Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '22 Earnings Conference Call of Suven Pharmaceuticals. [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 Q2 and H1 FY '22 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Chairman and 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.

Good morning to everyone, and season’s greetings to all the participants. And as you could see from the results, we have a good growth in terms of the top line growth, mainly because of the specialty chemicals higher sales this quarter compared to the earlier quarter. And the main problem -- as you know, all the results are with you, and you can see all the results, and there is a pressure in the margins about this quarter. And that's mainly because, in addition to the other problems that we were facing in terms of the freight rates going up sky high and non-availability of the vessels, added to that there is an increase in the cost of the raw materials, which is evident this time to be 6% to 7% of that has gone into the additional costs. That has a pain point. The second point is the non-availability of basic raw materials itself is a little bit alarming sometimes because that can stop the manufacturing process itself rather than having less profit margins when the price of raw material goes up and if it is available. So these are the conditions that we are now going through. And we are not sure when this will change because I don't see anything in sight at this time at least for the next 3 to 4 months. Also coming up from the Chinese, already some shutdowns are happening because of the COVID. And also, the holidays will start in January time frame. That also will affect raw materials pricing and also the availability. So under these circumstances, we are keeping our fingers crossed. But one good thing we have for the next 6 months visibility wise, we have a very good order book. And if these prices remain at this level, we'll certainly keep our margins above 40%, EBITDA margins. And the only worry that I'm feeling is non-availability, which can cripple the growth. I hope that will not come to this. So far, no problem on that front, but I see something may happen because of all this combination of things that's happening with the Chinese shutdowns and the holidays and also the prices' spiraling effect into the domestic material also, which is very basic in nature. So all these things are playing havoc, but at the same time, with the good order book position at least for the next 6 months, we are confident that we will maintain the growth potential what we have promised earlier. I think it's better for me to answer the individual questions rather than giving you extra information, which will give much better clarity to all listeners. Over to you.

Should we open with the Q&A session, sir?

Please. Please.

[Operator Instructions] The first question is from the line of Ankush Agrawal from [ Surge Capital ].

Yes. Sir, firstly, can you talk a little bit on the progress on our formulation business because this quarter there was a quite degrowth on that business. In the first half also, I think they're quite flattish to single-digit growth. So how do you see this business going ahead?

Yes. So there was -- I mean, not only here, and in general, in the formulations, there is a little bit slowness in there. And we hope -- I mean, the third quarter also will remain the same. But fourth quarter onwards, we expect a couple of new products being launched, and the growth can come in the fourth quarter. We expect that to happen. But in general, not only with us, things are a little soft in this quarter with respect to formulations.

Right. So do you think that the bigger picture in our formulations piece would come from the CDMO opportunities from the multinational company that you have been talking about for some time now? Or would it be our own product that we would be launching?

As of now, it is a very miniscule amount compared to the total cost; it's less than 10%. I mean, it's not even 10%, even not 4%, 5%. It's not a CDMO thing. It is only the ANDAs we file and the profit share we generate. So it is based on that business model, but not the CDMO yet because we have not done any CDMO activity with the multinationals yet. I was telling last time also, it takes a while before they come to us, the due dividends and all the stuff. Because of this COVID, there is a delay of these 2 years. And they have to start all over again, which will delay this process. But the growth we expect, whatever the growth, will be due to the ANDAs we file and the profit shares we generate.

Okay. All right. So the whole strategy behind establishing a formulation unit was our only Indian business, not necessarily the CMO business, right? Would that be a right understanding?

Yes. See it was never a CMO business. What I was telling is the life cycle management of the drugs which includes the API part of the business also, as for the multinational also when the product goes generic, both formulations and what you call the API itself. So that's what's the CDMO part of the business. But the other part -- I mean, you are right, this is only mainly the ANDA business activity. We've got process by starting our activity.

Right. Right. And secondly, sir, I see that you have received some INR 33 crores of dividend from Suven Pharma Inc., our U.S. subsidiary. So can you point out the source of this fund? Is it that Rising has given some dividends to Suven Pharma Inc.? Or is it some other income that Suven has...

No. No. This is a dividend received by Suven Pharma Inc., which in turn has been passed on to Suven Pharma India. So that's why...

Right. Right. Yes. That is what I was saying. I want to know the source. How Suven Inc. U.S. has earned this money.

Rising Pharma...

Okay, it got dividend.

Yes. For our investment in the Rising Pharma.

Right. So should we expect this to continue? If Rising has made any like formal announcement, and they'll continue to...

As you know, after 2.5 years, we got the first dividend, and we hope that will continue every year at least once.

[Operator Instructions] The next question is from the line of [ Sudarshan Padmanabhan ] from JM Financial.

