Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the [ Q1 ] (sic) [ Q4 ] and FY '21 Earnings Conference Call of Suven Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded. 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 Q4 and 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; and 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. Good morning to everyone. I hope everybody is staying safe during this unprecedented pandemic. As you can see, this call is for the quarter 4 and fiscal '21 results. You could see -- if you see the quarter-on-quarter basis, it is less both in terms of the top line and also in the PAT, and it is really due to the product change mix is one of the reasons. And -- but when you see year-on-year, then we have about 20% growth in the top line, which is in line with what we've been saying. But when it comes to the PAT, it will be about 14%. So we're expecting around 20%. This is mainly due to various reasons, as you know. I mean, one is the pandemic-related -- more or less, it's a pandemic-related activity, which gave the cost increases in the human capital, the logistics and some of the raw materials and the increase in the utilities and all the stuff, I think that led to the projections not being met. And it is that we announced it will be challenging to do this and hope -- and happy to mention in our 31 years history, 32 years history, health plus track plus INR 1,000 crore mark in the sales. But to maintain that rate, we think we challenge with this unprecedented pandemic. The second wave is much more effect -- I mean, giving effect on our operations. As I was telling you because 15% to 20% of the people are getting affected directly or indirectly, that means even if family members are affected and they cannot come. And so that will become their [ hub city work ]. And again, the logistics are gone up quite high and the availability in the containers and of course, this oxygen requirement also led to the shortages of some raw materials and some of the raw materials prices have gone up by 4 to 5x also which also naturally it also affects the things both in terms of the availability and also in terms of the pricing. And because of these things, some delays are happening as of now. But Europe and U. S. being coming to normal. The business is looking steady, and we have a good traction on the going forward. Hopefully, we do better. Only catch here is whether a third wave will come, it will be the inline operation. In India, not necessarily Suven, but everyone. So we are keeping our fingers crossed. Otherwise, we are in good shape with these problems that are present also. I think I will stop at this time, and I'll answer the questions, which may give you better clarity.

[Operator Instructions] The first question is from the line of [ Shirish Jain from AGS Capital ].

Sir, actually, the previous year figure in the current financial statements look very different from our FY '20 annual report. Any reason for that?

[indiscernible]?

Can you repeat your question?

Sir, in the cash flow statement of current year of FY '21, the previous year figures are very different from what was given in the annual report FY '20. So any specific reason for the readjustments?

Probably no, we will go on to the next question, and then we'll clarify this at [indiscernible] actually.

Yes.

The next question is from the line of Cyndrella Carvalho from Centrum Broking.

Yes. Sir, am I audible?

Yes, you are audible ma'am.

Yes.

Yes. Yes. Sir, I mean it's heavy rain here so was just confirming. And sir, good results in terms of top line. If you could help us understand in terms of a full year review, in terms of the gross margin, how should we look at it? And the question is to the manufacturing costs, should they normalize going ahead? As I understand that there should be a pass on clause available.

Yes. See, the profit margins are based on the product mix. And if you go back quarter-on-quarter, it's very difficult but year-on-year, it will be more or less in line with the whatever -- in generally in line with what the expectations were. The manufacturing cost increase is a cost if it's more than 10% only, we can maybe able to pass on that, but not under 10%. So here, it is -- there is no passing on to the customer. So it's very difficult to pass on, especially the utility costs and the manufacturing costs and all that stuff. But in general, the costs, as I was telling you in my earlier things that this year costs are because of various reasons, not in normal circumstances because of the COVID, various indirect costs has gone up. And when this will be out, we don't know. So we cannot really give any estimate. But in general, as I was telling you, our range is a 35% to 40% EBITDA margins, obviously, and we will stick to that.

So, sir, these costs would normalize as we go ahead? Or at this point in time, we don't have enough of clarity on that?

Cyndrella, let me explain this to you. Only for this quarter, if you really see these operating costs have gone away almost 20%. That's what Mr. Jasti was explaining, product mix plus certain cost elements that has gone up due to various other reasons actually. And there was also an increase in the manufacturing expenses only for this quarter, that has gone up. Otherwise, on a year-on-year basis, if you look at it actually, there was an increase. That is because of the increase due to this quarter. Overall, it's less than 30% in relation to overall manufacturing cost of material. And when it comes to manufacturing, it increased about 13%, 13% of our total revenue. So it is like last year, it was about 12.19%. This year about 13.07%. See the 100% -- 90% it has increased is basically because of the fourth quarter impact, which is really negative. Will it get normalized? We need to see over a period of time. We'll not be able to quickly jump to conclusion that actually next quarter will be similar to the previous quarter or some kind of thing. Let us wait for maybe 1 or 2 quarters. As and if the price gets stabilize, we'll know what is normal. Hope this is clear.

