Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Suven Pharmaceuticals Limited Q2 and H1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. 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 e-mailed to you earlier. I now hand the conference over to Head IR, Ms. Cyndrella Carvalho, Suven Pharmaceuticals Limited. Thank you, and over to you, ma'am.

Thanks, Pavan. Good evening, everyone. Today, we have our management team with us. I'll introduce you to our management team members. Mr. Annaswamy Vaidheesh, Executive Chairman; Dr. V. Prasada Raju, Managing Director; and Dr. Sudhir Kumar Singh, Chief Executive Officer; Mr. Venkatraman Sunder, VP Corporate Affairs; and Mr. P. Subba Rao, Chief Financial Officer. I will now hand over the call to Mr. Vaidheesh for the opening remarks.

Thank you very much, Cyndrella. So first and foremost, before I start the presentation, and good evening to everyone. And we deeply appreciate each one of you for finding time to be in the call. Thank you very much. And also best wishes to you and your family for a festive season and advanced wishes for Happy Diwali. This is the start of a new journey for Suven Pharma. And me and my full team are very excited about the next phase of Suven's growth. Firstly, we want to thank Mr. Jasti for giving us an opportunity to carry forward his business legacy that he and his team have created. We believe that Suven is a world-class CDMO with a credible track record of serving select innovative pharma and specialty chemical customers. Suven has demonstrated track record of execution and delivery excellence with a strong back end. We plan to scale up Suven's capability and to build a strong leader in the CDMO space. Our goal is to rapidly scale Suven Pharma to transform into a globally respected CDMO organization. And we are pretty confident that we'll get there on the back of deep customer partnerships, differentiated scientific capabilities, delivery excellence and our talented employee pool. While we have been predominantly focused both on our customers and employees in the last 1 month, and Dr. Sudhir, our CEO, will give more detail shortly and we'll continue to invest in building R&D capabilities, operational capacities and business development expertise. We will further invest in select differentiated platform technologies through both organic and inorganic routes. We are really excited about the long-term growth prospects and confident that the unique combination of our global leadership team, our exemplary Board and strong support of our advisory council. That will help us deliver accelerated market-leading growth. And let me also take this opportunity to inform you about the leadership growth that we have in this company. First and foremost, the way which we have organized ourselves as me being the Executive Chairman, and I have a fantastic team of leaders accompanying me in driving the future of Suven with Dr. V. Prasada Raju, who will be the Managing Director; and Dr. Sudhir Kumar Singh, our Chief Executive Officer. Our key new management leaders added in the first month of our operations include: Mr. Gaurav Bahadur as a CHRO, he's from ex-Sanofi and would have formed with 30 years of experience; Raju Komaravolu, Chief Strategy Officer, ex-DRL, McKinsey and ITC and 27 years of experience; and Mr. Brian Shaughnessy, Chief Commercial Officer, ex-Aragen, Dr. Reddy's, Piramal and 20 years of experience based in U.S. If I count all the number of years' experience, we'll run into hundreds of years of experience of talented leaders have joined this company. We continue to evaluate augmenting this talent pool and roles, keeping our long-term vision in mind. For instance, we are augmenting the entire sales and marketing engine under Brian's leadership covering both U.S. and EU. We also would like to happy to inform you that we have got a fantastic advisory council, who have deep and tenured global experience in the industry and will be guiding our strategic choices, starting with Venkateswarlu Jasti, whom you all know as the Founder of Suven Pharma and Suven Life Sciences; Abhijit Mukherjee, ex-COO of Dr. Reddy's with 35 years' experience; James Mullen, ex-President and CEO of Patheon and Biogen, 35 years of experience; and Stefan Stoffel, ex-COO of Lonza with 40 years of experience. It's pretty impressive to have such qualified people supporting our ambitious journey plan that we have set out for ourselves. And I would like to take this opportunity to introduce Dr. Prasada Raju and take you through how we are prepared for the transition across customers and employees and that has been executed seamlessly.

Thanks, Vaidheesh. So the plan, let me give a little update on our transition plan. Our teams operating agenda is to first stabilize our whole business and secure the growth in this and then accelerate the growth. Our new leadership team has already interacted with all of our employees. Our leadership team had conducted first round of customer interactions, and we are excited to report that we have done physical, face-to-face meeting with major customers. Our customer transition was executed successful. Customers feedback has been encouraging. They're happy with the smooth transition and looking forward for the new journey with Suven. Our team is ensuring business as usual, continuity of supply assurance and increased opportunities to collaborate. Customers are excited to notice more opportunities in their ongoing portfolio, which will expand our existing business. This is also reflected in our current RFQs inquiries pipeline in H1, which is much higher than whole last year of FY '23. Some of our immediate priorities will be our next month's priorities are continued deep engagement with customers and employees. While we have hired commercial leaders for U.S. and EU to build out the full commercial engine and set a robust customer clinical position. Continuing to invest, upgrade infrastructure in R&D, capital efficient manner to have best-in-class EHS and quality processes and controls. Initial projects to drive life cycle management, invest in new technologies and capabilities organically as well as inorganically. Lastly, completing the CapEx project in a timely and capital efficient manner, [indiscernible] timeline. I will hand over to our Managing Director for giving us near-time macro and my business prospects also.