Yes. And congrats on good set of numbers in a critical condition. Sir, my question is to understand, I mean, I think we talked about transportation issues and raw material prices. If we break the business, I mean, there is campaigns, and there is contracts. And if you can talk a bit about -- because we have talked about this 14% to 15% top line growth. And when the raw material prices go up, I'm sure that there is part of contracts and there's part of the business where you can pass it through. So given that you've already done about 18%, 19% in the first half, I mean, do we believe that we should do a similar kind of a run rate in the second half? And second is, when we talked about raw material pressure, I mean, I understand that usually the pass through can also happen with a lead in that. So would we see some kind of a pass through happening, say, in the third quarter and, therefore, to some extent, margins on the gross side specifically would kind of jump?

The raw material prices pass through is not going to happen immediately for us unlike other business models, but where we've got a long duration project. That means by the time you get into business and you supply, it may take 6 to 9 months and all that stuff. And these are all small volume products. And also at that time we cannot be able to pass on the things unless there is a substantial increase of something, which they think will -- if it's more than 10% only, we will go there and we'll share the differential cost. Otherwise, we will not be able to pass on the cost. And that's why you see there's some pressure this quarter. And whenever there is a new order comes in, then the new orders which we will certainly include the new pricing, which they understand. But when one of the old orders, I mean, these are all 100 kilos, 200 kilos, 300 kilos, whatever it may be on the back side of the business, it's very difficult for us, after placing the purchase order, to pass on the cost unless there is a huge increase, above 10%, then only we will be allowed to go there. So as far as the run rate is concerned, yes, we'll have an upgrade as I was telling you in the opening remarks that based on our book, yes we'll have the same run rate; what we had for the first 2 quarters, same thing will be there for the next 2 quarters together.

So we should end up doing about 18% to 20% as compared to what we had initially expected, about 12% to 14%?

It will be around [indiscernible] 18% approximately.

Yes, yes, yes.

And sir, my second question is on the capacity available. And we are going ahead with the CapEx coming in, and I think that is very much required in both the CapEx that is required for growth as well as CapEx that is required for modernizing. But at this point of time, to take, say, for example, from the INR 300 crores, INR 310 crores run rate, or say INR 350 crore run rate, would we be adding capacity? Or what is the kind of thought process? I mean, until the big capacities come, how are we going to manage the capacities and growth?

I mean, it's depending on the campaign, it's the activities, as you know. And sometimes, you may have to have a balancing equipment to be there to increase the capacity, not necessarily the whole train because we don't know what the number of reactors that are required for that. But in the new CapEx we have planned, of that one is a replacement CapEx of INR 200 crores where we will be replacing an old block with a new block. And there will be some additional capacity that will be created with the modernization, as you know, compared to the 30-year-old brand. The other one is, I mean, location change for the R&D center. That's not a capacity utilization anyway. Pashamylaram is one place where we are reporting about INR 150 crores for that new block. That will be pure capacity enhancement that will take another 2 years before it comes into picture.

And until then, for the 15% growth, we have capacity by debottlenecking or whichever way we can?

Yes, yes, yes. Always. That has always been there. I mean, we use the replacement CapEx of about INR 50 crores to INR 60 crores minimum every year. That's a mix-and-match thing that's what we do, putting up one reactor there and additional fixing and all those things. The capacity will never be a problem because we will be having enough. Time is given for us if we need to ramp up. And business has to be there and ramping up is much easier.

And one final question before I wrap up. I mean on the product going commercial, I understand that we are expecting another molecule of specialty coming in later this year or probably next year and probably 1 or 2 more candidates on the non-specialty side. How are we in terms of on the course of maintaining that? And that should drive the growth rate, I mean, as we move to FY '23 and '24.

Yes. As of now, the third specialty chemical already started here revenue generation. There's where you see increase in the specialty chemical business also a little bit. And the next one will be sometime in 2022 and something like that. As far as the CRAMS side of the business, the innovation side or the pharma side, we don't have any indication as of now when it is going to have any commercialized opportunities coming where there are few molecules in the Phase III, and we'll know only maybe 4 to 6 months ahead of time. As of now, there is no indication.

[Operator Instructions] The next question is from the line of Gokul Maheshwari from Awriga Capital.

Yes. My question is on the specialty chem business. Initially, at the start of the year, you had guided for 5% to 10% sales growth with the expectation that you would add a molecule sometime in '22 for an opportunity. So is it that there has been some preponement of commercialization in specialty chems, which has led to such strong growth? And in that context, could you just sort of give an indication of the broader trends for the growth for this business?

This is not preponement of any commercialization. We don't have anything. As Mr. Jasti was explaining, this is going to be only in 2022. And we may get maybe one product, subject to success in the trials, filters, whatever they're doing. Right now, it's a natural growth. Yes, compared to previous year same quarter, it was INR 68 crores this time, but now almost it has doubled to INR 137 crores. And overall, for the 6 months, it was INR 161 crores last year to this year about INR 222 crores. Probably, we may have a little bit of more than 5% growth there. But then we need to wait and see overall how it is going to happen for the next 6 months.