Yes, sir. This is very helpful. And sir, I mean, if you look at our overall for the full year, the core CRAM base has increased from a pharma CRAMS perspective. So how should we look at this going ahead? And if you could highlight some drivers here? And do we see any new commercialization coming over next 12 to 24 months time?

[indiscernible].

Now the core CRAMS, that's what this year is a pretty good growth in how you look at that?

Yes. The core CRAMS is -- we expect that to grow at least around 10% to 15% range based on the feedback I have from the customers. And -- but at the same time, this pandemic should not affect us in terms of the logistics, the shortage of raw materials. And even now, second wave where we have some delays about 15 to 20 days delays. And I hope that we will be able to compensate before the end of the year. But if something happens again in second quarter or third quarter, we cannot tell. But based on the customer feedback, the CRAMS will grow 10% to 50%.

Minimum.

The next question is from the line of Ranvir Singh from Sunidhi Securities.

Yes. Sir, on guidance front, you said core CRAMS would grow by 15%, 20% in FY '22, right?

10% to 15% I said.

Okay, 10% to 15%. Okay. Okay. And in other segments, any guidance like a specialty chemical earlier you said would remain flattish. So we go by this?

I think specialty chemicals will be more or less 5% this year, that kind because that is very steady state. And in terms of the formulations about 10% to 20%.

Okay. Okay. And in CapEx, how much CapEx we have done in FY '21 and plan for FY '22, out of INR 600 crores you have overall CapEx plan?

As you know, since we have a start of this spending the money, the COVID has gotten into it. Even the amount of INR 320 crores, which we were supposed to spend as old budget, we only spent about INR 302 cores and there's still INR 18 crores to be spent again. And a lot of stoppages, people are not coming. And we are not also forcing them to come because our production is main target, not the expansion part of it whatever it is. So as far as the new INR 600 crores CapEx is concerned, we have not even started yet, and that will be started in the second quarter. We'll be budgeting it second quarter onwards.

Okay. And last one in Rising Pharma, what has been the contribution in this quarter from Rising Pharma?

The Rising Pharma for this year, I mean, you mean only for this quarter, it's already there, right? In that 20 -- sorry, INR 18.66 crores is the contribution from Rising Pharma for this quarter. And for this year, it is about INR 53.73 crores.

Any element of profit is there which remains to be booked, which may come in subsequent quarter out of sale from Rising Pharma in this quarter?

Rising is as reported, this is up to 31st March, whatever is reported. 25% of this what we taken on an accrual basis. There is nothing called unreported here.

Okay. Okay. Fine, fine. And the last one, just I wanted to understand that manufacturing expenses. So INR 10 crore delta from Q3 to Q4, that I was not able to understand because the sales has been flat. So where that additional INR 10 crore was spent?

See that is based on the product mix.

Okay. So as a percentage of like other than CRAMS business, their percentage has been higher, that's what you are saying? This is...

Yes, yes.

The next question is from the line of Jeevan Patwa from Candyfloss Advisors.

Yes. So I have only 1 question on the formulation side, so ANDA side. Is there anything that we need to book from the sale -- on the ANDA sales? So typically, in our business model, it's on a cost basis and when we get the profit, then we basically book in our book. So is there anything which has been yet to be booked on the ANDA side?

No. As far as the ANDA is concerned, this quarter, it is about -- ANDA as [indiscernible] is about INR 12 crores. Compared to previous quarter, yes, it is lower because it cannot be measured on a quarter-on-quarter basis. Last quarter, it was INR 23 crores. This quarter, it's about INR 12 crores. And there is nothing unbooked kind of thing actually. We will report as and when we -- of course, some of them, whatever we have dispatched, the profit realization will happen because cost plus whatever is there, that is we expect. The profit realization will happen at a rate that it could be next quarter or possible later I think based on the realization of the property customers.

The next question is from the line of [ Keshav from Rustin Investors ].

Sir, could you give a breakup of margins and our asset turns between pharma and the specialty chemical verticals?

No, we are not providing segment-wise split of the margins and profitability.

Okay. Fair enough, sir. Sir, the ongoing CapEx, is it -- for which vertical is it specifically? Or it's a mix of verticals?

So it's a mix. The thing is that right now, the CapEx -- the ongoing -- INR 600 crores, of course, that is yet to begin, that's what we have answered that. When it comes to the past one, which is about INR 320 crores, it constitute all the places, which includes the formulation, which includes one of the blocks in our facility in Pashamylaram which is integrated into API. The other one is in JNPC, Vizag which is also a multiproduct facility. So for the total INR 320 crores, what was budgeted, we have already spent about INR 207 crores -- as we already capitalized about INR 207 crores and pending capitalization, about INR 96 crores in the form of capital work in progress and the balance INR 17 crores to be spent, probably not that will be spent, of which 2 of the facilities are commercialized, 1 is yet to be commercialized.

