Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months 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 Q3 and 9 months FY '22 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Managing Director; and Mr. Venkatraman Sunder, Vice President, Corporate Affairs. 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.

Thanks for joining to this earnings call. As you could see, I think we have done better than the last quarter. And in spite of the increased costs on the goods, our logistic costs and all that stuff, we still could manage to maintain the profitability also. And I think I can answer more questions on that literally rather than telling which is already on the papers. Other thing which I want to update you is now we are 25% holding in Rising Pharmaceuticals in U.S.A., which we have divested in December, to SIG lead partner with the $45 billion company, which has taken the full stake of Rising Pharma from all the stakeholders. They are 60% now, and we have residuals after getting -- cash of $45 million plus $15 million worth of sales allotted in the new company, which is equivalent to 7% of the value on that. And that has been done in December itself. And that I want to update you on that part of it. And then I think things are moving well. And we may not have the crystal ball for the whole year. But as of now for the next 6 months, it looks good. And the run rate will be closer to the same thing as of the quarter 3, and we hope also to maintain the profitability also. But at the same time, there are some caveats like unavailability of raw materials, which can derail our progress. That's the only other tough thing. The initial to the increase in the capital cost, which is okay, which we can take some heat on that. But unavailability itself will derail some of the progress we think we will have. With this, I think I'll start with this. And I'll -- I mean I'll wait for the questions to be answered.

We'll begin the Q&A question?

Yes.

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

Mr. Jasti, congratulations on a very good set of numbers. So firstly, I want to understand a few things on the strategic M&A that we have been taking, right? So in 2019, when we acquired, I think, pharma -- I believe, the Casper Pharma, which is what we have mentioned, and the fact they are looking to buy formulation facility from the -- Casper Pharma was a buyer in that transaction, right? And then in the recent SIG buyout, I believe they are what Casper Pharma along with Rising Pharma to make a combined entity in which we had 7% stake. And this Casper Pharma, I believe, is somehow related or the same company to Cronus Pharma, which is what Aurobindo Pharma was trying to buy last year [ terminated ] which is into animal health products. So can you help me understand the bigger picture of what we are trying to accomplish over here?

Yes. As you rightly said, the SIG Partners has bought both the Rising Pharma and Casper Pharma businesses. And as I said, we are also 7% in the residual partner in the new company. And in India, Casper Pharma India is not part of the deal. During the discussion SIG said, since I'm a minority partner and since I am in India, it is better instead if we're running the business. I mean because it's not being a part of it. It is people from Reneo, Arbor and all these people, they are having this stake in this one. They said it is better you take it over and run it because Casper India has an existing contract with Rising Pharma to do all the products that are developed in the Rising Pharma R&D in the manufactured supply on a profit share basis to Rising Pharma. It's a long-term practice existing. So what we are -- we are done that. Now, we have taken our Board permission to take the Casper approval. Now we are adding it over to the legal and financial diligence to Aurobindo costing. Because this facility is in SEZ in Hyderabad airport, and it was in a 30-acre site and it is already by the 6 ANDA and waiting for the FDA approval. So all the other products that are under development and the Rising R&D will be exclusively manufactured by Casper Pharma and supplied to the Rising on a profit share basis. So that is the rationale we are interested in it. And it is being a minority partner there -- there also they are sustainable and credit would be people to run this place on a commitment basis. That's why we are valid in this. If the price is good and I mean the value is good, then only we'll go forward on that. That's why we have addressed this to fivefold in the financial diligence and the legal form also. So this is the status.

So sir, I believe this plant has 3 lines. One is the general injectable, one is the special injectable and there's another oral drug. So we're acquiring all this -- the entire facility with all the payments or we're acquiring just the oral dose formulation part?

This Casper Pharma is only as of now built for 1.2 billion capacity for solid oral dose -- like capsules and tablets. And it has a plan to do in the future other liquids also work, but no injectables.

No injectables. Okay, okay. And sir, another thing, like in the last phase of our CapEx, we had built a formulation facility for the formulation business that we are trying to scale up, right? But until now, we haven't really scaled up that business well. So what's the rationale of acquiring another formulation facility? Can't we do this business from the same facility that we have?

No, our expansion does not go -- I mean the projects which we have, which we are going to be on soon, but to take all these new projects, it will have the sufficient. And also it is an existing facility and coming with many number of products and long-term contracts, unlike where we are building and looking for a maturity of the products apart that -- and all that stuff, right? That's a difference. The long-term contract, ready to go into the operations and the future potential with the new R&D projects arising out of R&D are exclusively manufactured here. All these things are the rationale where we have been working on.

Right, right. So the contract of this business would be dilutive to our existing business model?

Which was that?

The new long-term contracts that we have based on Casper Pharma, will this be dilutive in terms of margins profile?

Yes. I mean, the formulation, whatever -- what you call the Texas project, whatever the narco -- the profit-sharing basis, which is there, it will be same thing. And it's already existing contracts which we are doing -- I mean, which we are serious and but we are now giving it for the diligence and where that will go.

[Operator Instructions] Our next question is from Abdulkader Puranwala from Elara Capital.

First question, a follow-up on what the previous participant was asking. So you said they have filed 6 ANDAs and none of them are commercialized. So I mean, are we just looking for the plant? Or what could be the sales opportunity in terms of what is currently being filed and what is under development?

As I said, none of them are approved till, because the FDA inspection has not taken place. It's a brand-new facility. So we are evaluating all those aspects, but it is -- the long-term prospects are what we are looking for here. And only after the, what you call, FDA inspection only that this will go into the commercial opportunities, isn't it? So that's what the rationale in that process.

Yes. Sir, my question is basically on the ANDAs which they would have filed. So what would be the branded sales of the product, what they filed Jimpex in the U.S.?