Thank you, Dr. Sudhir. The second narratives what you all have followed is from Dr. Sudhir, he is our CEO. Hello, everyone. Thank you, Vaidheesh and Dr. Sudhir. Let me take this opportunity to take you through medium- to long-term business prospects for Suven given near-term macros. As most of you know, from a near-term macro perspective, Spec Chem is significantly impacted by the ongoing acute destocking globally. Our business has significant revenue contributions from Ag Chem-based molecules. And hence, there is also [Audio Gap]. As a result, we expect following few quarters to continue to be soft due to the impact of destocking in the Specialty Chemical segment and the base effect of COVID products. However, the medium- to long-term business opportunity is intact, and we are also quite excited about Suven's overall growth prospects. Just to take you through some of the important favorable macros, which includes secular macro tailwinds for India with both China Plus One led supply diversification, coupled with increased manufacturing costs in Europe. Given our experience in Spec Chem with such kind of cycles in the past, we expect business to bounce back in the subsequent quarters. Regarding Pharma CDMO, as Vaidheesh and Dr. Sudhir has alluded to, we will leverage our long-standing relationship with our existing marquee customers to grow existing business while securing new business opportunities. We have also seen positive signs based on our customer interactions and discussions at CPHI, which is a very recent event. And existing customers are very keen to deepen the business partnerships with more products evidenced by the improved inflow of RFQs in H1. Internally, we continue to strengthen sustainability and ESG initiatives further to stay relevant to our partners. In parallel, we are also working on a 5-year strategic blueprint along with our advisory council. We look forward to sharing many more details in coming times. Thank you. And with this, I would request Sunder to take us through the financials.

Thank you, Dr. Prasada. I met you all and after the last meeting now we have with the new management team here, I'm expected to be part of this presenting to you all. So we have these financials, I think you should have got it as a firstly approved copy after the completion of the board meeting, just now it was updated. So the consolidated financial summary for the first half that is FY '24, like revenue from operations was about INR 579 crores. There is a small decline, decline by about 6%. Reported EBITDA was about INR 265 crores, higher by 5.6%. Adjusted EBITDA, including operating FX, was INR 270 crores, higher by about 3.6% year-on-year. Adjusted EBITDA margin were higher. I'm proud to say that it's about 46.7% compared to 42.2% compared to previous year. PAT also, if you really see, it's increased, it is INR 200 crores, increased by about 11% year-on-year -- 11.4% to be precise. If you really look at the quarter-on-quarter, usually, as we have been explaining to our shareholders, we have not looked at based on quarter-on-quarter but still, and I present this. The revenue from operations INR 231 crores, declined by about 17% year-on-year. EBITDA was INR 98 crores, marginally declined by about less than 2%, 1.9%. So our adjusted EBITDA was INR 102 crores, it's also marginally declined by about 1.8% year-on-year. Adjusted EBITDA margins, in spite of all those things, it was still higher at 43.9% compared to 37.1%, purely based on the product mix what we have actually. And PAT was INR 80 crores, increased by almost about 11% -- about 10.4%, I would say. To give some color on the revenue growth for H1 FY '24, while overall growth has been impacted by Spec Chem and base effect of COVID molecule, excluding Spec Chem and COVID molecule, H1 FY '24 growth in the revenue is about 42% year-on-year. So there is a growth there in the overall business. As explained by Dr. Prasada as well as Sudhir, there was a drop in the spec chem business. So pharma, CDMO business continued the growth and reported about 24% H1 FY '24 year-on-year. The revenue growth, ex-COVID molecule, is still impressive at 38%. And we saw a record number of RFQs of our Q2 FY '24. I'm proud to say that. And still, we continue to have more than 100 projects, with many in Phase I, Phase II and III, and 10 commercial pharma projects for growing. Many encouraging discussions with our existing and then potential new customers, and we are also having credible discussions with long-term partnerships with customers to grow. And heading more the specialty chemical, there is a decline. It's primarily led by, as we all know, global supply chain, destocking and we do not anticipate any structural changes in our business. To put it simple, business will go on as it is. For our formulation business, the formulation of the Services segment has reported 82% growth, but of course, it is on a lower base. Currently, we have total about 17 ANDAs approved, 12 from our Pashamylaram facility and then 5 from our newly acquired Casper facility, and we expect about another 5, 7 approvals to move on, actually. I'll hand over this to Dr. Sudhir now to explain further.