Okay. So clearly, it's going to be better than that 5% to 10% growth. So should we be ending more like the 25%, 30% for growth for the full year in this particular segment?

You're talking about only specialty chemicals growth?

Yes. Yes. That's right. Because for start, we are already [ 35% ].

Yes. We thought of it as 5% to 10% growth. But what happens is, something you are missing here is, because this is a day in, day out supply, and sometimes because of the delays in this shipment, our things come into one quarter, and then in the next quarter - I mean, what happens is, in the June quarter if we would not supply 2 containers, then they will spill over because of the nonavailability of the vessels. Those dump into the next quarter. It was not the case before like that. So some aberrations will be there. Yes. But 5% to 10%, it will go up to maybe 10% to 12% to 15% also. As I said, natural growth is there. These are also cyclical in nature, as you know, in the specialty chemicals. And sometimes one quarter you may not have anything; anything means very small amounts compared to other quarters. But the growth is, yes, about 10% to 12% on an average.

Okay. Great. And the second question is, I just wanted to reconfirm that we had around 5 intermediary products which were in Phase III, which perhaps you've indicated in the previous question that there has not been any progress in that and we will come to know only 4 to 6 months prior to their commercial launches. Is that correct?

Yes.

And any additions to this number in the Phase III?

Not yet. Nothing.

The next question is from the line of Venkat from 3sigma Financials.

Good set of numbers. So one question I have is when I look at the raw material cost, compared to several years, it is not completely out of range. But when I look at the operating profit, that is where we are taking a hit. Can you kindly explain?

Yes. I mean, raw material cost, as I said 6% to 7%. For the operational cost, so because of the raw material cost increases and the natural cost increases, the salaries and the utilities and the environmental treatment, all these things will add up. And when you have the same products doing same year in, year out, they will remain at the same place, but at the same time all these costs will go up. And by the new product, we would be able to charge the additional things, but for the existing products, we'll not be able to add that cost. So yes, it's a combination of not only the raw material cost, but also the manufacturing expenses. And the third thing is, this quarter -- I mean, this half year, we have a huge percentage, say, 1.5% of total sales is only the logistics cost increase. So these are all playing, not in one way, but in general, because the main thing is the raw material, which we are telling the raw material, but all other things also have gone up.

Sir, this raw material cost going up, this is not related to Suven, but in general. Is this across the board, sir, companies across the world? Or is it specific to India? I mean looking at it more from a competitive advantage for the company.

No, no. It is everybody, not only India. Anything which we are importing from China, especially the early stage raw materials and solvents, that is being affected not only in India, but all over the world.

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

Congratulations for a good set of numbers particularly during this time. Sir, my question pertains to the 5 molecules which we said are in Phase III and we haven't heard anything yet. Sir, can you tell us if like any of these molecules Phase III results are out? Or is it due anytime soon in your knowledge?

No. Not yet. That's what I was telling. At least 4 to 6 months ahead of time we'll know about it. Since we have not received any communication from our customers that should be ready -- because they may say a month before -- they read out and all the stuff, the opportunity may come if the results are good. So you'll prepare for yourself. That's kind of a communication. Then only we will be able to guide anybody else and ourselves internally. So, so far we have not heard anything from that side. So we are waiting for that.

Okay. And sir, one more thing on that. So out of these 5, how many of them, the trials have completed, if you can tell us?

If the trials are completed, I will know. So they are still going on.

The trial for all of them has been completed, Phase III?

No. No. They are still going on.

They're still going on. Okay. Got it. And sir, on Rising Pharma, this year has been really good. I mean you have got INR 33 crores dividend as well. And even if you look at the profitability front, first half, it's up 100% year-on-year from around INR 20 crore to INR 40 crore. So sir, any update on that? Is it performing as what you expected? Or is it better than what you initially thought?

Based on the numbers we have, we are saying that this is doing good. But inside, I cannot tell. I mean, whatever we get out of it, that means that profit share, the dividend, that's what it comes to us. And in general, they are doing good, but also there will be ups and downs for some quarters because of the launches taking place in one quarter may give you a bit of profitability compared to the... [Technical Difficulty]

Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

Yes. As I was telling that for the Rising, the things are doing good, which is evident from the dividend received and also the profit share as the caller has already mentioned. But there will also be -- you have to understand that quarter-on-quarter it cannot be the same. But just year-on-year, there is a good growth potential.

The next question is from the line of Abdulkader Puranwala from Elara Capital.

Sir, just one clarification on your opening remarks. Sir, you mentioned that the order book is quite good, I mean, you have six months good visibility. Any further comments on how the order book would look within the CDMO pharma space, as within the clinics or within the commercialization side? And are we receiving much more inquiries on the clinic side as well with respect to the molecule addition?