We just has taken an interest approval, we are not jammed to listing, the diligence is going on. That the things will come out, and we have done that, we'll be able to solve address and address. More or less, it is a asset value only we are going to take, that's what it is, not the business, because business will take time to commence, because the FDA has to come and then the approval has to come, those things. So it's -- if it is within the asset value, and what we get out of it is really to grow the FDA approval flag, with the existing people, existing contracts, and it will start. Our facility which we have dated in Pashamylaram will take care of only 300 million to 400 million only, but not 1.2 billion. So that's one thing. These new products that are coming in, future products that are coming, these are long-term existing contracts. These are the things that are interested us that's why we are going ahead. Finally, we're going to pay for the assets only, not for the business. There is no business as of today. I want to make it clear.

Got it, sir. Got it. And sir, just one more on -- I mean, on the CapEx, INR 600 crore CapEx plan, what we have announced in the earlier quarters, does that remain intact? Or because we're doing some expansion at Pashamylaram. So are we still going ahead with that expansion if we acquire this facility? Or that plan largely remains intact?

No, the expansion is lower -- expansion is lower. So the 600 CapEx is for the new thing. So one for the Suryapet block already relocation and one additional block in Pashamylaram, which we have not started yet, we will be starting soon.

Yes. So sir, my question was with regards to that one new block only. So if we are doing this or pursuing this acquisition, would we still have to expand the Pashamylaram block?

Yes. I think you're misunderstanding. What we are acquiring is a formulation facility. What we are saying in Pashamylaram is a plant block -- I mean, we are intermediate block -- that is different and this is different, so that will continue. The CapEx which you have year back is there, it will continue. The new approaches will have -- that has some figures on this divestiture and because they want to divert these Indian operations to people who can run. And this start, it is partly the right thing. And we are taking 100% of the thing. No partners will be there. It's an asset-based purchase will be there.

Okay. Got it. And just final question, sir, on the CDMO Pharma run rate for the quarter, you posted close to INR 266 crores of the top line. So I just wanted to understand or have some color as to what led to this kind of a top line. And I mean you mentioned that you have a 6-month visibility. But if you could just throw some further -- some more color on this run rate what we've achieved in this quarter.

Yes. I mean, there is one new commercialization that have happened. And also the traction on the other products are also good indeed -- both commercial as basic grades also. And they are selling in my earlier pharma, and things are moving in the same direction for the next 6 months also. So things are better now.

Okay. Got it. So sir, how many molecules would we have under Phase III now?

We cannot share that.

Next question is from the line of Purvi Shah from Kotak. Purvi Shah, your line is muted. We'll move to the next participant, that's Saravanan from Unifi Capital.

Congrats on a good set of results. Sir, last year, you had communicated that there are 1 specialty chemical and 1 intermediate would go commercial. So with this -- in this quarter, assuming that -- even the pharma intermediate has gone commercial. So we have commercialized 2 opportunities in this financial year. Is that the right understanding?

Yes. Last year, the early part, we have commercialized the agro side of the business. And last quarter, we commercialized the Casper business, yes.

Okay. And you have communicated that another 5 projects are on Phase III as of now?

Yes, sir.

Okay. And in terms of ANDAs, first half we had filed 5 new ANDAs. And anything we have done in the Q3? And also, how many we have launched so far?

I mean the -- so far, we have filed 17 ANDAs there and approved 9 as of last quarter, and 7 are launched and 2 more approved will be launched sometime in the next 3 months.

Okay. Great. And I have one bookkeeping question for Mr. Sunder. The sale of stake in Rising Pharma, has it been accounted in this quarter? So that -- I mean, is it getting reflected in the other income?

The Rising Pharma will not be consolidated as a part of their income. As part of the equity method, which we have been doing it on a quarterly basis, that might be there because our stake has come down to at least 7%. What is missing structure? The actual money what is received that is already there is a consolidated account.

Yes. So what is getting reflected? Earlier, we had 2 line items, the P&L from associated company, and we had a normal other income. So this quarter, we are seeing unusually high other income. Is it because of the passing of the investment sale increase?

Correct. That's right.

Next question is from the line of Ankit from Oculus Capital.

Congrats on the great set of numbers. Sir, my question was, in a recent interview, we heard that your raw material pricing, that is not passed on to the customer if there is a rise in raw materials. So in this environment, when most of the commodity chemicals and all the other chemicals have gone up so much, how are we able to maintain such a good margin when the raw material price is not passed on? And I also wanted to know what is the duration of an average contract that we have for our customers. When do they get renewed? And how does it happen?

One thing you have to understand, there is no passed out period. In the sense, when you are doing a product, which is in the clinical trial, there is nothing like a contract, only it most like -- prices that clinical trial goes to the next level only then you get the repeat order. So they cannot give a guaranteed contract something like that. The [indiscernible] was saying, by the time we take up the project and deliver it, may be anywhere between 6 months to 1 year. So that means the development assets also would be taken care and also manufacturing or supply also has to be taken care, unless if the -- vis-à-vis Phase I, Phase II data. Phase III of course, anyway that is already -- R&D part will not be there because it's only a scale-up and -- on manufacturing and supply. With respect to the passing of the, what you call the remedial cost, see, these are all a CapEx base product. It's a small volume, high value-based products, unlike there is daily use that you deliver, as I said, it can take 6 months to 12 months, then the other ones then, we already placed the orders, some of the raw materials like solvents we may not pay immediately, but the critical properties we place upfront. There where we have seen as much increase in the cost. But when it comes to the United States and when it comes to the solvents, certainly it will hit us. But at the same time we got early, indeed 6 months ago. The only thing this can be passed on when we have a repeat order after this molecule and the clinical trial, and based on the rapid structure that have compared to the original raw material cost, then that we can put in new pricing on it. But I also said that in case of agro chemicals which are regular basis we supply because, there is a possibility -- many possibility then we are able to pass out some of the costs, not the total cost there, we could do something like that. But I think that said, we could not forecast only when the repeat business comes in, then we increase the price. But with respect to how we manage the alternatives here for product mix, it keeps changing. Tomorrow I may be able to do the same volume. If my value-added products are not there, then my margins may be less. So you cannot take the one quarter and just say that. But in general we are maintaining it. Overall the year we are maintaining it, plus 40%, that's what again the guidance, but recently, we have achieved 45%-plus also. And we still feel that it will remain at the same level, around 45% range.

