Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Cohance Life Sciences. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to remind you that today's discussion may include forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. We encourage you to review the disclosures filed by the company. I now hand the conference over to Ms. Cyndrella Carvalho. Over to you, ma'am.

Thank you, Davin. Good evening, and good morning, everyone. Thanks for joining Cohance Life Sciences Quarter 1 FY '27 Earnings Call. Today with me, I have our Executive Chairman and Group CEO, Mr. Umang Vohra; Mr. Yann D'Herve, CEO of Pharma CDMO; Mr. Gunjan Singh, CEO, API Plus; Mr. Amrit Singh, CEO of Specialty Chemicals; and our CFO, Mr. Himanshu Agarwal. With that, I will hand it over to Umang for his opening remarks.

Thank you, Cyndrella, and good evening, good morning to everyone. As we had indicated in our previous earnings call, Q1 of this year would be our lowest quarter ever, and that is how the quarter has played out. From here onwards, we expect improvement in Q2 and the return to year-on-year growth from the second half. This will be supported by scheduled commercial program deliveries, execution of the restocking orders, progressive normalization in the effective operations and improving utilization across our platform. The customized ADC payload order remains on schedule for delivery in Q2. In oligonucleotides, shipments under the program supporting an orphan drug candidate commenced from Sala during quarter 1, providing additional visibility to our revenue trajectory. Customer qualifications and new program awards should progressively support growth through the year. My recent interactions with customers highlighted that they are seeking dependable partners who can combine innovation with supply chain resilience, what we describe as innovation plus 1 approach. Cohance is positioned to participate because we can support programs from early development through scale-up and commercial supply while bringing specialized chemistry and manufacturing capabilities into a common operating system. I would like to spend some time on 2 areas where I have invested my initial time. The first is our broader nucleic acid business anchored in our subsidiary, Sapala. What we've heard consistently from customers is that to engage with us as -- is that they would like to engage with us as an integrated nucleic acid offering, bringing together chemistry, development, manufacturing and commercial supply. We have, therefore, begun aligning these capabilities into one operating approach. Dr. PY. Reddy has agreed to lead this combined nucleic acid business through FY '30 in addition to continuing as the CEO of Sapala. We are also aligning R&D business development, manufacturing and commercial execution across the platform and deploying capital selectively commercializing the new Aberice facility and expanding our oligonucleotide capabilities in line with customer demand. Alongside this, we've also agreed to a clear path to ownership of Sapala, fast-growing and highly profitable business by FY '30. Dr. PY Reddy remains invested and will continue to lead the business through this period. Hence, the first change is about building one integrated nucleic acid business with clear leadership, operating accountability and a defined path to full ownership. Yann will take you through the operating progress on our Nucleic acid business. The second area is specialty chemicals and more specifically agrochemicals. As you're aware, since the last few months, we have been trying to source and add innovative products and partnerships to improve the relevance of our business to our partners. Our assessment is that this business is relevant chemistry, established customer relationships and a credible pipeline of innovative programs. We have now addressed this by starting to revamp our capacity for the next set of agrochemical programs. We are working towards a more integrated organization and a clear governance model for this business. Amrit will take you through the aspects of our business in greater detail. Let me now come to the operating priorities for Cohance. There are 5 areas we are working on. First is strengthening our safety and quality systems through enhanced process safety reviews, greater automation and closed handling of critical operations, independent site audits, stronger data systems and tighter control practices. These initiatives are intended to make our operating foundation more consistent, scalable and inspection-ready across the network. During Q1, we had multiple audits by large innovative partners across the pharma CDMO platform, including our API manufacturing sites. These audits were completed without any critical findings, reinforcing customer confidence in our operating systems. Second, we are progressing the organizational and operational integration of our newer platforms, including the alignment of R&D, manufacturing and commercial teams. In parallel, we are evaluating targeted capacity additions across small molecules, ADCs, API plus and specialty chemicals to support the next phase of growth. Third, our growth agenda is becoming more focused. In small molecule CDMO, the priority is to deepen strategic customer relationships and pursue opportunities for forward integration. In ADCs, we are building an increasingly integrated offering across payloads, linkers and bioconjugation. In API Plus, we are expanding selectively into adjacent higher value opportunities and innovative life cycle management programs. In oligonucleotides, the focus is on operationalizing our GMP facility and progressively commercializing selected product families. Specialty Chemicals will concentrate on adding anchor relationships and identifying growth drivers in the innovation domain. Fourth, we are building the organization's scientific envelope by strengthening the R&D structure, increasing access to external scientific expertise and identifying new capabilities that can create differentiated customer value over time. And finally, in fifth, we are reinforcing a One Cohance culture, bringing together the capabilities, teams and operating practices of the combined organization around common standards of accountability, execution and customer focus. My confidence comes from the strength of the underlying customer relationships and scientific capabilities and from multiple distinct engines of growth within Cohance. There are also tangible indicators of progress within our pharma CDMO business. We have received significant restocking orders for commercial molecules, of which Yann will give more color in detail in his presentation. Our commercial OTI remained at a very high rate of almost close to 100%. Our progress is also receiving external recognition. Cohance achieved the EcoVadis goal, strong CDP ratings and an SBTi validation, while our sites were recognized by the British Safety Council and the Andhra Pradesh Bioservices Department. We also successfully completed the ISO 22301 business continuity certification audit. Before I hand over, as you are all aware, Himanshu will remain in his role until 13th September, and we will update you on the succession process as it progresses. As this is his last earnings call with us, I would also like to thank him. He's played an important role in supporting the merger, integration and the financial framework of the combined organization. We thank him for his contribution and wish him every success in the next chapter. With that, let me hand you over to Yann to take you through our CDMO business.