Okay. Okay, sir. And sir, for your formulation vertical, sir, what is the -- is there a differentiation strategy that you follow vis-à-vis your competitors? And what kind of growth do you see -- foresee in the next 3 to 5 years from this one?

No, no, in the formulation, we are doing the products which are very niche in the sense, volume wise, there are not many people who will matter. This is very low volume brand value products, which we sell on a profit share basis. So there is no budgeting for that, I mean what you call competition for this. That's what the target is -- have less competition that's where the target is and the values and volumes are not big enough, so that big boys will go shop at the door steps.

The next question is from the line of Sarath Reddy from Unifi Capital.

Yes. So on the pace of new research projects, could you provide your comments? And what is the total number of projects as of now?

Yes. See the thing is the fact we have dispensed area giving sales-wise because they keep changing quarter-on-quarter basis and also not giving you correct the guidance. So we are going with the revenue generation total CRAMS that's what we are giving now.

Yes. So -- no, you had mentioned that previous year, there were some disruptions in conversations, especially new projects. As it picked up, instead giving a quantitatively, has the conversations and signing of new projects picked up?

The conversation start, the reason being the COVID nobody can travel unless they come here. And so this will be delayed further. Background work is being done, but the active work has not been happening I think with the -- when we had talked in February, that time this COVID situation, it was not there. But that time situation in other countries are more severe. But now situation in India is bad, so they're not able to come. So it is going on, on the background because it's the same customer who are working with us in the content products. So it will go on. But as I said last time itself, it takes 2 to 3 years before you get any concrete results out of this initiative.

Okay. Sir, in terms of commercialization pipeline, well, at the start of the year, we had 6 ANDAs that were approved. And I think we have commercialized 3. I mean, can you please correct me if I'm wrong? So was there any new commercialization happened in Q4? And also, any new filings -- any new ANDA filings in Q4? And what -- how many ANDAs you expect to commercialize in FY '22?

Yes, 6 -- I mean 6 approved out of that 5 were distributing until last quarter. This quarter, we have added 1 ANADA, that is animal new drug application, just started 1 shipment. So it is 6 out of 6 is there. Another 6 are yet to be approved. And we hope some of them will get approved within the fiscal '22. And we have filed another 5 which is waiting for approval. And again, we are about 5 to 6 will be filed minimum during the year '22, fiscal '22.

Okay. And in terms of both commercial CRAMS and specialty CRAMS, you had mentioned that there is a possibility the 2 more specialty chemicals could be commercialized. And also another one more pharma could be commercialized. So is that on track?

On the specialty chemicals, third one, we just started in the fourth quarter shipping initial quantities. So that is -- the other one, I didn't say it's a commercial opportunity. That's a developmental product. Out of the two, one is a commercial, one is developmental. So now 3 commercial in terms of totality 1 developmental. In terms of the CRAMS, no, not yet nothing has come into the commercial operations. But things are going with this situation, 1 or 2 maybe, that too '23, not before that, because these are all COVID-related activities. And they are all in their Phase IIs and what stage. So if you think because the accelerated approval process, if everything goes well, sometime in 2023, maybe, calendar 2023 beginning or end of '22, it will have an approval process.

Okay. So now that we have commercialized 6 ANDAs. So the accessibility in the market is going to determine the volume growth plus our -- I mean, that was -- the profit growth would it follow? So is that what you're monitoring with your customers?

These are all small volume or niche products, not many people are there selling you. These are initial stages. And because of this COVID situation, we are unable to gauge because everybody is concentrated on the COVID-related products, even the distributors and all that stuff. So not much inputs are given and the ramp-up is also not happening that aggressively at this time for those things which we have launched.

Mr. Jasti at the outset, you made a couple of comments can I take you back to that? You said that there is an increase overall in costs, and that explains the slight lag between top line online. You also said that the outlook for this year seems fine in terms of your visibility, whatever you have from a business perspective, I presume that refers to top line. And the bottom line, I guess, is again a factor of material prices and logistics and so on. So could we just focus a bit on the top line? And could you give us some sense of how you are seeing for the full year, the top line evolve?

No way, and we never give you the whole year guidance because we do not have the visibility more than 6 months. But based on the feedback we have, things are -- the traction is much better and things are all going well. And as I said, the situation is that if everything goes well without any effect post June, after the Phase II of this COVID, I think we expect to grow 10% to 15% growth in a -- that's best estimate we are giving, but not on the actual estimate. That's the guess estimate. Hopefully, that nothing will derail us with another set of COVID coming in couple months from now as everybody is suggesting. Without that, I think we expect to grow 10% to 15% minimum.

The next question is from the line of Vineet Gala from Monarch Network Capital.