Thanks, Sunder. Let me give a little update on our CapEx plan. On the Suryapet project, we have spent so far INR 157 crores as of H1 of this year. And we expect the new block to be commissioned towards the end of this financial year. Total plan investment is about INR 200 crores. And in H1, we have spent INR 27 crores on overall CapEx. We are also planning a new R&D center at Genome Valley here in Hyderabad. We propose a Phase I to require an investment of about close to INR 30 crores to INR 40 crores for state-of-the-art R&D center. We anticipate the Phase I would be ready by Q1 of FY '25. Cash flow and cash on books. We generated operating cash flow of INR 252 crores in H1. Our total cash, including the investments and cash and cash equivalents on books, stood at INR 714 crores as of H1 of this year. Let me also give you a little outlook on our Q3 and H2 of '24. We expect Pharma CDMO to continue to remain positive. However, we are expecting few quarters to remain soft, primarily attributed to the Spec Chem segment. Just to highlight many of our key customers are planning to visit and meet us face to face, and we are keenly looking forward to these interactions in H2. Encouragingly, our substantial increase in RFQs, inquiries and promising first round of discussions with our customers being extremely encouraging, have boosted our determination. We are focused on establishing Suven as a unit global leader in the CDMO industry. With these comments, I will request our Chairman, Annaswamy Vaidheesh, for his closing remarks.

Thank you, Dr. Sudhir. If I have to summarize, first 30 days has been on exciting 30 days, where the transition to the new management has been completed smoothly, and we feel very good about the progress. Met all key customers in-person. Customer feedback has been encouraging. I'm very glad that they are happy with the smooth transition and having multiple discussions to work together. We have also augmented the senior leadership with proven track record and deep experience in this space and initiated building out the commercial engine, already hired key leaders for EU and U.S. in process of building the team below them. Team has interacted with all of our 1,200 plus employees and is focused on retention of the existing culture and ethos of the company, and I'm quite sure that we will make it into an admired company to work for. We are in for interesting secular tailwind, macro favoring India and given Suven is a multiple engines of growth, our deep technology capabilities, marquee customer logos, strong R&D and operational expertise and best-in-class management. On behalf of the team, I would also want to inform everyone that we are very committed to value creation for our stakeholders, and we are excited to embark on this journey, and our endeavor is to build a world-class institution and a global CDMO leader from India that will sustainably drive growth for multiple decades to come. I want to thank everyone once again for your time. And now we'll open the floor for Q&A, and best wishes to everyone.

[Operator Instructions] First question is from the line of Pratik Kothari from Unique PMS.

Sir, my first question on Suven, I mean we did highlight about the strategy, the plans, et cetera, that we have. And in one of the presentations, we have mentioned that we have met all clients in-person. So you can just highlight what has been the feedback being from them? I mean -- so historically, what our understanding is CDMO apart from technical capability, it also requires a high level of trust, and Suven had the face of Mr. Jasti all this while. So now that he is not at the helm, how do things change from a customer perspective, if you can share some global context, our experience, and just in a journey of scaling this up?

Yes. Let's make an update on this. Actually, this was the first priority within 30 days. The first priority was 2 -- there were 2 first priorities. First was to interact with all the employees and second was to meet with the customers. And we did it in 2 phases. The good thing was that immediately after taking over, the CPHI was following up. So we went to CPHI, that's where we met most of our customers and followed by the site visits of our major customers. And I can tell you that we have met about 11 to 12 of our major customers. And the feedback has been amazing. I was surprised to see that every customer gave a very good feedback in terms of delivery times, commitments and they understood the transition and everybody was appreciative of the professional management coming over and they're looking forward to work with the new management and also they are looking forward to grow the relationship with the Suven Pharma. And in a nutshell, it's a very good positive feedback from every customers, that's what I would say.

Pratik, I just want to add a couple of points to what Dr. Sudhir Singh mentioned. First and foremost, we all need to recognize the fact we have people like Dr. Sudhir Singh and Dr. Prasada and Brian, these people have been in the industry for decades. And most of the customers know them very well, extremely well. So to that extent, the concern about whether is it something new for the customer is not necessarily because all these leaders have a phenomenal relationship. So that's a good news that they see these leaders taking over such a good company. With Mr. Jasti being around as an adviser, these are all adding a phenomenal tailwind to our customers. They all are pretty happy about the way in which we are planning to support their interest.

Right. Fair enough. And sir, I mean when we made this acquisition maybe a year back, we had highlighted that we intend to merge Cohance into this. So any fresh thoughts there? And maybe if you can share some number on Cohance? And given both of these entity combined, how do we intend to take this forward because from a customer perspective, now you will have a large generic API or formulations company and then some parts doing CDMO. Doesn't -- I mean how do we think about -- does it change things for customers?

So there are -- Pratik, Prasada Raju, here. There are 3 important elements here. One is from an overall corporate structuring standpoint, unless which is discussed in Suven Board and resolutions are passed, we might not be able to comment anything on the future merger. Number two, from an industry assessment standpoint, are there any leverages between Cohance business and Suven business? Answer is big yes, at a customer pollination level, it is possible. Third important element, there will be always interest of competency sharing between both the platforms, but at an appropriate time, we will come back with specifics.

Correct. But the intention to merge is on, I mean, obviously, subject to approvals and everything. But the intention to combine this entity still exist?

That's right.

Correct. And can we share any numbers of what maybe Cohance has done this 6 months or maybe like last year?

Pratik, if you are okay, as you understand, this call is primarily intended for discussions about Suven financial performance, I hope you understand our limitation.