See, when I said the order book is good, the inquiries is not leading to an order book. We know the order book does not contain any inquiries. The inquiry comes in and it matures into a purchase order, then only it books into the order book. But all segments are doing -- the traction is good. And we have the next 5 months' indication that we will have the same ramp up as the first 2 quarters put together. And that's the good part of it, and the only thing is fulfilling those commitments. And because of the raw materials shortages, we are worried. Just a cautionary thing we are telling. As of now, nothing like that has happened. But the raw material cost has increased, which we may not be able to pass on for the existing products. And even if they stay at this level, we can maintain the EBITDA margins at these levels.

Sure. And sir, the next question was on the dividend income, what we had registered as a standalone entity. And I assume, year-over-year, this was on the basis of our income on FY '21, what we had generated from the JV. So that roughly amounts to nearly 50% to 65% of the payout what we had booked in FY '21. So are we also seeing that sort of a steady state that payout would be maintained ahead also when we say about having this onetime income reoccurring every year in terms of the dividend coming from the JV?

As far as the dividend, this is the first time we received the dividend, because after the maturation -- I mean, what you call, the sales, growth, and the expenses are taken care of and all. And then you will see quarter-on-quarter, you're seeing the profit share, which we are getting from the things and we hope that this will continue. But the dividend thing will be once in a year, naturally, like what we do in our business also, once-a-year dividend. Otherwise, the quarter-on-quarter, you cannot expect the same results for every quarter. But the year-on-year basis, it is at an incremental as you could see from the numbers itself.

Because this dividend is based on the previous year profitability of the INR 38 crores of whatever we have got. We are getting almost on a 6-month basis, almost 80% is given in the form of dividend. Whether the same distribution rate will be followed up or not, time will only tell. We don't know. It's going to be based on their growth, based on their requirement of cash, and then we will know. Being the first time, we reported as it is. We will not know how it is going to be in the future. We expect it to be there on the more or less similar lines. That is our hope.

Sure, sir. Sure, sir. And just a couple of routine questions from here. So one also on the tax rate. It was substantially higher this quarter. So would it be fair to assume that it would be because of this dividend income, which would be taxed at a very high rate as compared to the normal operations? Or how would...

Yes.

All right. Okay. And sir, on the second side, I think in this first half, we also commercialized the Vizag plant, but the resulted increase in depreciation is still not that very much visible. So have we fully capitalized? And would depreciation and P&L increase from here on?

No. The Vizag plant is capitalized long back. Only the part of the next block is partially capitalized. Now it's fully capitalized. So whatever the old CapEx program which we have indicated earlier, more or less it is stacked, in the sense it is completed, that's been capitalized. And you see the increase in depreciation is basically because of that. One of the additional block also has come into picture for capitalization this year.

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

A couple of questions. See, you had mentioned that there's a good order book for the next 6 months, and you also called out shortages in raw material availability. So do we have enough inventory as well as supply agreements for the next 6 months' order book?

Supply agreements, no. Nobody is giving a supply agreement. I want to write for a year, 6 months, or 3 months. It used to be the case. Now they are saying month-to-month basis or order-to-order basis. Prices are so dynamic, they are not giving us. Even such local raw materials, very basic raw materials, we are not able to get them. But at the same time, you cannot put 6 months raw material storage because it's very difficult to store all that kind of huge volumes of those things. We are hoping that this will be available, but also it's very dynamic. Right now, we're only giving a cautionary statement that not only the raw material prices have gone up, but also the availability may pose a risk of the manufacturing being affected.

But overall inventory holding also, there is an increase.

Got it, sir. Got it. And last year, in the annual con call, you had mentioned that you had not filed any new ANDAs in FY '21. What about first half? Have there been any new ANDAs filed?

Yes. We have filed about 5.

Okay. In the first half itself. That's good to know. And the research projects inquiries, in your assessment, has it gone up to the pre-COVID stage? Or still there is some catch-up to do? I'm just talking about the inquiries.

Yes. Still have catch-up to do. Not gone to the pre-COVID level yet.

The next question is from the line Manoj Garg from White Oak Capital.

Yes. Congratulations, Sir Jasti and the team for a good set of numbers in a challenging environment. So while I understand, sir, and you have made a comment that the endeavor we have is obviously to move up the value chain. Where currently we are manufacturing N minus 5, N minus 6, we would like to go up maybe on N minus 1 or formulation at some point of time. And you also have indicated that because of COVID, obviously, either the customer can't visit you or you can't go and visit the customers. But now with international travels opening, are you seeing at least the willingness of customers to come and visit our plant, and as a result, probably at some point of time, maybe over the next 12 to 24 months, we start seeing the traction happening in terms of maybe API supply or the formulation supply?