Sir, you mentioned that 35% to 40% EBITDA margin is something that we can expect, which is lower than our historical performance. And given the increase in formulation, where we have profit share hitting the EBITDA, shouldn't be the blended EBITDA margins improve from the current level?

So that is the guidance we are giving. That's the minimum we want to achieve, and that's been consistent over the years. And if we achieve the better based on the product mix and the mix of verticals, that would be good. But I cannot give you based on this because especially on ANDA-based activities, we thought this ramp-up will be much better. But something happened, then the COVID situation and the ramp-up is not that great. So I cannot tell, but what we are telling you is the minimum what we can achieve. Over and above, it is good for everybody. We cannot give a guarantee at this time.

No. Yes, sir. Fair enough. Sir, also on the spectrum side, we had 2 incoming molecules, right? So what can be the contribution on top line on these 2 new molecules?

Yes. So these are them also telling that if at all the maximum when it go to full commercial within 2 to 3 years, it will be about $8 million to $10 million per product on the top line growth. So this is parallel to the same thing start with a couple of million to $5 million like that to maximum top $8 million to $10 million. And it was like the old one, where we have about $25 million top end.

Got it. Sir, and when are these expected to commercialize?

No, no. We just started shipping the initial commercial quantities last quarter itself, that's what I was telling before. So now we have 3 commercials in the specialty chemicals.

Perfect. So sir, like, is there any kind of de-growth on the current base, like excluding these 2 molecules on the current base? Are we looking at any sort of de-growth? Or is there some kind of...

As of now, as per the understanding from the customer, 1 to 2 years, it's the same. There is no de-growth. Maximum, you can expect a 5% growth at this time other than that we don't see any de-growth.

Fair enough. Sir, my last question is on the formulation side. So sir, like I wanted to understand, as far as the products that you're entering, these are very niche molecules per se and very small in size.

Niche in the sense, not the other way around. It is only because of the very less value and volume on brand, which where not many people will be filing the ANDAs. This is a leveraging side we started with. And since this is being a profit share basis, we expect a little bit better margins on that. Unfortunately, the things did not move out -- move the way it's supposed to be, not repeat businesses and launches going up and all the stuff because of COVID situation. In general, these small molecules are not highest priority for them. But they will come back, they will come back after this thing goes down.

Perfect. So sir, my question was more on the long-term perspective on this business. So would -- can this like picking and choosing these niche molecules, how many of such molecules will be there in the market, which are not contested and small in size, which are easy picking? So like over next 2, 3 years, I think you will get some opportunities. But beyond that, what would be the strategy on formulations for us?

As I said, not more than 2 to 3 people in the market, for any molecule we choose. And some of them will have eventually some additional features in the ANDAs kind of things will come into the picture, which is sometime by 2023 timeframe, then the valuation will be much better. So these are the kind of things which we are working on.

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

Sir, 1 question that I had in my mind is, yes, this year, several companies are impacted by COVID and probably they're impacted financially as well. So for the financial '23, are we going to have the same kind of growth that we saw last year, last financial year, 20% and above?

It can be that much and maybe more or less, I cannot tell you because as I was telling you, not you but in general, our visibility is only for 6 months. These are all the molecules we are in the clinical development, except those commercial ones, which says we will not be knowing the results and the results are all and going forward is not in our hands. It's all data-driven. So it's very difficult. But can happen, like if we see last 4, 5 years, some years, it can give you 40%, 50%. Then suddenly, it will stay there for a year or 2, then again, things grow. So that's the way it is. So I cannot give you...

No. No. My thought is more from the structural side. So there are no major structural changes because of this COVID or whatever. So the projects will not be impacted because of this 1 month or 2 months, whatever we are impacted by this COVID. I'm just trying to understand from that point of view.

The structure side is only temporary. But what we are talking about is our structure, structure is based on the success of the molecules in the clinical trials that has been ready to work in our business model. So the structure, yes, it has a temporary setback. But in general, the success of the molecule is the one that gives us the longevity of the business.

The next question is from the line of Purvi Shah from Kotak. [Operator Instructions]

Yes. Sir, I just wanted to understand that our CDMO pharma business for the year have reported very good growth. But when it comes in terms of our guidance, I understand that because of the COVID thing, you're trying to be a little conservative and give us a growth of 10% to 15%. And so do we have this case of that post the Q1 numbers, would you like to update your guidance because -- sir, I just wanted to understand why would -- what are the other things that you are considering and giving this a very conservative guidance?

I mean you say that after Q1, can I give the update on the -- my projections, that's what you are asking?

Yes, sir. So what I want to understand is basically that the 10% to 15% growth guidance, is it conservative? And does it have a scope of increasing in the future?