No, correct. This is just from a perspective that ultimately as shareholders and we have been shareholders for many, many years, we ultimately have to think about the combined entity and hence the question, nothing else, but I appreciate that you might not. Sir, one more question on CapEx. I mean the earlier management had guided for the INR 600 crores of CapEx that they had embarked upon. And you have mentioned that Suryapet is almost done. What about the other 2, any change in plans, maybe we are adding something subtracting something?

As of now, we don't have any plan. As we said in our opening remarks that we are doing a blueprint of the new strategy and once that strategy is done, we will look at our allocation of CapEx, but the immediate plan is to invest in a new R&D at Genome Valley.

Correct, fine. And sir, if you can just share the 3 segmental revenues for this quarter, what -- I mean, pharma, chemical and formulations?

Yes. The segmental revenue if you really look at this quarter for the purpose of CDMO of pharma, it is about INR 148 crores for 6 months.

I'm asking for this quarter specifically?

And the second, it's about INR 55 crores and formulation is about INR 27 crores. If you look at for the 6-month period we ensure, it's INR 394 crores of CDMO pharma, INR 130 crores of Spec Chem and INR 53.9 crores of formulation in this business.

Correct. Sir, if you can comment, I mean, chemical has seen substantial reduction from the first half last year, maybe, I don't know, 50% reduction, and formulations have done extremely well. So you can just highlight what is -- I mean, you did talk about the inventory destocking, et cetera, but is it so bad that there's such a big drop? And also what is playing out within formulations?

Let me -- before giving this to Dr. Prasada, let me explain the difference. Spec Chem, as we have already explained in the past 2 quarters also, like this is going to be softer based on the global scenario is changing. That's the reason, compared to last year and last quarter, spec chem is the reduction. CDMO pharma as such actually it's a mix of products, whether it is -- you talk about Q2 or whether you talk about H1. The mix of products has been quite encouraging, and there is a growth. That's what has happened, if you know, particularly if you look at revenue for pharma, from INR 318 crores it has gone up to INR 394 crores for the first 6 months, and particularly for this quarter, it's about INR 108 crores to INR 148 crores. Looking at the formulation, it is gone up, no doubt of looking for this quarter from INR 18 crores to INR 22 crores, and about 6 months, it has gone up from INR 27 crores to INR 53 crores. Basically we are at low base and then there are many ANDAs are getting added. Few more are going to be added actually. That's why you see a better traction in this business as it's been happening.

[Operator Instructions] The next question is from the line of Ashish from IIFL.

So if you could spell out some more details on this Agri business. You did say that there's some destocking but your interaction with the clients turning out to be pretty good. So in terms of at least the custom synthesis part, how's the development, whether you would be adding new technologies there and did Suven had a concentrated portfolio and post the merger, we want to diversify? So any broad color in terms of new technologies that you would be looking at would be helpful.

So let me give a color of new technology. Basically, we are looking at the growth with our existing customers, existing products. However, when we meet our customers, we always get a feedback on what are the new technologies they needed because we move along with our customers. We are definitely looking at -- with the immediate term also looking at the flow technology, that's where many customers are asking for it. However, it is too early to comment on that. We will do the validation with a couple of our customers, then we will invest. However, we have already invested in R&D scale, and we need to look at how do we scale it up.

And in terms of capital allocation going ahead, is there a certain bias from the part of the management that would like to put more capital towards CDMO, pharma, less towards agri any thought process?

No, nothing like that. As of now, we have enough capacity for -- as I said in the beginning that we are working on a blueprint for the next 5 years strategy. Once we are clear on our strategy, we will allocate the capital according to that.

Okay. And once this new entity comes into perform, any -- are there any tax-related benefits which would also come to us?

What is the new entity you are talking about?

So once the entire merger goes through, would there be any tax-related benefits that could flow to the organization on a consolidated basis?

No, there won't any flow-through as such actually, but then those things will be looked at when we really do the real merger discussion, not at this point of time. As of now we did not see anything like that.

The next question is from the line of Saurabh Kapadia from Sundaram Mutual Fund.

Sir, just one question on the...

Saurabh, your voice is not very clear. Please use the handset.

Is it audible now?

Now it's better.

So the question is on the RFQ, which you said in this quarter. So is it largely for the CDMO or do we also have on the Spec Chem side?

No, this is mostly CDMO, pharma CDMO. As we said in the beginning that the Spec Chem is a little subdued because of the global situation, destocking, Brazil's drought. But these RFQs primarily for CDMO, pharma CDMO.

Okay. And can you give some color in terms of the pipeline for the Suven in terms of Phase II, Phase III kind of molecule -- number of molecule in each stage of -- at least the molecules where we are at the late stage of the cycle?

As we said at the beginning of the call that we are about 100 molecules in different phases. And as of now, there is no update on the movement from the customers. As and when we get any update from customers, we'll keep you updated.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

Congratulations on building such a marquee set of professionals for the new team. Sir, my first question is in terms of the near-term opportunities what the management sees in terms of the low-hanging fruit or the synergies, which you can bring into the current system. And in terms of the cost savings side, if you could highlight or from a scale perspective, we understand that there is a merger which you guys plan to do at a later stage. But at least from a near-term perspective, what are the operational changes or synergies which the new management thinks on bringing into the plate?