Okay. So the margins that we expect for the longer term is 45%?

Right.

Perfect. And sir, just one last question. This Rising Pharma that we sold, when you are accounting for its income, it looks like almost INR 50 crores per annum they were earning from this associate. And it was sold for somewhere around $55 million, including the stake that we have received in the company. So that is almost INR 400 crores value. So it looks like it was sold for 8x earnings. Any reason for this valuation?

What do you mean by reason for the valuation?

I mean it looks a bit low. The INR 50 crores, INR 55 crores you are earning per annum, it was sold for INR 400 crores. Was it because of the nature of the business that it was more of a generic business?

Yes. You also said that, because one quarter may be small, one quarter may be less. And leading these generic businesses will not -- one year it may be profitable, one year it may not be, at an average, but at the same time, we are on there because it's the biggest partner coming in the picture who have other operations also we can integrate and bring their business more business. We are looking for business opportunities, whether that be making in a sale, it's not to say no. We are still in there. And as you could see, by buying one of the assets which they have our project during this process, which we are now try to buy it at the asset value only. So we didn't get the high dollar from there, but we're not going to pay high dollar for the assets we're going to purchase. Success is a long-term perspective. We cannot go one-on-one and just to make 1.5 years' time. We cannot do that. You want to look for the long-term prospects. That's the way we're interested.

[Operator Instructions] The next question is from the line of Rahul Picha from Multi-Act India.

Congratulations for very good numbers this quarter. Sir, firstly, your commentary on visibility for the coming quarters seems very strong now relative to what it was until last quarter. So you have already spoken about the pharma CRAMS segment. Can you also talk a bit about the Specialty Chemicals segment? Is there any increased visibility there? Because earlier we were kind of expecting 10% growth this year in that segment. And in the 9-month period itself we have grown 7% over the entire FY '21 number. So if you can just speak a bit about that.

Yes. I mean I don't see much growth more than whatever product -- what I told last time on the agro side. But on the CRAMS side, the traction is much better for the next 2 quarters, at least. That's what the guidance are up today.

Okay. So you expect the CRAMS revenue run rate to continue, while in the Specialty Chemicals segment, on an annualized basis, we might do what you had earlier guided, is that correct?

Yes, sir. Yes, sir.

Okay. And sir, my second question is on the stake that we have received in the new company. What is the outlook on that? Do we plan to hold it? Or we intend to monetize it in the near term?

No, no. Because the purpose is to get the long-term value creation. Why do you get your money back? That's what the whole purpose is, right? While we get your money back in some profits, right? And this is a conglomerate $45 billion company, which has 2 or 3 other pharmaceutical operations of the nation. And they are going to take this to next level. In that process, we are going to get -- we hope that we'll get more opportunities because they grow better because these 3 parts, they expect growth now. So similarly, with sales growth being a part of it, we would like to get a better growth prospect. So at this time, no, unless there is a value creation is there maybe 3, 4 years from now, we may think about it.

Okay. Understood. And sir, for FY '23, are you in a position to give any guidance for FY '23, like what could be the revenue growth expectation?

I clearly mentioned in my earlier part that I cannot give more than 6 months today, tomorrow, yesterday, same thing, it will remain the same. Our business model is such that my customer does not have the visibility, because it's all clinical trial-based, outcome-based results. So it's really difficult for us to tell. This is [ leaving back ] so I can tell, 6 months.

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

Any molecule of us going into the commercialization space there, and what impact it could have on top and bottom line short term, sir?

No, I think you have to understand what we get is the sales price only, it has nothing to do with the commercialize the brand value, because we are supplying the intermediates. And intermediates, I mean, the APM cost in the brand in itself is less than 2%, 3%. And out of that, it may be $2 million or $3 million value, it doesn't mean that we get a lot of it. So what you see is 30-year, you will get a good amount of growth and sustain that for the following years with -- how the molecule performs in the market itself. But you cannot -- what kind of distribution we are doing, early-stage intermediate, later-stage intermediate has various components. So just because it is commercialized, the only opportunities, unlike in the earlier ways where Phase I/Phase II now go to the next level, so it's a 0 to 1. But in commercialized thing, you expect to get a very if you sell 10 kilos this year, tomorrow you may get 20 kilos or 15 kilos or 5 kilos, something will be there. That's the only difference. Other than that, not much difference.

Okay, sir. And you were planning for the succession, sir, and professionalization of the company, sir? Any development on that front, sir?

Not yet. We are still working on it because COVID has stopped many of the activities, including the relocation of the people and all the stuff. So we are in the process. I hope you are not picked up me and up to you.

No, sir, you have put up a fantastic achievement for anybody in one's lifetime. Something with 1995 IPOs and so much of time we have spent to the company and we are grateful for that.

Thank you. No, but we have little growth.

Yes.

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

Just one. Is that -- is there any update on the Phase III molecules moving ahead?

No, no update as of now. We'll not get any estimation, I mean, from the customer. Still they're in the process.

And the time line for this would be another 6 months or so?

Highly impossible to tell, sir, because it's only the results that will tell us and how fast they can give us the guidance, because they need it, they well tell us. And minimum it takes 6 months. But as of now, nothing is there in the pipeline, which any customer told me that you should be prepared to -- for the next supply. So may have to -- I don't know, but anything can happen anytime. But right now, I don't have any indication when these things will be to the next level of operations.

And assuming that hypothetically we do -- these molecules do move from Phase II to Phase IV, would we be ready in terms of capitalizing on it in terms of capacity and our ability to deliver?