As of now, I don't see the customers coming directly, and they are only doing those things that are necessary for their ongoing projects, what you call the assessments or the audits or whatever you can call it through remotely. And for any new things, still there is a gap. And I think unless they come and see physically, especially because the people who deal with us directly, the R&D based activity and the supply chain based activity, versus the fully commercialized life cycle management, they are completely different people, even though it's the same company. And they may have the knowledge based on their database, but at the same time they would like to come and see and then only go to the next level. This COVID has derailed our thought process. As I said, the people are not coming yet. So that is little bit negative. But hopefully, in 2022, they start coming, and we hope that we'll be able to catch up with them and hope that things will move in the right direction. Right now, yes, it is a status quo.

Okay. Got it. That's very clear. And just to understand, as a follow-on on this, that once the customer visits and if they like the facility and all everything, then typically how much time it will take that prospect to convert into the actual business?

Depending on the type of the molecule and all the stuff, I mean, over 2 years and up to 3, 3.5 years.

Okay. Between 2 to 3 and 3.5 years.

Right.

Got it. And just a last question from my side, sir. While you have stopped giving in terms of the number of projects in the pipeline, but maybe qualitatively, if someone has to understand in terms of the incremental additions in the pipeline right from preclinical to Phase I, Phase II, Phase III, how are you seeing those incremental projects coming in? And is it in line with our expectations, better than our expectations, if some qualitative colors you can provide there?

I mean more than incremental, the traction on the existing products and the success in the existing products at the customer level is much better. And if you are purely saying on incremental numbers, they are not -- as I was telling earlier also that it's not like at pre-COVID levels yet. But good thing for us is existing projects is yielding better traction in relation to the -- it would be around 75% of the pre-COVID levels on the inquiries, the new additions.

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

Congratulations for good numbers. Just a few clarity. On CapEx front, you said INR 200 crore replacement CapEx is planned for FY '22.

Yes. We planned FY '22 with -- that we have spent only around INR 20 crores right now. And yes, more or less, it will be going into the first quarter also because it requires the civil construction also. There is, because of the COVID restrictions and the number of people who are reporting and all the stuff, delayed a little bit, but not that much compared to others.

So INR 200 crore is out of INR 600 crore we planned for replacement CapEx. Is it right?

Yes. This INR 200 crores is also moving the site from Jeedimetla to outside the Ring Road. It's mainly the new R&D center that does not give you any capacity, but also a replacement. The actual capacity increase is in Pashamylaram with additional block of INR 150 crores, which is yet to be started.

So growth CapEx would be INR 150 crores out of INR 600 crores, correct?

Yes, yes, yes.

Okay. Secondly, on specialty chemical business. Just you mentioned 5% growth in FY '22, and that can go up to 10% to 12%?

Yes, sir.

Okay. And on intermediate products, the products we have currently under trials, any time line, if you could give when the revenue may flow?

That I get the intimation from the customer where they are looking at it. As I was telling earlier also. I don't have any indication as of now. Usually, we know 4 to 6 months ahead of time, especially when it goes into the next level, typically, Phase III to pre-launch. So, so far, we have not had any indication.

Okay, fine. And what was the royalty amount from Taro in this quarter?

It's very miniscule.

It's miniscule. I mean it's coming to...

Almost negligible.

Negligible.

Okay. So INR 33 crores, we received in first half. So what is the other amount out of INR 41 crores?

No. The other income includes -- there is kind of the investment income, little bit of investment come back apart from dividend.

INR 33 crores is the dividend.

Dividend. But he is asking other than INR 33 crores. [indiscernible].

And that is included in share of profit from associates, right?

No. Share of profit from associates is different, actually. There the other income what we show, which is purely, like INR 44.11 crore, that includes about INR 33 crores of dividend. And the rest of the capital are, we have the mutual funds and the interest-earning investments that we have. Whereas share of associates profit is shown below the line, actually. If you really see that in the P&L account, that is different. For 6 months, it is about INR 44 crores, actually.

Okay. Okay. Fine. And earlier you guided for specialty -- sorry, in CDMO CRAMS, that pharma CDMO business, that 10% to 12%, that we have stayed with this for FY '22, the growth in CDMO pharma business?

Yes, sir.

[Operator Instructions] The next question is from the line of Anirudh Shetty from Solidarity Investment Managers.

Yes. I had 2 questions. I just wanted to know from our raw material mix perspective, how much of our raw material comes from China today?

Close to 37% of our total import.

About 37%, is it?

Yes.

Okay. And say, over the next couple of years, are we taking any initiatives to reduce this share of the mix either by derisking or by backward integrating further?

We are not into raw material making. So backward integration happens only if it is the intermediate stage of the business. But when it's raw materials, if it's basic raw materials, we're not going to take up that part of the things. And even though we import 37% of the raw material of the total thing, some of the local raw material has also gone up sky high, like [indiscernible]. So you cannot just replace China. Basing that cue and having better profit margins, locals also selling into the exports, and that is increasing the prices. And moreover, we have already some shortages out to make up. So these are the things. So as far as raw material is concerned, backward integration will not be happening. But the intermediate, if we import any -- for the beginning of the project, if we take some intermediate, when it goes to the next step, we always do the backward integration, but not the raw material.