Abdul, as you know, within cost-wise, we are working on as well, if you look at the -- every time confidently we look for opportunities. I'm 100% sure...

Sorry for interrupting, sir, your voice is sounding very distant. Can I request you to come a little closer to the mic.

Yes, you're able to hear me now?

Yes. Much better. Go ahead sir.

Okay. So Abdul, the cost synergies and then cost, as you know very well, we've been always working with the cost as the main parameters, and then everywhere we try to do the cost savings. Under synergies we look forward even with kind of if there is a possibility of some synergies that happens with Cohance using their facilities and using their manpower or whatever. We certainly would like to use that. But at this point in time, it will be very difficult for us to comment on this as we need to still look for a blueprint and then look for overall kind of synergies that will happen actually. Yes, on a long road, yes, it will have some kind of benefit and then we will certainly look to exploit the synergies, whatever is going to be there, actually. And then what was your second question? I lost track of it actually.

Yes. So that was pretty much of my first question. My second question is basically, if I refer to one of your slides, on Slide 6, you detailed out the kind of opportunity or the addressable market size, which Suven Pharma would be catering. So I understand, I mean, historically, we had a presence in the intermediate portion, and now we are also trying to look at API. So based on the current capacities what you have, what else -- again, immediately on the plate or this is something what we aspire to move towards for in the near future by getting some traction from your clients.

Yes, that is a very good question. Basically, I would like to say, actually, as you know very well that we have built a capacity specifically with the OEM for customers and then it is for that market. And we would certainly would like to leverage those APIs what is really being required, and then we'd like to focus on that. That's what the new team, which is going to work on as Mr. Vaidheesh as well as Sudhir were talking about actually, the new team, which is Brian and then the team which has come, they'll be focused on to get into those lines actually to think about where we can leverage radically. Suven's capacity, we do have. We don't have any problem at this point of time, actually.

Sure, sure. And just final one from my end. So again, referring to the presentation, you mentioned that there are 13 active commercial projects. So this includes the COVID molecules as well? Is that understanding correct?

10 commercial molecules, CDMO, and 3 are the specialty chemicals. 3 commercial molecules, specialty chemicals is included, that's why it is 13.

Abdul, to answer to your question, the COVID products were excluded because it's one-off.

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

Am I audible?

Yes, Jinal. Please go ahead.

My question is on the 3 -- we have 5 molecules in the Phase III segment, is there any update on that in terms of moving to Phase IV?

As of now, we have been in touch with customers. As of now, there is no update from customers. As and when something comes up, we will keep updating everybody.

Okay. And given the fact that our CapEx has been very subdued at INR 26 crores or INR 27 crores in first half, if these molecules were to go into Phase IV, would we be in a position to address the needs of the customer in terms of the capacity front?

See the -- there is -- it's not directly linked. The CapEx is totally different compared to what you are talking about. The molecule coming off, it has got nothing to do with the CapEx actually. We already have a CapEx, including the new CapEx that was incurred in Suryapet, what Dr. Sudhir was telling actually. We are ready to go commercial there actually. We have adequate capacity in case any of these molecules. So specifically when you're referring to these 5 molecules, even one of the molecule gets into the pre-launch position, we'll be ready to go. There won't be any, what you call, pressure on the CapEx, pressure on the capacity.

Okay. Okay. Great. Secondly, just on the specialty business, when I see the revenues for the quarter was around INR 55 crores, now this number is a very low number versus what we've reported in the last -- I think the lowest number last we saw was in December '20 quarter. So I understand that there is a subdued outlook, but sequentially, should we get better or the numbers can actually go lower than the current reported number?

As we said at the beginning of the call that Spec Chem business is going through the downturn, and we are not the only one, everybody is facing that challenge. What we learned from our customers that, destocking, China issue, Brazil drought, that will continue in the next couple of quarters and hopefully, after few quarters we should see bounce back.

Okay. So there is no clarity with respect to that we are running along the bottom. It could further decline from here given the industry environment?

It's hard to say, but this is -- our gut feeling that probably we have bottomed out, which is our gut feeling, but it's hard to say because we depend on the customers feedback.

The next question is from the line of Kshitij Kaji from Sage One.

Am I audible?

Yes.

So I just had one question. So from your opening remarks, you cited that we are spending heavily on a lot of commercial avenue. So hiring a sales force in U.S., Europe, also we're spending more on R&D for new platforms, et cetera. So given that Suven's margins are already so high today, in the next 1 or 2 years, do we intend to go in an investment phase and which may impact the margins and it may get back to these margins after a few years? Or how do we see margins from maybe a 1- to 2-year standpoint?

Yes. Thank you, Kshitij. That's a very good question. See, at the end of the day, all our investment that we are making is not for just for a couple of quarters or for a couple of years, it's for a decade. All our business expectation that we have out of these investments are towards the long term. So we wouldn't be worrying too much about what it is due to our current EBITDA because that's not the way we are designing our organization. This is for a long term. And at the end of the day, we'll all start seeing the results. Even after a couple of years, all the investments will start paying off, but we are here for a long term. And obviously maintaining the kind of margin that the company is used to.