Thank you, Umang, and good morning, and good evening, everyone. I will cover the operational performance across small molecules, the ADC payload business, NJ Bio and Sapala. As Umang mentioned, Q1 was affected by customer shipment phasing, resulting in softer revenue as guided earlier. Q1 pharma CDMO revenue declined by 38.7% year-on-year. Certain deliveries moved from Q1 into Q2 and are now on track for delivery this quarter. The underlying portfolio, however, continued to progress. Two molecules have recently moved into commercial supply with deliveries scheduled across Q2 and Q3 for -- for commercial molecule that faced destocking last year, we have now received the restocking order, providing meaningful delivery visibility for Q4 fiscal year '27 and fiscal year '28. During the quarter, we made further progress in moving up the value chain with an existing biotech customer, expanding our participation in a Phase II program from the supply of KSM to an API order. Our RSQ pipeline continued to strengthen during the quarter, supported by many Phase III RSM commercial supply inquiries from a large pharma company, along with additional commercial and late-stage inquiries from other large pharmaceutical customers and Western CDMOs. Our operational delivery remains strong with commercial OI at 100% year-to-date. The commercial versus development share was 57%, 43% during Q1. Customer audits across manufacturing sites were completed without any critical findings. The review for another strategic customer also progressed positively with potential new award linked to the planned audit later in the year. Moving to the ADC payload business. The team continued to execute the existing portfolio and advance new payload and payload linker inquiries. Customer feedback on the commercial KSM program was positive. Another customer audit was completed successfully, and we expect this to support an additional payload order. Certain deliveries originally scheduled for Q1 have moved into subsequent quarters based on customer requirements. The recent products added to our portfolio, namely MMA and [indiscernible] are receiving good traction from a market welcoming alternatives to Chinese suppliers. At EG Bio, execution of the ADC drug product program continued with another GMP ADC batch released during the period. The team also operationalized an additional GMP manufacturing laboratory at Princeton, expanding its ability to support small molecule and biologic programs through Phase I and Phase II clinical development. Alongside these, Bio continued to strengthen its translational platform, including in vitro and in vivo capabilities while engaging customers across ADC, conjugation, oligonucleotides, AOC and other complex programs. Work also continued on sweep amplification and readiness activity. The immediate operating focus is to deliver the committed batches and secure renewal of the ongoing FTE program. We remain watchful of the biotech funding environment, which continues to influence the timing of customer decision and renewal. In oligonucleotide segment under SAA, supply commenced under a specialized nucleic acid building block program during Q1. As a result, 2.5x revenue growth in Q1. As discussed by Umang, we have initiated our integrated nucleic acid offering to discuss with our customers. The team is also -- is now progressing on supply and forward integration opportunities in building block programs. Work on GMP rationalization and validation of priority is also progressing. Existing FTE engagements with large pharma customers continue to expand, and we look forward to adding new programs and new customers, including biotech. Overall, the Q1 revenue shortcut was predominantly related to shipments, timing and customer approvals. The commercial restocking order has been secured. Recently commercialized programs are scheduled for delivery across Q2 and Q3 and the late-stage opportunity for has expanded. These operational developments support sequential growth in Q2 and improving momentum through second half fiscal year '27. With that, I will hand over to Gunjan for the API Plus and formulation update.