Yes. But what is the use of giving something which is not talk to me. As you know very well, you've been dealing with us for a long time, and you know that our visibility only 6 months. How can I give you more than that? Just I don't want to say something that I cannot keep promise on. So the minimum that think I can deliver is being given. If anything is good, you could see from the old history, let's be realized good. But saying something, I'll give 25% and come back. What happened? Usually, I don't give any guidance, last year as I said, 20% growth at the bottom line also but could not deliver goods. Isn't it? So I don't want to I want to lying down, I'd want to be very cautious. And if something comes good, it's good for the everybody, not only me and all the investors and all that stuff. And also there are so many variables, including this new pandemic variable. So we have to read doubly careful on that. But in general, looks good and the traction is good with the customers.

Fair enough. Sir I appreciate your concern. Sir, the other thing also, I just would like to pick your brain on was on the margin front, I mean the gross profit margin has been impacted by almost 200 basis points for the year. So I understand a lot of it would be mainly related to the COVID thing. So given the situation where things settle down, can we expect it to be back to those levels in a period of a year or 2? And what is the -- can we expand it also further?

It's always a possibility. But at this time, I can't give you a guarantee on that. There is always a possibility because with the product change mix, and with the pandemic out of the picture and the raw material not going up or the logistics price not going up and the continuous production on the some of the commercials things taking place, 2 years from 3 years from now, yes, certainly, it can go up. And if you see last 5, 6 years, you can see those thrusts and rallies so things can happen. And when it happens, see when you're going ahead, it's not a low as you go every year. It's a higher base, we are talking about. So it is keeping at that level itself is a tough task and giving on a growth of that also depends on various parameters. But what is available I'm telling you is based on the feeling I have as of now hoping that everything goes smooth from now onwards. Are you there?

[Operator Instructions] The next question is from the line of [ Ankush Agrawal from BPI Research ].

Yes. So firstly, in last year, you had mentioned that by 2023, you're targeting that 1/3 of our profit should come from the ANDA business. So do you still think that, that would play out?

As of now, we still feel that even though there is blip here, and it should come to that level, but 2 years from now.

Okay. So that guidance of 1/3, is it largely dependent on the 505(2)(b) (sic) [ 505(b)(2) ] kind of molecules that we are targeting in FY '23 or the smaller molecules itself will be able to reach in that level?

It's not 505(b)(2), but some other molecules with the niche technologies that is involved and those kind of stuff and also the product mix also.

Okay. Got it. And sir, 1 data question. Can you give me how much was the profit share and royalty, including the total formulation base of INR 80 crores this year?

We have not -- because it's a very small amount, and it is not on a regular basis. So we are not giving a breakup on this anymore, we would have discussed it 6 months ago, 9 months ago.

The next question is from the line of Jinal Sheth from Awriga Capital Advisors.

Sir, in the last call, when the discussion on CapEx was there you had mentioned that you would be giving details of the same in the probably the next call. So are we in a situation to kind of talk about that?

As I was telling you, till we talked and when we got it messed this COVID-19 too we did not because even the existing things are not going smooth. We are not allowing other than production Phase II -- I mean, other than the employees, to come into the facilities and all the stuff. So we have not finalized it yet, not getting the quotations also from the customers also. So that will be -- that's why I told in the beginning of my call that it will be sometime in the second quarter, when we start doing things. Because these are all only -- as I said, one is a replacement, one is a movement, one is only thing is for the future expansion base. So it's not in a rush, but at the same time, we have to plan for it and we planned for it but unfortunately did not start the activity because of the various reasons related to COVID.

My last question. Sir, just wanted to understand that one way we do mention that we have like a 6-month outlook. But obviously, somewhere when we are doing CapEx, we have a broader sense of the demand direction. So I mean, there is a fine line between the 2. So obviously, when you do talk about guidance, I presume there is a mix of both. Is that right?

Yes. When it talks to the CapEx in Suven it has nothing to do with the production-based activities, to be honest with you. And as I mentioned, out of the INR 600 crores we are talking about, one is the relocation of the R&D facility that has nothing to do with the re-projections for the customer. Why is the replacement of 35-year old block that has nothing to do with the customer segment. Only one part of it is for the expansion. And more than that, the expansion is not necessarily for the creation of the initial capacity alone. But also it gives us footing in some of the requirements of the customers like [ OEL ] 4 facilities and containers flow chemistries or something like that. It's all the requirement side. And we give you certainly some capacity addition, but at the same time, it is meant for the customer-based request. This is -- as you know, these are all new projects. We commercialized takes 3 to 4 years from now, but the infrastructure has to be created upfront. That's why you cannot correlate between our CapEx versus our sales, our projections, especially in Suven. This is all mainly related to the upgradations and new requirements from the customers' point of view. And of course, naturally, when you do new things, you will have the additional capacity created also, which is a multipurpose as well.