Right. But in the near term, do we expect margins may come off slightly? Or do we intend to keep it at the current levels?

Well, as you know that our aim is to keep the current margins, we'll be in and around the current margin levels. But there will be a couple of percentage points because of the fact that we are investing, you may see some variations, but at the end of the day, it's not something for us to worry about. It's not a big issue for us to tell you that there is going to be a big drop in our margin. But we'll be in and around what we have been delivering in the past.

The next question is from the line of Sunil M. Kothari from Unique PMS.

Welcome to the new Board members, MD, CEO and it's a very glad to hear voice of Mr. Venkat Sunder also. Sir, my point I just wanted to convey or ask is, since long I'm shareholder of Suven, the way Mr. Jasti has enlarged and created this unique and very specialized company. So my point is to ask you is, what are the plus point which you have been encouraged to buy this out to this company? And second, which are the places and areas where you feel you can do better than what the past management was doing? So a little bit qualitatively, if you can talk will be really helpful.

Yes. So already you're pretty bang on in terms of why investment has to happen and why did we engage in investing in this company. See, first and foremost, as rightly said, Mr. Jasti and his management done a fantastic job of creating kind of a niche market and created niche for CRAMs and CDMO. The biggest opportunity is in scaling up. One of the biggest strengths that we have, we and the management team, as you must have seen, the kind of team that we have put together, is in scaling up our big customer partnership. For example, Jasti and his earlier management had developed partnership with certain set of customers, which is pretty good. Now it's our job to deepen those relationships, take it to the next level, what I call the Suven plus, differentiated scientific capabilities, right? Now the kind of talent that we are bringing in are going to be addition to what the organization has done, which -- because the macros are so good. As Dr. Prasada and Sudhir had mentioned, the macro is so good, this is the time for us to scale up and go and get this opportunity. Delivery excellence is pretty good, and we need to scale that up and make sure that we are able to meet more customers and reform whatever we have and also to -- and the last but not the least is talented employee pool that we are bringing in, they are going to give multiple engines of growth. So frankly in my opinion, it's no-brainer for many of the investors to come and take this opportunity and take it to a new level of what Jasti has left. And I would -- Dr. Prasada would like to say a few words.

Yes. Thank you, Vaidheesh, and thank you, Sunil, for your comments. Just to summarize, we are primarily looking for marquee customers with a decent relationships. And wherever we go, we always very heartened to hear clear message of reliability and delivery orientation. It completely differentiates Suven from any other partner in the same CDMO space. This is one of the biggest motivation for us. Second, scientific capabilities and innovation through science has been one of the another important pillars. Third, normally, any company comes with a lot of risk mitigation outside of the strategy and outside of the business, but this company, in Suven, we have multiple engines of growth. All the engines have immense potential to substantially grow further. Primarily, these are all the 3 important elements which we feel are the key elements for us to be able to really to look at this company. These are all the elements that help us to really grow this company to an next orbit. As you also have followed us, we felt, following the question what you mentioned, what you feel could have been done better or what you feel could be invested. We have found answers for it. That's where the commercial engine has been completely rebooted.

Great sir. Just my observation, I would like to convey that Suven is dependent on very few global giants. And the way Mr. Jasti has proven track record of without any accident, without any observation, without any problem, I feel in a hurry to scale up new management will not make any mistake and will definitely grow faster than the past. My good wishes to you, sir.

Thank you, Sunil.

The next question is from the line of Chirag from DSP Investment.

Sir, typically, we indicated that we have 3 to 6 months visibility on the pharma business. So can you provide some color on how the second half of this year, particularly for the Pharma business looks like versus the first half?

As we said in the beginning that we look very positive, pharma CDMO outlook looks very positive. However, at this point, it's very difficult to give you the guidance or a number. But as I said in the beginning that pharma CDMO is...

We're quite excited with this, Chirag, in addition to what Dr. Sudhir has rightly mentioned. As you understand our business, it all depends on our customers and products growth. From an organization, we are trying to do everything right internally, and we are fully prepared to co-grow along with our partners.

Understood, sir. There is nothing unusual happening this year post the change in ownership. That is a very clear message there?

Yes.

Of course.

Yes. That's a big yes, Chirag.

Understood, sir. Okay. And sir, in one of your slides you are mentioning that 75% of your active projects are with global innovators, Suven is a partner of choice. When you say global innovators, do you mean big pharma or emerging biotech companies as well?

No, it's fully big pharma only.

Yes, I would put the large cap vertically, that includes the big pharma as well as the Spec Chem.

Understood, sir. Okay. And sir, just if I can squeeze one more question. What are your plans for formulations business? Where does this fit into the overall scheme of things as far as creating a CDMO, where post the merger, et cetera, is concerned? Where does formulations both the factory as well as the ANDAs, et cetera, where do that -- where does that fit in, sir?