Thank you, Yann, and good morning and good evening, everyone. I will cover API Plus, which comprises our API and Formulations businesses. Within the segment, the API business remained resilient, performing slightly ahead of our internal expectations during the quarter with favorable pricing and an improved product mix. Performance was also impacted by the timing of certain commercial orders and validation campaigns shifting to later quarters, while one program was affected by an operational event at the customer facility. These were largely timing-related factors. And importantly, the underlying demand remains healthy with a robust API order book supporting our outlook for the year. From a commercial and regulatory standpoint, we continue to make good progress. During the quarter, we saw a very good market traction on the inquiries for our products and advanced several strategic programs across regulated markets. We also secured 2 EEP approvals and filed 2 Korean DMS. For FY '27, we continue to target 7 new API filings. The portfolio is increasingly focused on niche assets in CNS and controlled substances space while targeting value maximization through our value chain play across intermediates, APIs, pellets and formulations. We are creating a basket of opportunities for the long term, primarily focusing on the life cycle management with vehicles, leveraging our strong cost structure and chemistry skill and the ability to impact the value chain. We have recently invested in a commercial flow reactor at our Deja site, and it is expected to be ready by next quarter. Operational execution also remains strong. We completed debottlenecking initiatives for a few products, commissioned a new affluent treatment facility at Ankaleshwar and successfully completed 11 customer audits across our API manufacturing sites. These actions enhance both capacity and compliance while supporting future growth requirements. In the formulation business, performance was slightly below our expectations for the quarter. Revenue was impacted by an API production delay, lower demand for our mature products and a customer-led change in pack configuration. Despite these headwinds, business development activities continue to advance well. We finalized a supply agreement covering selected Middle Eastern markets. We progressed multiple pellets and modified release opportunities and supported the launch of a new topical product for the U.S. market through a partner. In addition, 2 further product launches are scheduled for during Q2 and around 10 launches in this fiscal year. At Nacharam, the remediation and operational stabilization remains our immediate priority. CASA implementation continues to progress in line with plan, supported by ongoing engagements with the regulators. Operational performance is steadily improving and the product supplies have resumed as we work towards the full normalization. Overall, we remain confident in the outlook for API Plus. The business continues to demonstrate resilience. Our development pipeline is advancing well and the actions underway across formulations and Nacharam position us to strengthen performance progressively throughout the year. While near-term execution remains our focus, we believe these initiatives create a strong foundation for sustainable double-digit growth over the medium term. With that, I will hand over to Amrit for the Specialty Chemicals update.

Thank you Gunjan and good morning and good evening, everyone. Turning to Specialty Chemicals. The business is progressing through an important portfolio transition. Our near-term priority is to strengthen the existing revenue base by developing a broader set of innovor-ledramsem CDMO and Performance Materials. During Q1, Performance Materials delivered growth, while the agrochemical segment declined. we are expecting FY '27 to be skewed towards H2 due to seasoned phasing of products. Overall, Specialty Chemicals declined 3.7% year-on-year in Q1, primarily led by expected H2 dominated phasing of products in CDMO. [indiscernible] ingredient program with an existing global innovator registration process during Q1. This can be a meaningful opportunity in the future. We also progressed multiple customer programs through various qualification stages. This includes the first qualification campaign with 2 Japanese innovators scheduled in FY '27. Our medium-term objective is to qualify approximately 2 new products each year, combining opportunities with the existing anchor customer and new customers across Europe and Japan. In Performance Materials, Q1 performance was in line with our internal plan. The photochromic portfolio remained balanced, supported by our established chemistry platforms and customer relationships. In OLED materials, new business activity is beginning to improve, supported by a broader pipeline of molecules under development and scale up. We are also applying our chemistry capabilities to adjacent areas such as material in semicon. From an execution perspective, as Umang highlighted, we are finalizing a dedicated R&D, manufacturing and asset strategy for the segment. Automation and operating upgrades across the specialty chemicals network will also support improved safety and efficiency along with the required scalability to turn this segment as innovative product-led business. FY '27 as qualified by us will be a year of qualification and would help us support our base in previous year against the generic pressure in the A segment. From FY '28 onwards, we believe this portfolio can support a sustained trajectory of double-digit growth subject to customer qualification and regulatory time lines. With that, I hand over to Himanshu to cover the financial performance. Thank you.