Yes, I don't think we never had any problem. Because even when they go for the next level also, we have at least 6 months' time to do that. It's only instead of doing the campaign basis, we'll be doing the continuous basis and the same thing. And if there is a balancing equipment is needed, that can be done within a couple of months, and because the volumes are not going to be like a generic, we must have 100 cards to be done, that's what it is.

Okay. And just wanted to clarify again on the Casper potential acquisition of the plant, is this going to be dilutive or not dilutive to your current business in terms of margins?

Listen, I mean, markets, generics really had a definite profile of the margins. And we are talking as a one side where everybody is expected the top line growth also, but that is kind of a large thing also, we need to look into it, which is an opportunity that has stopped up certainly. Otherwise, this is it. As you know, whatever formulations, what we are doing is leveraging exercise. And it has -- lesser what is compared to the class. But at the same time, this being a profit sharing model, I think the margins eventually and it commercializes, I think we will come to the same level. But it has its gestation and time lines.

Okay. Makes sense. And just last question. This is more to Sunder, sir. What would be the -- if you can quantify the profit on sale amount in the other income which was there in this quarter?

No, there's...

On sale of investments on Rising.

No, other income has got different components, right? It is not just what we basically -- what we have total. There are about INR 55 crores worth of the quarter of the sale net of the tax that would consider, that is part of this.

Next question is from Darshit Shah from Nirvana Capital.

Congratulations on such a great set of numbers in this kind of environment. Sir, my question pertains to this pharma which is commercialized. And I assume this COVID drug, which you were earlier -- alluding in your earlier call. Sir, is the understanding correct?

What's it again?

Is this a COVID drug that what we have upgraded to commercial?

Yes, that is over today, yes.

Yes, exactly. Sir, so my question pertains that -- you know that it is quite on this particular drug. And now they have found government contracts as well as what they arrived and we are bidding that -- hope we are planning to make 100 million plus of the courses of that particular drug by the end of the calendar year 2022. Sir, so there seems to be a real big opportunity from what the innovator is starting, sir. Sir, how do we sense this and what's your view on that?

Your thinking is too optimistic. That's what and it's how. You have to understand one thing that we are talking and which is going through the phases of clinical trials and get to the marketing authorization. There, the number of players that are available for the innovator is 2 or 3 or 4. But the analytics is somewhere, and when they have to scale up on everything, they go after 10 to 15 different people, okay? So you don't get that like in a regular drug where we are doing only 3 or 4 suppliers for the same intermediate in a regular non-pandemic drug. Pandemic drug, it's going to be what you call the opportunity is also maybe 1.5, 2 years only. And also, not necessarily you'll get the whole part of it, that 20%, 30% of it, because they need to have this in a jiffy. So they will have all their process. And also, there is no restriction on this because we could see they also are giving you compulsory licenses to other countries also. So they source these materials from so many sources. So yes, we have an opportunity and we keep supply. We'll be one of the things. But at the same time, they don't give everything to the people. And first you have to understand, I don't think just because it is so much business they are willing it, I think we have a bigger opportunity. Yes, we have a good opportunity, but we can think that in gigantic numbers, but it is a continuing opportunity.

I understand, obviously, sir, they will be sourced from multiple players. So from the sheer number of business thing, it is coming up. Anyway, sir, do we kind of supply intermediates for both antiviral drug used API? So you're earlier reviewing some products we were supplying to intermediates on that particular drug.

We supply 1 intermediate for the new drug.

Okay. So that's what our view specifically which directly that part.

Yes, yes. You know that I'm analyzing the novel things, not the general things.

Yes, yes. Great, sir. And all the best for this opportunity, sir.

Question is from Ranvir Singh from Sunidhi Securities.

Sir, I joined a bit late, so if already explained it, I'm not sure. So just wanted to understand the transaction with Rising. So 2 things I wanted clarity that after sale of the 25% stake there, there is a rise that we continue to market our formulation?

It's always the stake sale. The business remains the same. No changes in the business. The contracts, whatever deals, our existing products, everything will remain the same. The shareholding is reduced. I mean we've got new shareholding in a new company, but by divesting the existing shares already where we got our money back, plus a residual share of 7% in the new company.

Okay. And the 15% stake you have taken in that again, what benefit actually that will give in terms of revenue or profit?

What's it again?

That 15% stake which you have taken in Regent.

50%. Where is 15%?

15%?

We have 35% stake in Rising Pharma holdings. And the Rising Pharma Holdings along with Casper Pharma SA was sold to SIG Partners by far raising aggregation of company, and that's a new company where we have received $45 million in cash, $15.8 million worth of shares in the new company. So it's 7% equal and not 15%. 7% of the new company. And we have the contracts in place as it is in business. And also, we had a new opportunity to acquire a new place where they have contracts, long-term contracts, which we can take advantage of, that's what it is.

Okay. And sir, how accounting treatment in this quarter has been done? So how much profit do we have in this payment in this quarter?

Yes. There is a profit element. Whatever the cash realization on which the capital gain we made. That is appropriate for us as well as other income. It is part of that. It is INR 55 crores net of tax has been included here. And apart from this, a new stake, whatever is there, $15.8 million will be continued to show indeed pricing in the [ this 1 book set as other ] investments in Raisin Aggregators L.P. That is one where we have a stake of 7%. Now [indiscernible] to the extent whatever the realized capital gain that is realized in the form of cash there. It is there in the consolidated account.

Sir, realized capital gain is $5 million?

It is about [ INR 55.41 crores ] net of taxes in India.

Okay. Okay. Okay. And for the 2 companies we are going to acquire [ business capital ], what kind of investments we'll be making in this entity?

That is only 1 company.

No, no. That will be only after due diligence.

Okay. And any time line when this company may start gaining revenue for us?

Hopefully, in 1.5 months' time.

