but we have thought of somebody to bring in, but that's not happening as of now. But we are on the look out.

The next question is from Ranvir Singh from Sunidhi Securities.

Sir, my question is around gross margin. Second half is likely to see a change in product mix because I believe that chemical -- Specialty Chemical would be heavier. So do you see any change in gross margin profile also going forward from what we have in H1?

Well, yes. If you really look at from the gross margin point of view, it is all based on the product mix what we have. And as we see the next 2 quarters, we need to see -- there is likely to be a change. It cannot be static as what we said.

The next question is from the line of [ Varun Arora ] from Safe Enterprises.

Sir, my question is regarding the capabilities where -- in terms of where we are moving. A couple of quarters back, I think you mentioned that right now, we are focusing on N minus 2 molecules. But we have the capability and endeavor to look into N minus 1, even N molecules. So the question is regarding how is this evolving? How are the discussions evolving on this front with the customers?

Actually, I mean, it takes a -- last time also I said, it takes a while before you get to the next level. Even to change the existing product from 1 unit to other unit is also taking 2 years for their approvals. So we have requested our existing customers to keep us in mind to the forward integration and give us the opportunity and to which they are evaluating. I think it will happen, and it will take time, but it will happen eventually.

The next question is from Neha Agarwal from Investment.

Sir, my question is with regards to the CapEx again. Could you highlight how many years of growth and maintenance requirement on an overall basis do you think the existing and proposed CapEx put together could take care of?

I think I want to give you some explanation on the CapEx. People who are maybe thinking the good golden days, the cost of the goods that is happening in the plants. When I started, I could do within INR 10 crores whole company, that is INR 10 crores for each block. Now to put a block itself is costing INR 120 crores to INR 150 crores. Things have -- cost has gone up. The requirements have gone up. And all these things are -- how many years it will run. And as far as Suven is concerned, it's not kiloliters and capacities are not the one. This is a value addition we are bringing to the customers, which in turn will give the valuation addition on the bottom line. This is the crux of the CapEx. It is the upgradation, replacement and value -- I mean some capacity creation, not a few capacity creation. So please, everybody, think -- don't think that is only for the capacity expansion. This is solely value creation. It's qualitative in nature. And it will run. I mean, it will take 3 years for improvement in this activity. And it also involve some R&D centers, which is mainly as value creation also. It's not -- I mean, the upgradations. So it will not give you capacity, but it will give you the additional capabilities that will -- it will bring it to the table. And that additional capabilities will bring the additional business opportunity with value addition for the same things from same customer or whatever it may be. So that's the way we look at it. We don't look at it as pure capacity only and asset turnover, all these things are not feasible in Suven's business model.

The next question is from the line of Akshay Sam from Atman Capital.

Sir, I just wanted to -- because you said a lot of the CapEx will be utilized in upgrading technology, et cetera, I just wanted to understand what kind of capabilities we'll be able to acquire, which we didn't have?

I have already clearly mentioned that we are evaluating various things. We have not finalized which one to be implemented first. We will be in collaboration with our customers' requirements and our customers' preferences. We will be implementing those things. This is an in-principle approval for the upgradation capabilities and replacement things, which we have taken permission from the Board to spend around INR 600 crores over the next 3 years.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. My question relates to Specialty Chemicals. What proportion of the new CapEx and the INR 320 crores pertains to Specialty? And what is the growth outlook for Specialty?

When it comes to the INR 320 crores, of which INR 110 crores fall into the block which is multipurpose in JNPC, of which we've been using Specialty Chemicals, most of them. That is how it is. As far as the growth is concerned, we said actually, we have 2 right now and that we did not give any visibility for this year's growth in Specialty Chemicals. We kept the same.

And the new things will be the new projects that we're going to launch, one in '21 and one is, hopefully, in '22.

The next question is from the line of Piyush Goel, who's an individual investor.

So this is -- I invested in Suven first time in 2009. So this is my 11th year. And it has been a great journey so far. So I just want your honest answer that last year, we did this split between life sciences and pharma. And I think the motive behind was that this is a different risk profile and where investors want to have a different risk profiles. So has it worked as you envisaged or you feel it has not? And also basis the risk profile, do you -- I know you said that you don't want to comment on the rumors, but do you intend to bring an institutional investor in any of these businesses?