Appreciate your inputs on that, where I -- what I was trying to ask is generally nothing -- a lot more to do with CapEx. But generally, when you have mentioned time and time again that, okay, I have -- we have a 6-month kind of an outlook on the order book, but generally...

That's on the sales front. Only on sales aspect.

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

My question pertains to the recent approval that Biogen has received. The manufacturing will come into the APIs or in formulation? And secondly, whether any milestone payment will come into Suven Life Sciences.

You're talking about the recent FDA approval, the Biogen biotech molecule to -- for the alzheimer's?

Yes, yes. Yes.

Nothing to do with Suven, madam. And it is totally different molecule. But they have done their launching -- oh, they've got the approval, which they'll be launching based on the FDA approval, which there is some fast track kind of thing for alzheimer's.

In any case we are not involved.

And we are not involved in either development or manufacturing or any of the things in our CRAMS business.

The next question is from the line of Sanjaya Satapathy from Ampersand Capital.

Yes. Sir, basically, most of the pharma companies are taking advantage of the urgency to fight pandemic. And very -- hardly any company have really been impacted or so much negatively talking about the prospects. So has there something structural that has happened for Suven contrary to most other companies in this space. Can you just help us understand that is Suven so different compared to any other pharma company that the pandemic is negatively impacting it rather than helping it?

First of all, we are not in the formulation sales in India. So I cannot compare with themselves. Second of all, I didn't say the whole thing is due to COVID, but the only thing is if COVID has an indirect effect on it. And it's only 1 quarter we are talking about it, and you are generalizing only Suven is different. Yes, Suven is different. We don't do any stop and sale items. We do it only for the innovator during nascent phases of the drug development. And I clearly said it is the product mix. And quarter-on-quarter, you cannot equate it, but year-on-year, yes, you can do that. But the people that are telling that is not due to the COVID, maybe they're not got affected because the raw material prices based on the products, which they are not in generic in nature, has a different raw material requirement, which sometimes the prices has gone up sky high because of the option shortages and all that stuff. And also a 20% absenteeism that gives you more headaches in the -- of putting people in and the extra costs and also logistics support and delayed shipments and increased inventories, all these things cost, okay? So we are not different, but at the same time, yes, we are different.

Understood. So if it is just a 1 quarter phenomenon, and particularly when the pandemic is webbing, we are single focus in discussion is pandemic and impact. So that makes us feel that maybe like something structural has happened because it is -- everybody is talking about the situation getting normalized. But from your tone, it looks like you're still in thick of things.

Did you realize that the second pandemic wave will come in last December? You did not. And today, everybody talking about third wave. I'm just being cautious. And I don't want to give high hopes to you and we will deliver goods more than what we promised. And you have to see last 10 years of what we have done. So I don't have to tell a rosy picture, but I'll be cautious.

Understood. And sir, last thing, sir. Finally, your costs have gone up and considering the unique nature of your business where you do bespoke work. Do you have the wherewithal to pass on the cost to your customer?

I was telling earlier, if it's more than 10%, then we'll pass on 50% of that. But if it's less than 10%, we had to absorb it.

Understood. But then that will kind of help you build up a stronger relationship with your customer I assume?

Yes, yes. That's what the specialty of Suven is all about having people working with us more than 2 decades.

[Operator Instructions] The next question is from the line of Darshit Shah from Nirvana Capital.

Sir, my question is pertaining to what we said. We have 1 or 2 molecules in pharma CRAMS, which probably might come up in next year or so. And maybe most of them are you said related to COVID-related drug and we might get an expedited approval. And in the history, also, we have seen that whenever we have 1 or 2 molecules coming in commercial pharma space, then the profitability jump is good enough over the next 1 or 2 years. So sir, is that a possibility? If at all, with the caveat that yes, they might be approved or they might not be approved.

Oh yes, it is always possibility is there. But as you said, it is a 0 to 1 right now in between. So if it's approved, then you can get it. And compared to -- because now so many drugs are being developed, and so many will get fast track approvals. So how it will fare in the market is also determine and see volume and the profitability. So yes, it's a very high probability that we can make good money on that. But at the same time, it is a 0 probability if it doesn't make it to the next level also. So we will take it and when it comes. I cannot give what do you say estimate based on the it will happen. It's likely to happen. I can give you the timeline. But will it happen or not, I don't know.

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

So just 2 questions actually on a broad set. One, are we actually supporting the innovator for contract development and manufacturing of oncology products?

What is it again?

Are we supporting the innovators for contract development and manufacturing of oncology products?

No, some intermediates are there in the development, but not in the final stages.

Currently, we don't have facility for manufacturing the oncology products, right? And that is where we are setting up this low OEM facility.

Yes. For oncology products, not all the intermediates requires the specialty, what you call -- yes, I don't have the facility, but not all the intermediates requires the put in facilities.