We completed legal due diligence, financial due diligence and also the valuation exercise. That is the direction we'll be taking.

[Operator Instructions] Next question is from the line of [ Samir Agrawal from Pentokey ].

Congratulations on great set of numbers. Sir, if we look at our FY '21 pharma base, it has significantly improved. Now if we look at our 9 months FY '22 pharma base, we have almost closer to our last year's pharma base. You highlighted that, that is a commercialization in the quarter -- I mean the last quarter. So I mean what strength are we bringing in our business? It's consistently outperforming our guidance. Amid pandemic also, we faced earlier challenges also. But however, we continue to expand this base ahead of our estimates. So what strength that we are bringing into this business which is allowing us to do that? What more things that you want to bring on the table which will enable this platform to continue in the same number? Can you allude to this? And can you also take us through your thought process on these areas? Also the second part on the specialty side also, if you can highlight this would be very healthy for us because we are increasingly doing better.

Yes. I hope you say the same thing when the volume goes down also because we think it is in the business. The business model itself, based on the success of the molecules, the opportunity comes in, that's why we could perform. It is not that we have done anything different. And also the valuations are also coming based on the product mix. And now as we are telling you, the traction is much better in the clinical trial where they are maturing into the next level or going to the next opportunity. That's why you could see this. So there's nothing different to what we are doing all these years. It is the success of the molecules and success of new trials is going to give us the success. Yes, now it's giving about 25% or closer to growth rate, but sometimes it can go -- but also, the number of molecules moves to the next level. But at the same time, maybe that is going to be a start because after they go to next level, then the repeat business takes maybe 18 to 24 months sometime. So it's very difficult. But as of now, as I said earlier, for the next 6 months, it looks good, and I hope more things will come into the picture so that we can continue our robust business that is existing as of now. With respect to the Specialty Chemicals, agro, the same thing. As I said, 5% to 10% growth is possible and which is growing in the same line and the molecules in the development, if they move into the next level, then you can get to the opportunity. At the same time, the molecules which are at the supply chain, also, if there -- if they have a better market potential, which like you could have, that also can give us a better prospect. Unlike a generic molecules of this NCE-based -- new chemical entity based molecules, this has these positives and negatives. But that's where -- I mean so far so good. And certainly, a couple of quarters maybe, nothing may happen also, but as you could see over the last 10, 15 years, on an average, we are maintaining 10% -- 15% growth year-on-year.

So we understand in terms of molecule success, that is very well understood as a part of our business model. But what I was trying to understand is, are there any core strategies that you're executing in terms of coping up with these -- to enable ourselves to support these newer technologies or any newer acquisition pipeline or new segments, which enable us to support these developments, right, in the right direction. And what is your thought process on that?

Yes, yes, yes. As I mentioned last time, so as a matter of fact that we have growth in the level of INR 50 crores towards technology acquisition. In relation to that, I see, the thing is if I want to do something and sell myself in the market, then it's a different ballgame to acquire the technologies. These technologies are required. We'll start the requirement of the customer -- customer's feedback. But at the same time, I mean, we are very proactive in engaging with the customer for their future requirements in updating our facilities, in creating the infrastructure for that, and also at the same time, merging and acquiring niche technologies. So these are a continuous process. And first time, we have just earmarks of INR 50 crores exactly. Indeed, we are doing something, which is -- not much that we talk about it. But at the same time, we have some areas which we have brought the technologies together. Because they have the spot for these products. We can't put the infrastructure unless the product is there to work on the technology. Since we are not a "stock on sale item" guy, we have to depend on the customers' feedback and customers' requirements. Yes, you're right. It is one of the areas we are focusing on, and we are continuously engaging with the customer on that aspect also. Hopefully, some of these things which are required by that will be there by the time they require it because we are engaging that ahead of time. 2 to 3 years ahead of time. Slowly and creating infrastructure to [ that and also ].

That's great, sir. We look forward to seeing the changes and something -- looking forward to the next performance level. Sir, one more thing. Have you clarified what is the impact on the P&L given that there is a logistical cost still remains upward. Have you said that earlier for this quarter, I mean Q3?

No, there is nothing much. You've seen that it's a robust...

I think it could have been 3% more.

Yes. But basically, the raw material cost about 280 basis points compared to previous year would have been increased, but it did not really impact them so much.

Great. And just one last from my end, sir. So once now this cash is [indiscernible] so any immediate thought process apart from the Casper evaluation that you're looking on right now, but anything else that comes to your mind as a priority?

Well, right now, we have declared a dividend as part of the amount, which is part of our cash, which is [indiscernible] which is already lost, plus the Casper we are evaluating right now. Other than that, we don't have any plans for any of those things. Because we have our own CapEx to spend, right? We have INR 600 crores to be spent on product mix in 2 to 3 years, actually. So the focus is more on that as of now.

As of now, we are not part of anything. One at a time we are doing...

Yes, that's right.

We'll come back to you if there is a change in the thought process.

The next question is from the line of [indiscernible]

Sir, if I have missed -- I might have missed it, but did you give a guidance for the full year, sir?

I cannot give the guidance. I never give the guidance. I will not be able to give the guidance. I said the only 6 months, I had the visibility. My customer has the same visibility. So I think I want everybody to know. I cannot give a yearly guidance. Period. Thank you.

Understood. And sir, when you talked about this 15% growth on a longer-term basis, that is what you keep trying. So it is just -- it is more of a past record rather than giving a specific guidance. Is that correct, sir?

See, that's only based on the past record, right? And since I cannot do any forward-looking things, I hope to achieve that. [indiscernible] of that, because that's all we have because is this a traction that is happening. You may not have the numbers-wise, but the quality of things that are going on based on that only we are telling. But the success of the molecules will give us the success. If something is there, suppose if I know couple of molecules, some Phase III to go into the next level, I guess next year, 9 months onwards, they may have another 10%, 15% growth, add that to the existing growth, I can tell. But right now, as I was telling to the other gentleman, for the next 6 months, anything is there by molecules, so far I have not seen any intimation. It may happen tomorrow, day after also, it is possible because things are very dynamic. But giving a yearly guidance is very difficult for me, and any of my customer can give it to me. So I'm unable to do that. So I stuck to that 3 to 6 months maximum based on the...