The next question is from the line of Sonal Gupta from L&T Mutual Fund.

Yes. Just a couple of clarifications. So you mentioned 150 basis points increase in freight cost. So that's the main driver of the increase in other expenses and manufacturing costs year-on-year. I mean like I'm just trying to understand like last year...

That's one of them. That's one of them. The COVID-related activities is a little bit thing. And in fact, second thing is the environmental cost has gone up, sir. That's also about 100 basis points.

About total 2.5% increase essentially, 2.3% or whatever it is. This is like shared in 3 different formats.

So environmental cost increases, I mean, like could you just explain that?

Because we have zero liquid discharge facilities For that the operational cost has gone up. So that's one increase. And we also have in Vizag, it is third party to the environmental thing, where we have a new contract signed by the association, which has gone up. Because there was no increase in the last 4, 5 years, so the increase has come into picture. All these accumulated give you 100 basis points of environment cost increase in total.

Got it. Okay, what I was just trying to also look at is like if I look at your manufacturing plus other expenses, in the first quarter of this year, it was around INR 49 crores, which has gone to almost INR 60 crores in the second quarter. And as a percentage of sales also, that has gone up from 18.5% to almost 20%. So just this increase is mainly related -- I mean even on a Q-o-Q basis, these are the main factors which have driven the increase?

Yes. Yes. Yes, sir.

Okay. Great. Great. And my second question was, again, the expectation on the pharma CDMO side is for a 10% to 15% growth?

Yes. Yes.

And if I got you correct, now you're saying that as a company as a whole, we should be somewhere in the 15% to 18% range for the full year in terms of revenue.

Yes. Yes. Yes, sir.

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

Congratulations, sir, on great set of numbers, and happy Diwali to all. I just want to understand from you, I mean, given the raw material volatility, inflation that we are seeing, and the quarter, if I look at, we have a higher contribution from the specialty side. And still you're maintaining very good set of margins. So can you help us understand what are the key drivers, where we are seeing a better product mix, in which segment? Is it the core pharma, which is, again, giving us this kind of better product mix? Can you help us understand this in a little more detail on a segment-wise basis?

Yes. I mean, see, the product mix will be part and parcel of this profitability. And naturally, even though growth has been there in the specialty chemicals, at the same time we have a better product mix with respect to the -- I mean, profitability-wise, on the CRAMS side of the business also. But at the same time, if you really dissect this last quarter and this quarter, the PAT is same if you take out the onetime dividend influence to the system. So otherwise, because of the growth in the top line, we should have gotten another 5% to 6% more, but all these things affected, the raw material cost and the environmental cost and the operation cost have increased. That's why we would still maintain it -- but the product mix is always part and parcel of the growth potential. It keeps changing and that's why you don't see that every quarter will be the same trend. But year-over-year, yes, the trend will be a positive side.

This is very helpful, sir. And sir, if any sense that we have in terms of the entire raw material scenario from the basic commodity side, how do you see this going ahead? Do you see any ease off, or do you see any kind of trend that we can put a handle on. I don't know, I mean, it's very difficult at this point in time, that's why I'm asking your opinion in terms of how do you see it from an industry perspective and for our company.

Industry and what's happening is the perspective is the same and we don't know where we are heading in that sense. And right now, we hope that this will stay as it is. If you see, a little bit increases. But our worry is the nonavailability itself, not necessarily from China, especially in India, very basic raw materials like methanol, like caustic soda, and all these kind of things, which can derail our production operations. So things can happen. And right now, we are crossing our fingers, and we hope with the 6% to 7% increase in the raw material cost, we will be able to maintain the profitability. But yes, there is a very outside chance, not only for us, but all other companies, that things can affect in a dizzy for a few days, which that's what I'm talking about the industry perspective, because so far nothing has started up and happened, but people are giving indication saying that I may not be able to. I was telling that stuff happens all around, and we used to have at least a minimum of 3-month supply agreements, if not 1 year or 6 months. And for the basic raw material, they don't want to give it. They are saying month-on-month, and sometimes they're saying even it'd be delivery based. So every time there are changes that are happening. So one side is the increases in prices. Second side is the nonavailability of very, very basic raw materials for each and every industry that get affected in the pharma.

Right sir. I think we have to live with it for some more time. And sir, I mean, if I can squeeze one more. I mean, has there anything moved in terms of our core CRAMS products from Phase II to Phase III, any movement that you can share with us? Or any changes that you are seeing? And how is the growth outlook? I understand...

No. Not much movement this quarter.