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

Yes. Sir, just ask you the revenue guide -- growth guidance on the specialty chemicals. So when you say it will grow 5% does that include the third product, which you have commercialized? Or this is largely on the base of the other 2 products that we had commercialized earlier?

Yes. This includes the new product, but it's not a volume-driven product. And at the same time, the old products, one of them is a real old product. So the volumes also 5% is sale that way, compared to the volume when you had this one up and the top line growth, as I said, it's around 5%. That's why.

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

Just a couple of questions. Do you think the recent approval of Biogen's Alzheimer's drug is going to lead to a tsunami of money coming into research in the CNS segment? And since we are kind of experts in the CNS segment, is it going to benefit us?

As you know, tens of billions of dollars are spent on the Alzheimer's drugs. Since 2003, there is no new drug has come. And also, the controversy related to this Biogen drug also you know it. Just because it is approved because there is nothing is there, it doesn't mean that unless these factors have us in the clinical trial, not what may happen. Yes, there is always a possibility. There is always a big push that comes into the picture. But at the same time, you need to have a data. In general, yes, there is a lot of emphasis on the CNS segment. Only problem is it's being a -- what you call, it doesn't have a clear endpoint. These are all suggestive endpoints. We had high attrition rate, especially things like Alzheimer. Last 18 years, 19 years, there is a no new drug. It's very difficult to meet the endpoint. As you could see in our life sciences, our 505(b)(2), baseline is very good, but it did not use statistically significant results even though it's very safe in terms of all other aspects for the long-term usage. So yes, there is a possibility, but anyhow, that has nothing to do with the Suven Pharma. That has to do with Suven Life Sciences.

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

Sir, this INR 330 crores ongoing CapEx, can you give us some sense when we can start seeing some revenue contribution from that? H2 should be a fair assumption?

For the ongoing CapEx, what?

INR 320 crores of CapEx [indiscernible].

What?

INR 320 crores of CapEx.

Yes. These are already -- except for the formulation, both these things are already commercialized one were using the specialty chemicals using already and compared to [indiscernible] has been tough. And things are -- I mean, the other one is the another block in Pashamylaram which we are using it that was happened last month last year itself, which we have mentioned in the September time frame and the January time frame.

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

Yes. Sir, I wanted to clarify a couple of things. So firstly, on the specialty chemicals segment. We said that we have launched the third molecule in quarter 4. And at the same time, we have guided for a flat kind of revenue growth next year. So the contribution from this new molecule, is this expected to be immaterial or you are expecting some decline in the base business?

You see the last year, there is a decline in the earlier molecules and came back a little bit with the molecule coming into picture. So we're taking some a decline in the earlier molecule. And as I said, this is a very small volume to start with the third molecule. So even 5% is a good growth, so we figure it. So it's a combination thereof.

So on the ANDAs, we have -- you said that we have fixed approved ANDAs as of now. And so how many of these 6 have been launched in the market?

6 of them.

Okay. And so when do we start the profit share to start accruing to all?

We already started small way, profit share. See, this is happening more than years now. Only this quarter -- last quarter, this year it's not launched, it's a small volume. And usually, in the lack of 5 to 6 months because it has to go, then they have to distribute it, then they have to get the sales and the profit share. And it's a 5 to 6 months lag for every shipments we do, minimum.

So incremental contribution that is expected to come from these molecules profit share in FY '22, is that included in your 15% growth guidance?

Yes, yes, yes. Always, it is a cash up situation, not only for this year, any time and we'll take this in combination thereof.

The next question is from the line of Rahul from Shefa Family Office.

My question is on this professional management, the CEO appointment. So where do we stand on that? And second question is on the scientists on our payroll, last year versus this year ending March 2021? And my last question is, sir, on the CDMO landscape. I mean we could not hear anything specific in presentation. Would you able to comment on it, like how the opportunities or element in the sector looks 5 years down the line? I mean, how it is -- regard and how is changing right now?

What was the last question again? Tell me this last question again.

So I'm asking about some -- your commentary on CDMO opportunity specifically the current situation of China Plus or the kind of opportunity we are foreseeing in terms of growth in the CDMO space?

Yes. As I was telling, it's based on the feedback of the customers, there is a very good traction. But at the same time, the space with which we are in is indeed developmental aspects of it and as per the generic aspect of it. So I can give you much guidance in the generic-based activity, but when it is success-based activity it all depends on the success of the molecules in trials. And then we will be getting the next level of answer to you. When it comes to the other question on the CEO, professional CEO, it's very difficult to get some with this mindset and taking this forward and couple of people we looked in the years also, and we are not able to get these people on board because of the COVID situation since 1 year. And we are also waiting for the right candidate to come in because it has to be a long run position. I mean, not for 1 year or 2 years, so we're waiting for the right opportunity to take right person. So it's not that easy, yes, but we are still looking for it.