Understood, sir. Last thing, I just wanted to say that earlier you used to kind of give us a guidance that you will be able to sustainably give you a 40% kind of margin. So have you kind of increased that to 45% now? And if any particular reason why you're looking at a better margin trajectory going forward?

We start the last, look, 2 -- 3 quarters and all that stuff with the next to 2 quarters. I'm sticking my neck out to around 45%.

It is not a good like a longer-term target, right?

As I said, I have a visibility of 6 months only, how can I give longer-term target. That's my problem. That's the biggest problem. But you see, I mean, the past you have to see. And hopefully, it will come. But I can't say, yes, I'll do the next 10 years like this. It's very difficult to tell things.

Next question is from the line of Anshul Saigal from Kotak PMS.

Many of your Chinese competitors have been put on an unverified risk by the U.S. Department of Commerce. How can that has a rub-off effect on our business?

No, because the business model where we are in, we are engaged with the innovators in the clinical phase of the drug development. But we are hard in the generics. So the effect will be more or less nothing on Suven's business model. I can't tell for the generic players.

No, even companies like WuXi have been put on this list. So those companies are actually contract manufacturers, similar to -- and they have a similar business to what we do. Still, you don't think there will be any rub-off impact?

For this, on the list is one thing, actually implementing is another thing. So when they start implementing it, we have some idea that it will be valuable to know. Right now, I cannot tell. Because WuXi is the one of the biggest, and -- yes. But WuXi there have 100-plus-odd people outside the thing. How much anybody can get out of that, we don't know. But the implementation is the name of the game, right? So it's very beginning. So we cannot give any indication how it will work. Yes, it may have a positive effect. But other than that, I cannot tell you or quantify it.

Okay. We added over the last 3-odd years, roughly INR 100 crores [indiscernible]. I think by March 21, [indiscernible] INR 570 crores. And we may have now added [ INR 95 crores to INR 100 crores ] for capital improvement. [indiscernible] What kind of revenue potential does this incremental gross block have on our business? [Technical Difficulty]

Mr. Saigal, we are unable to hear you. Participants, I request you all to please stay on the line while we fix the connection for the management. Apologies for that. We can now go to the management.

Yes. Correct. Probably you can put the next person on the queue because the last one, the voice was very feeble.

Mr. Saigal?

Yes. Can you hear me now?

Yes. Yes, sir.

Okay. My question was that we've added roughly INR 300 crores to our gross block over the last 3-odd years. What is the incremental revenue potential from this gross block addition?

Influence parley, there is no incremental revenue. This is a requirement, as you think, and it cannot be on what you call outside of the investment we put to it we can recover in 1 year's time. We are not putting in that way because these are all the value-added products on a campaign-based product and they're all selling, I cannot even give you a guidance for that at -- [ incremental thing is part of the question ], the value we added. But most of the time we are doing, and sometimes, we are doing it for the -- and has [ central link ] capacities, also. Because you see the difference between the sales we have done at the time to the sales we have done at this time, there will be a need for that, that we had to do this proactively ahead of time than based on that. The value creation will happen. But like generally, here, I can give you a guidance of how much incremental the -- what you call, growth if things can happen. Here, it may be the value-added product or it may be as volume-based activity also that can happen. So it's really difficult in our case to give you a guidance that we based on the CapEx we have done, which we will now be able to do that. I can give you an example, where you can appreciate it. If you ask me, because this is a campaign-based product, that means the scenario train is not running fully in a sense. With generic, if you have [ 23 ] access for one product, all the [ reactors are attribute ] all the time, so you can tell. In our case, if you ask me, what's your capacity utilization today. I will say 100%. And but if you see commence actually in physical form, it will be only about 75% to 80% because not all of the equipment cannot be used for certain products. So some of them will be vacant. And sometimes [ that may need ] to the balancing equipment. So you cannot go by the asset allocation unlike other business model, the CapEx-based activity. It is generally a proactive approach to the requirements of the customer and getting the value creation of that eventually. But it's very difficult margin to tell these numbers.

My final question. This -- with the incremental CapEx, if I was to put it differently, what is the change in conversation that we are having with clients with regard to, say, the products or value addition? Anything that you can throw light on that? And also, since COVID broke out, has there been an enhancement in inquiries that we have been receiving?

Prices are same. As a matter of fact, this is less than the regular ones, because most of the people are concentrating on the COVID-based activities rather than the multipurpose activities. So slowly, that is coming back to the normalcy now. But the last 2 years, there are less number of inquiries for the novel projects, okay? When it comes to this CapEx, the CapEx we are now a portion for INR 600 crores is to get a new block and study 35-year-old block in the Suryapet plant. That is only going to give you the updated infrastructure with all the requirements that's needed. So the capacity-wise, it is with traditional capacity will come but not much to talk about it. In the relocation of the R&D center, there is nothing going to be an additional thing because it requires us that [ inside road to outside road ] we had to go. That's the purpose. We only -- we are putting in a [ financial highlight ] around INR 200 crores is going to be the part of the additional capacity creation of these new requirements, including the new requirements by the customers, types of reactors, certain types of operations, and the types of technology to use and also the -- what we call the OEL facilities that can offer the opportunity that we need to create in the future. But there is only thing for the capacity expansion. So this is the rationale what we have thought upon the CapEx. It is Catch-22. If you don't have the capacity with the required like -- because when we're doing multi number of projects, requirements are different compared to if you know -- if you do the 10% products, then you already know what kind of infrastructure you have to put in. But these are multipurpose and multi-technologies may be incorporated in that, and some of them maybe not be played, but at the same time, there's certainly cost, but the proactive nature to get the -- continue to run the business with the customers. This is what I was telling. We are engaging the customers and supplying their needs in terms of the infrastructure or the process of the acquisition of the technologies. But they are the sponsors and to the fact we don't do anything other than doing this kind of activity.