Okay. And sir, any growth outlook that you can share of over 12 to 24 months from a core pharma perspective?

I can give you -- I never give you 2 years, 3 years from now, only I can give you 6 months, which I have already mentioned that the traction is good, and we are going to maintain the run rate as of the first 6 months and it will be similar. So totally around 18% growth compared to last year. And we hope to maintain that 10% to 15% growth, but only time will tell.

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

Yes. Sir, on specialty chemicals, I wanted to confirm a few things. So firstly, we haven't launched any new molecule in this year, right, in H1?

No.

Okay. So the entire growth has been entirely organic. Sir, this growth that we have seen in H1, has this been led by volume growth or there is an element of price increase also included here?

There is nothing like a new product coming and going because we don't have our own products. These are always mix and match. Except the specialty chemicals, all the other things are mix and match. So these are all the value-added products and the volume growth in the specialty chemicals, it's a mix of both.

Sir, I was asking specifically on the specialty chemicals segment itself. So in that, strong growth that we have seen in H1 of this year, has that been on the back of volume growth or we have also taken price increases considering raw material costs that are high?

Volume growth only, not price increase.

There is no change in the pricing.

Okay. Okay. And in terms of the launch that we expect in '22, so that is calendar year '22 or financial year '22?

Calendar.

Calendar year. Okay. And sir, beyond that, any other visibility that we have like future launches beyond the one that is expected in...

I'm not saying not, because there's a possibility, okay, because still things are going on the feet. And if everything goes well, that's what they were saying, in '22 can happen. And it can be maybe 3 months ahead or maybe 6 months delay. We don't know. So this is the hope that we have. Until it comes to 3 to 4 months ahead, we will not be able to pinpoint. This is only indication.

Got it. And sir, any similar anticipations in the Pharma segment?

The same thing. Only success of the molecule and the clinical trials will give us the change from stage to stage, that means Phase I to Phase II to Phase III. So far, as I was telling earlier also, there is not -- big growth comes in only when it moves from the Phase III to pre-launch quantity. So, so far no indication has been received. So we cannot tell.

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

Sir, in one of the calls you had mentioned that whatever the new additions that happen to the NC CDMO pipeline happen at Phase I. Is that the correct understanding?

Not necessarily. Sometimes they come at Phase II also. See, after Phase II, it will not come. I mean the new additions will not happen, only the ones that are in the Phase II, because see Phase I is not on the patients. So there can be some additional requirement coming, again, for people who can come to the new consolidations in the Phase II stage where it starts with the patients. And once the patient has started, 99% of the time they don't change the sources other than 2 or 3 or 4 of them that are there existing, because the impurity profile will affect the side effects for the patients. So usually, early stage will get in Phase I, and sometimes you also get based on the molecules in Phase II also, but 90% in Phase I.

Sir, in addition to what you mentioned, is it also working with Big Pharma also a factor in this? Sir, why I asked this is because one of our peers in the API CDMO space, who works predominantly with small and mid-sized players, has added a few APIs as well as intermediates to the very late-stage pipeline without going through their entire cycle. So I wanted to understand if this is also a factor that we are working with bigger players as compared to...

Yes. But API means there's already a mature product, right, that's a different matter. But you're starting early in the clinical trial phase. Usually, it is the Phase I. Sometimes you can get in Phase II, but not in Phase III. Usually, it never happens.

Sure, sir. Sir, and a recent report by IQVIA on CNS claimed that this decade is poised to be for CNS when the past 2 have been for oncology. Sir, would love to have your point of view on what factors can lead to such growth and what gray areas are being explored now, which weren't earlier to sort of facilitate our roads towards [indiscernible]?

No. We will not be able to comment on that. We still don't have information about those in proper manner. The one what you are talking about is the one actually which is still in the review by FDA. So we are still waiting for the final information for that. Based on the public information, what you can say for.

Sir, I was not asking particularly like for Suven Life. I was just trying to gauge what your generalistic view on the CNS space is. Like we are sitting out of early-stage [indiscernible] as compared to what we were seeing earlier. So are we seeing an increase now of biomarkers like we have with oncology and that led to a lot of growth in that space? Any generalistic viewpoint on the market itself, sir?

No. I mean this all depends on the areas when you're talking about the CNS versus the oncology. And we don't have much knowledge about the oncology because we only do CNS. And CNS also, there are small molecules and there are new biomarkers being developed even for this one and also disease-modifying activity. There are a number of programs that are going on. So it's really difficult for us to tell at this time which one to concentrate or whatever. I do have one question. Are you talking about our CRAMS offering in pharmaceutical or you're talking about our CNS portfolio of drugs, the overall market outlook, what you're trying to say?

For the CNS portfolio, not the CRAMS.

Yes. There still it is a too far-fetched game right now.

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

My questions have been answered.

The next question is from the line of [ Vaidyanathan B. T. ], an individual investor.