And you asked 1 more question in between actually. What was that, it was alittle norm question?

That was about number of scientists on our payroll compared to last year.

Yes, there is no difference. I mean, there is an increase in a lower end everywhere about 5%. But our number of people are same. Total scientists in our organization is 250.

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

So, I'm a retail investor. I'm not a fundamental technical guy. So my question would be in the lens. So please listen carefully and give me the appropriate answer would be appreciated and obelized. It is a story. Just listen for 2 minutes. One day, one of the best banker did a conference call with -- earnings on conference call with the people or investors.

Sorry, we lost this line. We will move to the next question, which is from the line of Neha Agarwal from SageOne Investment.

Sir, 2 quick questions. One is on the formulations unit in Pashamylaram. What is the capacity utilization currently?

The existing formulations is fully utilized. The new expansion, now it's under the validation. So there is no -- and for the future projects only. But for the present one, we have enough capacity. We are utilizing more or less 100%.

Okay. So then the new approvals that we would be expecting in FY '22, plus the growth from the existing one in FY '21 would be taken care by the existing one only?

No, we are expecting 1 or 2 come from that side also. And as I was telling you, the existing ones, which we have launched also, as I said, the traction is at that great and will now only another 3, 4 months from now, how the is faring. So it's a combination 2 put together.

Understood. Also, there is 1 question, which is not related directly to your business as of now, but just wanted to understand with respect to PLI 2 scheme of the government. Do we -- can we expect to -- or are we evaluating doing something there in terms of new CapEx? Because the current CapEx that you announced, as you rightly said, is not directly linked to capacity expansion. So can we expect something to be done there with respect to leveraging that opportunity plus expanding the capacity?

No, no, because it's not in our lineup activity because there might be some generic purposes and for the intermediate the generic molecules and all that stuff. And we are in the innovation supply chain and products meet our requirement because, as I said, we don't have any stock and sell like now per se, everything is on a collaboration base. It's except the which are on the profit share basis again.

The next question is from the line of [ M.S. Rajasekar ], an individual investor.

I have been an investor with you for over a decade. I've really got benefited. Thank you so much. My question is, everybody is going in for the biologicals and biosimilars. Is Suven also thinking in that line?

No, sir. It's not our cup of tea, and we have to have different skill sets and time frame and all that stuff. We are not that big to go into straight away put a lot of people and money into that. And we are at this time, no.

The next question is from the line of [ D. P. Vainatheyan ], an individual investor.

Congratulations on achieving INR 1,000 crores in sales. It's been 6 -- 7 years down the line. And now I expect or you say [Foreign Language] more, INR 1,000 crore in profit down the line. Sir, if I'm allowed to ask this question, the U.S. FDA approval for the plant, how do they now give it because, say, if they are not able to come physically to inspect it, so does this mean that the next FDA inspection, suppose in during this COVID phase, that approval is still continued? Or do they have to still come and approve it? And then only you all can -- Suven can continue with its projects or something like that?

Yes. Our approval has happened last January itself and usually, so -- I mean, usually, the visit the facility after 3 years over. So we have no problem on that port, facility wise. But if there is a specific product approval is required, nowadays, they are doing in the online, where the old records they have taken only the paperwork, they are seeing it. We're also going to see the online visual data that infection also for Zoom or something like that. If you say, requirement is there for a product that is to be launched immediately. I don't see any problem on that. The existing growth continues unless there is a product that needs to be launched. And if it requires the approval, then only they will come. And there is ways they can do the rewards online things also if we needed. But otherwise, they can send people from this country. They have people here in this country, they can also send them. So as of now, no problem. And things are where it until they come. It's not that it will -- it's only based on their availability they all show other than when the product is to be added.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you. I have -- before I hand over to CMD for his concluding remarks, I would like to clarify the first question in relation to the cash flow. The question was, why there is a difference in the classification of some of the items of cash flow compared to the last year annual report, which was published, which is the annual report. So we got a clarification that some of them are due to audit auditor reclassification of this based on -- in line with the current year figures, which is 2021. So these are the groups that we are like now finance, costs, receivables, exchange fluctuations and the capital advance for things, it was a purely regrouping effect. Other than that, there is no change in the cash flow overall, it just regroup in line with the current year. Thanks for asking that question. Hope it is clarified.

Again, thanks, everyone, for joining in for this update on the results. And as I was telling you in my earlier commentary, it's tough, and somebody said is only for Suven it is tough. Maybe we are feeling that way, and based on our business model and all that stuff, now we are hoping that this will pass some of the later with the traction that is being there and hope to perform better, 10% to 15% next year with the carriers that things will move smoothly from now onwards. And everybody stay home and stay safe, and thank you for tuning in.

Thank you. On behalf of Suven Pharmaceuticals Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.