Next question is from the line of [ Pratik Kothari from BMS ].

So just to reconfirm this asset that we are acquiring, Hyderabad of Casper India, does the -- overall, solid at generics, right, the one that will be manufacturing?

Yes, generic solely are both solid orals, caplets and capsules. Eventually liquids can be accommodated in the future expansion.

Fair enough. And you also made this comment earlier when we have always been thinking that we'll always be on the novel side. So just why this change? And what is this thought process to enter generics now?

We have entered this 5 years ago, and I clearly mentioned this [ generic side ]. And novel side is always there, and that is the bread and butter, and we're focusing on that. At the same time, there is an opportunity because we have the skill sets that are there and which we are not able to utilize fully. We have to utilize it. And this is going not unlike other big players where generics and [ branded ] generics, we are going to niche generics and the target of it are competing with anybody, trying to do the leverage and get some profit out of it. So it is an additional avenue to generate the revenues.

Fair enough. Just to reconfirm, again, you said that accounting for profit share and everything, the margin should come up to be similar to what our current levels are. Eventually. Maybe a couple of years down the line.

Yes. Yes, sir.

The next question is from the line of Amit Kamal from Gramener.

I have two questions. Maybe I'll just time it up. So what are the total commercialized molecule right now? And what will be total component of sales from this particular molecules of the total sales of like 390? What do we do this year or this quarter?

We have clearly mentioned that we are not giving any breakup on this because they are not consistent, it keeps changing. So it doesn't give any indication to anybody. In general, the total CRAMS sales volume we are telling.

By commercial market [indiscernible]...

Yes, total volume. [indiscernible] molecules, but the sales in a particular quarter...

Total is INR 266 crores, what we have done for this quarter. And for 9 months, we did about INR 563.9 crores [indiscernible].

Got it. So any like -- maybe on an annualized basis also you guys are not going to share what will be the percentage. Because the reason why I'm asking is I can understand the quarterly changes for this commercialized molecules must be going through, but...

Yearly also. It's not giving you a guidance. So I cannot give a guidance to somebody when I can't understand myself because it keeps changing. It's not going to be a regular like a generic where it can take place even though it's a commercialized one. While the molecules [indiscernible] 2 years, there is no repeat order. So it's very difficult. Because people are just putting [indiscernible] saying that, okay, this year, you did this much for this particular molecule. So next year, you will be able to do this. You put that and they question me. When I cannot perform that way when I won't be knowing that way, I cannot give you. That's why we have [indiscernible] individual molecule base rather than the total percentage of the growth that we are in.

Even on a year-on-year basis, the ratio of the commercial to pre-commercial could vary actually. It could be 40-60, could be 50-50, or it could be 60% in commercial and 40% pre-commercial. It keeps changing, actually. So because of that, people make a kind of round estimate, a round guess. We don't want them to make some round -- putting an Excel sheet and trying to calculate. So that is the reason actually. For us, what it matters is total CRAMS. Total CRAMS, total specialty chemicals. That's so we focus on, and that's what we are trying to give.

Okay. I appreciate it. My second question was that -- and I am, again, trying my luck here, is that -- you mentioned in your opening remarks, maybe somewhere, [indiscernible] there are total 5 molecules in the Phase III. Am I right to catch that number?

Yes, yes, yes.

Okay. Just like I wanted to know what would be the age of that youngest and oldest molecule in this particular 5, at least that indication can you provide us? Because it has nothing to do with your future expectations -- yes, I'm just trying to get a sense out of it.

So I have to -- well, we have your whole scenario. The reason is some categories, the total duration for a Phase II clinical trial can be 2 years. Some category, the duration can be 5 years. So it's very difficult based on things that is there. The youngest is about 9 months and the oldest is at about 4 years. But that doesn't give anything, no. That's the...

I understand. I've been following you for 8 years. So we understand all these things and we're not explaining just for like how do we to get some sense of the maybe future, which matters to us, that's what...

One more feedback. I mean I never counted anything until it is successful. So that's why I won't give any guesswork.

Next question is from the line of [indiscernible], an individual investor.

Just 2 quick questions. You said the R&D center was shifted from the inner-ring growth to the outer-ring growth. Is there any government compensation which will be provided for the same? Number one -- it is my first question, please.

No. They want is a requirement, any R&D facility, it's a private plant in the area. Let me speak into R&D facility. Inside the inner-ring growth, they need to be checked out. And the time lines, there are 2 to 3 years, they are still, but we are planning ahead of time rather than waiting to the last minute. With respect to the compensation, no. We're not going to give you any compensation. It's not like China where they can give you 100% renovation compensation. Here, they don't give anything. As a matter of fact, the association to the association we are requesting, whoever is moving out of this place to -- because of the regulation, at least they should provide the land at a reasonable cost, even though it's not being taken care of. So it's very difficult. I hope they'll do something about it versus nothing.

So right now, given to understand that we have to buy the land at the current market rate, and that has been apportioned to in the INR 600 crores. Am I right, please?

Yes, yes. We are clearing around INR 150 crores for that cost.

Okay. And my second question is based on the recent sale of Rising Pharma for a certain stake and the capital gains which accrued from it, which we have to pay. Is there only saving when we acquire Casper or any other -- this one, is there -- will we be able to save something from that particular capital deal?

They are independent.

They are independent. It has nothing to do with it.

Next question is from the line of [ Nikhil from Galaxy International ].

Just one quick question. So with the acquisition of this Casper facility, do we actually want to offer term services to innovators for formulation work also? Or is it like we want to use it only for our own ANDA filing as we have been planning to do for our earlier formulation facility?