Am I allowed to ask you a question on the progress of 3031 molecule, please?

Yes.

So can you kindly update us on the time frame where the results or the final data will be delivered from this molecule?

If everything goes well, it will be the end of 2022, because every time there is some or other problem with enrollment because of the COVID situation, not necessarily from the site point of view, but also from the customer point of view -- I mean the patient point of view also. I mean we should have the results by now, when unfortunately, this is delayed by 18 months. And now the new target date is end of 2022, December time frame.

Is there any -- like we have had for the previous molecule, SUVN-512, the extended course which was given to the patients, is there anything like this also in this particular molecule, please?

That will happen once this study is closed and then depending on the requests we get, then we will take a call at that time.

I think this being a short-term study, we don't foresee any such kind of extension, actually, in relation to 502. 502, we had to go and approach FDA for additional for those patients who had completed 6 months and then to continue the drug on a compassionate basis where the data is not collected. Such stakes are not there in 3031.

The next question is from the line of Agraj Shah from Tata AIA Life.

Congratulation on a good set of numbers. So the question is on the balance sheet, sir. We see a sharp increase in receivables of nearly around INR 61 crores from [indiscernible].

Mr. Shah. Sir, if you can speak closer to the handset, please. Your voice is not clearly audible.

Sure.

Your voice is breaking.

Mr. Shah, your voice is breaking up. May we request you to move to a better reception area.

Now...

Sir, may we request you to rejoin the queue, please? The next question is from the line of Ankush Agrawal from [ Surge Capital ].

Yes. Sir, just a data keeping question on like, can you tell me how many, ANDAs that are filed, how many are commercial, how many are approved, and how many are under development?

Total filed are 15, approved are 7, launched are 7, and additional filing of 5 has happened.

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

Yes. I just wanted to know, of these 5 Phase III molecules, just to understand for the investor community, I mean what could be the opportunity size? I mean can you let us know in which therapeutic areas broadly are those present?

See, we cannot tell based on the sales figure. It used to be like that, maybe if it's a $1 billion sales they expect to see maturity, and you will get, for an API, about 8% to 6%, and then the intermediates will be plus sometimes. But now the price of the formulation is so high, you cannot correlate between those things. And these all include, it would be RA and pain and oncology.

Yes.

And they are for some...

Sometimes the indications also, it will not be very...

Also, some of them are being even tried while they're doing this. Even COVID-related repurposing also being tried, which we do not know until it is published to us -- I mean it is known to us.

Okay. Got it, sir. So there can be a COVID kind of opportunity as well if they repurpose it and probably that's being successfully approved by FDA and all?

Yes, yes, yes.

The next question is from the line of Agraj Shah from Tata AIA Life. Mr. Shah, we are unable to hear you. As there is no response from the current participant, we move to the next question from the line of Anirudh Shetty from Solidarity Investment Managers.

Yes. This is Anirudh Shetty here. So just one follow-up question. I just wanted to understand, if you look at your company from a more medium to long-term kind of time horizon, and given the backdrop that we're seeing is, there's more and more business coming from this entire China plus one theme, and global customers are looking to derisk, India is well positioned. So can there be an upside possibility to our 15% top line growth guidance that we give in a context of, say, a more 3- to 5-year kind of time horizon?

China plus does not apply to Suven Pharma because we are not into the APIs primarily. We are into the innovation-based supply chain starting at Phase I, Phase II, Phase III. So there is not much change in that part. So there will not be any effect on that for us with China plus. But the growth of 10% to 15% can go to 30% to 40% in one year itself if a couple of molecules in the pipeline goes to the next level, like Phase II to last stage. So then the growth will certainly double. Right now, based on the existing facts only, we are giving 10% to 15% growth, but anything can happen in 6 months' time. The growth can be doubled at that time for that year. So things can happen like that. But China plus one is not really a big factor as far as Suven is concerned.

Sir, just wanted to clarify. The business that we are in, that you mentioned the Phase I to III innovation-based model, how big would China be in this particular category of ours?

Not much. Not much. I mean, because -- see, the other thing you need to understand is, if we get a project in India, Suven is the only one that gets it, not that the innovator will give to 2 or 3 people in India. Similarly, they go to China, they get only one, Europe one, like that. So this is already taken care of. Coming out of that, not much is happening. Raw material side, API side, yes, they want to do other than China. But whatever in the innovation supply chain, I think they are okay. I think whatever the players, we are 4 players that are there and they are maintaining it. So based on that I don't expect anything to come to us.

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

Thank you, one and all, for tuning in. And as you know, I mean, we are in a good position, at the same time, with a lot of problems we are facing, unlike before. In spite of that, we hope to maintain this run rate and the profitability, and I hope to see you all in the coming conference calls. Thank you. Thank you for your patience.

Ladies and gentlemen, on behalf of Suven Pharmaceuticals Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.