So whether it has given the desired results or not, I think you will see for yourself, you are an 11-year-old investor, 11 years since invested, and you'll see what happened to the -- since March when the demerger has taken place and the value creation that has come to the customers. As far as the strategic investor or something is concerned, yes, I told you already that we are looking at for the Suven Life Sciences and that will -- that is an active thing. If not strategic investor, either we'll go for even IPO in U.S.A. in Suven Neurosciences and all, because now that has to be funded by itself. Earlier, we used to fund through the CDMO revenue. So now it is a separate company. And now without that things hanging out, they had on the Suven Pharma, now the valuations are different. And now with this new traction that is happening and the new upgradations and all these things, things are looking very good in Pharma also. This is what it is.

The next question is from the line of Vidyanathan B., who's an individual investor.

Like Piyush, I'm also an old-time investor, maybe around from 2012 onwards. And it's been a pleasure to be associated with you, not because of only your -- your prudent approach actually satisfies me. With regard to this CapEx, you have answered a lot of questions, but I would like to know the same prudent approach which you have taken over a period of years with regard to it with loans -- very, very little -- less of loans and more of internal accruals. Will the same be followed?

Yes. Now that we doesn't have any other things which we need to use this pharma money. Before we used it for Life Sciences, now that is done. So the -- I mean, we have to take -- see, some people come to me and saying that why you are using your own money, you should take some loan. I don't know what to take and take not. But anyway, we'll take some loans as needed, but we will not be overburdened by it anyway. And as time goes by, we'll take a decision on what to do. The equity dilution for the QIP like what we did before, and that -- we will take into consideration all those things.

Whenever it is needed.

When we have finalized our thought process for the new CapEx and all that stuff, which is the next 3 to 6 months.

To make it simple, yes, we'll be as prudent as we were earlier.

That really satisfies me to keep going with your company for a very long time. And my last question, since I'm allowed only 2. My last question would be like this government has now introduced this -- some funding schemes or PLI schemes or whatever they call for the pharma industry to reduce raw material imports from China. And as I -- as much as I know, Suven was dependent on a couple of raw materials from China for their business -- for our business. So is it that we can get into it to reduce the import cost as well as supply customers, different customers internally as well as externally?

See, the PLI scheme is mainly APIs for the intermediates and generic APIs, most of them, not for the intermediates or the raw materials we are importing for the innovative products. But I don't think Suven has a role to play in this unless you want to go into the APIs if you'll get the KPI. And that too, the price is controlled afterwards. And this is more of a talk rather than a walk, all I can say, because finally, it comes to 2% to 2.5%, and there are so many restrictions. And even though they are removing it. But this maybe useful for those who are already there in this business of generic APIs and that purchase. But since this is our innovative molecule and we are backward -- there is a problem if we were to face it is China. So those are -- those molecules that are required day in, day out, those things we are trying to backward integrating and keeping it ready. It may not be for cost effectiveness but it is a supply security. That's what we're going to do. And we are doing it.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you, and -- thank you, everyone, for tuning in on Saturday afternoon. And I want to leave the thought that whatever Suven does in terms of this CapEx plan, pleased do not take it as a pure capacity expansion. But we are a value creators and for the value additions, we need to upgrade our capabilities and capacities and -- as a part of it. But at the same time, being a 30-plus-year-old company, the old infrastructure has to be replaced and those things are the things and also with relocation of the R&D center with additional capabilities. So all these things are qualitative in nature. They don't give you right away, what you call, the incremental growth. But in general, the things -- I mean, if you see quarter-on-quarter, even happier to have here also, you may not have a good idea. And this is our way in our history, and we're going to -- but we are seeing a very good traction in the business and with the additional capabilities and capacities, whatever we have created, we expect the things to grow smoothly. And we have said even though it is 20% less in 36 months, we are still confident of achieving the minimum of 15% to 20% over the next 6 months but -- over the year-on-year basis. And with that, I thank you each and everyone, and hope to catch up with you during the next call. Thank you.

Thank you very much. On behalf of Suven Pharmaceuticals, this concludes today's conference call. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.