Chirag, as you understand this business very well, what we are actually trying to do is 2 things. One, we wanted to build 5 years blueprint to understand what kind of strategic choices that we wanted to see. Irrespective of it, we feel while our biasness is to stick to the core, which is CDMO of pharma and Spec Chem, we wanted to make sure that every business should grow to the fullest extent of its potential. That's where our biasness goes more to the core business. However, to the possible extent, we try to see capacities are properly managed. And today, the formulation business, especially on the Casper side, we see the opportunity for capacity optimization. Our endeavor is to make sure that capacity is optimally utilized.

Understood. And why has R&D spend increased in the second quarter, sir?

It's basically because of some findings that has happened from the cost of...

It will go back to earlier levels? Or will it remain at these elevated level?

We cannot say that way actually, but it depends on the findings. R&D cost is more related to that and then some process R&D is also there...

The next question is from Nihar Dave from Vallum Capital.

I'd like to say to the management best of luck for the coming quarters. Just one question I have, this last question has been asked prior. But if you just look at commercialized molecules that we are making for the big pharma. So is there any possibility of any contracts happening in there? Because previously, the company has said that, that doesn't necessarily work on contracts, but more an understanding between the pharma company and Suven. So I was just wondering if that can work on a contract basis?

So if I understand correctly, Nihar, as you understand, there are certain multilevel contracting happens, especially quality and supply agreements. Commercial level it is always goes with the partnership model that is being ensured. And we also see if there is any possibility to improve further we can, otherwise we are in existence. Quality and supply agreement, without that, no pioneering company will come back for any CDMO opportunity.

Right. And so my follow-up question to that would be that in earlier phases, what are the -- again, like you said, it's just quality and this thing that you -- that the contract is based on in earlier phases?

That's right. That's right, Nihar.

Next question is from Darshit Shah from Nirvana Capital.

[indiscernible] legacy and credibility...

Darshit, your voice is muffled, I'm sorry to interrupt. It's not very clear. Ladies and gentlemen, it seems we have lost the line for the current participant. We'll move to the next question that is from the line of Prolin Nandu from Goldfish Capital.

Just one question from my side. You mentioned that in the last one month, you have met a lot of clients, right, and probably conveyed them this whole transition of ownership. But have you also been communicating to them about this whole Suven plus approach? And if you can share some clients' feedback that what are they -- I mean, how excited are they about the whole Suven plus model that you just mentioned a few questions back? If you can just give some anecdotal kind of an evidence or some conversation that client -- that you had with the client that would help.

Yes. Thank you for the question. As we said, that definitely, we met major of our clients and they gave us their own feedback. We are excited with the new journey. Our focus is mostly on 2 things, improving our capabilities in R&D and investing in ESG. And as you know that in today's world, every big pharma is looking for a big way on ESG investment. And that has been our focus since we took over and improving our R&D capabilities and enhancing our ESG capabilities.

Sure. No, so what -- where I was coming from was that obviously, a lot of people have asked about this whole merger with the platform entity that is going to come right in sometimes and that was one of the reasons, if not the only reason for a change in ownership. So I mean, are clients also equally excited about an entity, which is going to be much larger than erstwhile Suven? And are we getting the kind of confidence that we had before meeting them? I mean, is the confidence level the same as it was before meeting them as well?

Actually, to be honest, I mean, since we are -- ourselves is not clear when it will happen, what will happen, and we did not bring it up and no customers had asked this question. There was no question from any customer around this merger.

The next question is a follow-up question from the line of Chirag from DSP.

Yes, sir. Sir, what will be the CapEx for this year and next?

As a part of our overall blueprint, we are still evaluating whatever has already been approved by the Board. We still feel there is no need for us to immediately revisit onto it. However, the next coming quarters, we will again review whatever is needed to be invested on the various growth engines. Then again, we'll calibrate the existing approved CapEx can be repurposed and used. Otherwise, we'll come back with a full answer. Immediately, we don't feel the necessity of immediate CapEx right now.

So you've done INR 25 crores in the first half, likely second half also will be similar, sir?

Likely same run rate we'll maintain. However, you should please look at 2 important elements. There is already approved CapEx, for example, INR 200 crore of R&D and Pashamylaram facility expansion that we are not spending right now. Hence, consumption of existing CapEx, we will try to phase it appropriately. Is there any need for new CapEx? We will come back with a comprehensive answer once we complete our overall 5-year strategic blueprint. I hope it answers your question.

Understood, sir. Understood. And just the last question, sir. Can you -- by when do you think you can talk to us about the Cohance merger with numbers and a proper plan? By when, in terms of time line, if you were to guess?

So like all of you, we are also quite excited, please allow us for some time. Appropriately, we'll get back to you, please.

Next question is from Mayur Parkeria from Wealth Managers India Private Limited.

Sir, just one question I had. While we understanding in such a large acquisition, it takes time for the new management team to set themselves, get into the groove, understand the business fully from inside out, and then execute their plan of action as we go ahead. While this is very true, and the long-term picture, as you said, we are in the process of preparing a 5-year blueprint. But while all this is happening, we also know that on a practical ground, there are certain near-term targets also, the near-term things which have to be managed and they are targets in terms from an execution -- for the execution team. From that perspective, I know it's a little near-term outlook, but given the fact that from a shareholder wealth creation perspective long term has been very historic. But from slightly medium to near term, there was -- there has been a stagnation there. And we are looking at how the -- we are also excited and anxiety is there with respect to the near term also. So do you believe that FY '23 revenues of INR 1,340 crores odd, do you think we will be in a position to protect that even on one side, the huge correction in Spec Chem, but on the other side, the pharma and formulations outlook is doing reasonably better? So do you believe that we'll be able to protect that kind of a revenue for that year, how H2 looks at? And also going into FY '25, it's a relatively near term, do you believe that we can start looking at growth from there on?