This is a formulation facility. It has a long-term contract with Rising Pharma already, and it is only for the formulation only. And whenever these new products are coming, there is a possibility that the API may be needed, which we can do from the [ graphs ] out of the business also. It's accretive that way. So it is only fully formulations. It is for the already filed ANDAs and also future R&D projects Rising -- or of Rising for R&D facility. We scaled up, filed and manufactured and supplied on a profit-sharing basis.

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

Sir, firstly, can you share some insights on the existing formulation business of us? Like how do you see that playing out in FY '22 here at least, I believe you will have some visibility in terms of launches and et cetera. I mean in the last year, you had mentioned that in FY '22 expecting a 505(b)(2) product. So if you can update something on that.

Yes. The existing facility will be useful for all those things which are in the pipeline for us and that will be sufficient. As I said, the capacity is less than 400 million. And the new opportunity has come because of this divestment of our stake in the thing and they are divesting their assets in India for us, whether a partner and we have the opportunity first [ half ] to defer it. That's why we're going for it. So it is truly with existing. This is a new opportunity that an existing opportunity for the existing molecule.

Yes, yes. I wanted to understand the visibility in terms of the existing business that we have.

Existing, as and well the commercial takes place. And as I said, the 2 more things approved and that will be supplied within the next 3 to 4 months. Similarly, there are other 10 products that are, what you call it, filed and they will be coming into the approval process. And when they want, it will come, because it's not in our hands. It's the appeal, so some of these products, they have to do. Inspection of the facility is one thing and approval is a different thing. So as far as inspection is concerned, we have no problem and the facility-wise, the approval for the product is taking a time. And as and when it's ready, I think we'll get it.

Right. Right. But any visibility on FY '23 for the business, sir, on this formulation?

What is it again?

Formulation...

FY '23.

I cannot tell right now. I mean we don't have -- we're in niche molecules, small molecules, small volume molecules. By the time we [ approach to expense ] how many other guys to get out there that we need to know. So it's really difficult. These are leveraging in the site, and we want to increase our pie in this side also.

Right. Secondly, sir, any thoughts on expanding Suven's CRAMS expertise in the biologics front?

No, no. That's the different ballgame, so we're not in there.

Any specific reason? Maybe because of the size of the business or it requires some different expertise on the R&D front? Any specific reason why we don't want to do it?

Yes, different expertise that means different infrastructure has to be created, different mindset of people. So it has to be different. And it's not into my brain also. So I am going in that direction. I have to understand fully before I go into something.

Right. Lastly, just clarification. So typically, whenever like you have said that we have got a new molecule commercial in this quarter. And typically, historically, whenever new molecule goes into commercial, we have a pre-launch commercial quantity and then it ends up, tapers off for a year or so. So will that happen for this molecule as well?

Yes. I mean depending on the size of the things and requirements and all that stuff, everything is same. It may be a repeat order, can be 6 months later or it can be 1 year later or 18 months later, depending on how the molecules perform. There is an ongoing process. There is no set rules for that. It also depends on the project, product to product.

The reason I was asking this because you mentioned this with the COVID products, so maybe there could be a starting supplier, which [ was the idea of things ]. But...

Yes, there are many suppliers for this because this is a pandemic product.

Next question is a follow-up from the line of Saravanan from Unifi Capital.

On the taxation front, Mr. Subba, can you give us some guidance for FY '23? This quarter seems high. Is it because of the capital gain?

Yes.

So will it normalize to our normal 23% to 25% run rate?

Yes, it is about 25%. That's what it is.

Okay. And on the formulations, earlier, we had an aspiration wherein a couple of years formulations was -- I mean it could be 1/3 of our business. So from an FY '24 perspective, do we continue to nurture that aspiration?

We continue to have the aspiration, but the reality will kick in depending on the type of the molecule, we are -- or type of the competition we'll be in. Yes, so we'll continue to have the same aspiration.

Next question is the last question for today. This is from the line of Darshit Shah from Nirvana Capital.

Sir, on the API trend, which we were alluding last year or 2 years since you want to migrate some intermediate KPIs. And I understand you were in talk with our innovator partners also and the people of what was going on. And sir, since now the traveling has little bit eased off, so where are we on that front, sir?

Now we are in the status quo only because it's just started, but the priorities will change when they start things, still [indiscernible] and the new opportunities. We are more interested [indiscernible] so they'll take their own time. And I haven't traveled the last 2 years, similarly none of my customers has come last 2 years. Even when they come, they look for different things and order doing things [indiscernible]. We are tracking on that and it's not moving faster at this time. And hopefully, with this new restrictions are going away, hopefully, things will move into place, but it's a long, long process, sir. It's not that fast. We are already working out in that direction.

Ladies and gentlemen, I now hand the conference over to the management for closing comments. Over to you.

Thank you, one and all, for logging in to this investors call of the third quarter. And as I have mentioned earlier, things are looking good in terms of the clients -- pharma clients and for the next 2 quarters also looking good. And I hope the traction will be in the same mode so that we can perform much better, especially the other chemicals, things are in the same way, as I mentioned earlier, 5% to 10% growth until we get the new R&D projects, [indiscernible] additional, which is 2 years away. And in the formulation front, 2 more projects are being approved, and we are trying to launch those things in the next 2, 3 months back time frame. And similarly, additional ANDAs will be filed, and we'll come back to you when the new LOA given for this opportunity to acquire the Casper Pharma. When it matures into purchase, we will get back to you and update you on that. All in all, things are looking good and even under the trying circumstances with the -- as I mentioned earlier, we will only draw back that we have that for the existing group to continue is nonavailability of this critical raw materials. That's the only problem, I would say, cannot get estimated this time. Otherwise, things are more normal. And thank you, and look forward to talking to you next time around. Thanks.

Ladies and gentlemen, on behalf of Suven Pharmaceuticals Limited, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your line.