So thank you for raising this point. It's a very important question. I'll just try to divide this into 3 important elements. One is the proven experience of M&A, like such a large investment, we are very happy to inform you that as a team we have proven track record of last 41 months where successfully multiple transactions have happened without compromising on core of each business and also protecting the culture of every organization. That gives immense confidence to us. As you have also seen, we have installed right professional team and the competent team is already built in, and this has been thought through as a part of the transition. Hence on day 1, majority of the hires are already in place. So answer to your first point, on M&A side, we feel that is the unique competency and capability that we have with proven track record. Hence, we believe that's going to be a substantial strength for us. Coming back to -- while we're trying to address about a long-term view, how are we trying to do what is -- can be done in short term to midterm, as you understand this business, we wanted to be a preferred partner of choice to our customers, as Dr. Sudhir has rightly mentioned. We found there are certain strategic interventions, which are needed, for example, investing and expanding in R&D capabilities. While we have OEB facility at a scale-up level, we don't have R&D, which can handle the product at OEB level in a meaningful manner, hence, we have decided to strategically go ahead with investments in Genome Valley. These are all the certain interventions and actions possible to secure midterm to long term via short term. However, it's very difficult for us to predict how the product level and customer level growth is going to happen. Hence, we might not be able to comment specifically on the current year closure. However, next 6 quarters, which is going to be a full year of next year, we are quite convinced that there is going to be growth avenues, which will be completely unlocked, because of 2 reasons. One, macros will be softened. Number two, whatever interventions that we are putting right now will also be resulted. As you know, anything that we do in the current space in CDMO business takes time. I hope the questions were answered.

Next question is from Darshit Shah from Nirvana Capital.

Sir, my question pertains to Suven has historically generated a good amount of cash flows. And even right now, we have around close to more than INR 700 crores of cash and investments in our books and probably by the end of this year, it would inch towards INR 1,000-odd crores. So I understand you are in the mix of booking this 5-year blueprint, but would there be a dividend policy also in that blueprint where we probably have a formalized dividend payout to the shareholders?

As of now, if I have to really come back, yes, there is a healthy cash position right now. The way current priority for us is right now to look at the 5 to 6 years of strategic blueprint. As you know, strategy has no relevance unless it comes into execution excellence. And we are definitely looking for an accelerated growth opportunity for Suven, which means we might have to choose to decide on inorganic options of acquisitions through Suven. Hence, we wanted to preserve this cash situation so that our abilities to go and accelerate the growth via M&A will be protected. This is how we are looking at right now. However, as all of you know, with Mr. Jasti's legacy company has been securing the shareholders' value creation. Whatever we do on the M&A side also, which is going to be completely a value-accretive plan.

Got it, sir. And just to confirm, in terms of molecules, you mentioned there are 5 molecules currently in the Phase III. Is that correct?

Correct. Yes.

Okay. And then lastly, just since the open offer has been concluded, what will be our total stake if you could highlight after the open offer -- the tendering process has been done?

Currently, we are still waiting for the...

The merchandisers has to give the final data. We don't know as of now. It is not closed -- disclosed for the [indiscernible]. We will need to get the data from merchandisers, then only we will be able to give you. We are working on it.

At this stage, we are waiting for the final consolidated report. And once we receive, we'll certainly share with some form and shape to all of you.

Sure, sir. Just lastly, sir, if I can squeeze in, in Suven, as earlier also participant asked and we understand it's more of intermediate supplier to the innovators. And even the erstwhile management has spoken about migrating towards API for innovators, which will far more value-accretive business for them. So what's your take on that? And where are we in that process of value migration from intermediate to supplying APIs to innovators?

We are quite excited and happy to inform you that, that plan is still active. Yes, you must have followed the previous conversations, innovator has to come back to us by auditing our facilities and completing certain formalities. That is still on, and we are quite hopeful that soon we will get into the graduation of supplying from intermediate to API. And we hope that we should see one such example in near term.

Next question is from Varun Bang from Bryanston Investments.

All my questions have been answered. Just in addition to the previous question, as and when this API or, let's say, forward or backward integration activity starts, would it be on an experimental basis or it will be a full-fledged and good value business for us? How should one look at it?

If you're asking about graduation of CDMO on pharma side from intermediate to API, it is a commercial molecule by the innovator, it is going to be a long-term project.

So would it be a good value business or...

It is going to be very value accretive and it's going to be commercial and it is going to be a very long term. As you know, the patent cycle goes on.

Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing comments. Thank you, and over to you.

Thank you, everyone, for your time. If any questions unanswered, please reach out to the Investor Relations team at CDR or me. Thanks a lot and wish you all a very Happy Diwali.

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