Thanks Amrit. As indicated earlier, quarter 1 was a low quarter on both revenue and EBITDA. Our consolidated revenue from operations was INR 4,223 million, a decline of 23% year-on-year. The quarter was affected by shipment and order phasing in pharma CDMO, a softer contribution from agrochemicals, low formulation revenue and the timing of execution across part of the portfolio. This was partly offset by strong growth at Sapala and resilient API performance. Consolidated gross margin was at 71.5% compared with 73% in quarter 1 FY '26. The decline primarily reflected the product mix and the lower contribution from the high-margin pharma CDMO business. Higher freight, logistics and raw material costs also affected the quarter. Part of this cost was mitigated through selective price pressure, price pass-through to customers across business segments. Adjusted EBITDA was at $92 million, representing a margin of 2.2%. The reduction reflects the lower revenue base, negative operating leverage and the impact of subsidiary consolidation. It's important to look at the components of the consolidated performance. The stand-alone business generated a revenue of INR 3,599 million and adjusted EBITDA of INR 332 million, representing a margin of 9.2%. Sapala added revenue of $274 million, a growth of 2.5x year-on-year while maintaining a strong EBITDA margins. NJ Bio by comparison, reported revenue of INR 350 million, lower than the corresponding period last year and below our internal expectations. It recorded an adjusted EBITDA loss of INR 328 million. The stand-alone business and Sapala are, therefore, in a materially strong operating position than the consolidated numbers. At the same time, NJ Bio's current performance is weighed significantly on consolidated profit. Until revenue conversion improves, NJ Bio is expected to continue affecting the consolidated performance in the near term. Capital expenditure during the quarter was approximately $598 million as we continue to invest in capability required for future growth. Our balance sheet remains resilient with consolidated net cash of approximately INR 2,512 million as of 30 June 2026. The recovery phasing outlined by Umang is in line with our financial framework. We expect sequential improvement in quarter 2 and movement towards year-on-year comparability by end of the first half and return on year-on-year growth from the second half. Given the unusually low operating base in quarter 1, margin recovery will be weighted towards the second half of the year. The pace of improvement will depend on the revenue conversion, business mix, utilization and delivery against the operating milestones discussed today. I also want to add that we have just announced that U.S. FDA has completed its inspection of our Pashamylaram facility, which was conducted from 27 July to 5th August. Following this, we have received a Form 483 with 5 observations. None of them relate to data integrity. We are reviewing the observations and we respond to the agency within the stated time lines. With that, I'll hand back to Cyndrella.

Thank you, Himanshu. I request operator to open the floor for Q&A.

[Operator Instructions] Our first question comes from the line of Kunal Dhamesha with Macquarie Research.

So the first question is, in your view, when you assess this business segment, right? And some of the recovery might take time. But when you look at the target addressable market with the capability that the company has, let's say, from a 2- to 3-year perspective, where do you see the growth range for each of the business segments? Because we have provided a lot of detail as we have got customer audits and purchase orders, right? So keeping all that into your view and into that equation, let's say, FY '27, quantification of where we would see in terms of revenue growth directionally suggested by FY '27 and then beyond FY '27, how should we think each of this business segment?

Yes. Thanks, Kunal. Thank you for your question. I think a couple of points. I see -- let me just outline -- this may not be strictly what you're looking for, but I can give you some color on what I'm seeing across our businesses. I think on the -- let me start with -- let me start on the CDMO side. I think the market in the amidite oligonucleotide space and the relative start position and scientific capability that the Sala and the Cohance organization have built is going to be a very significant growth driver for the future. So I actually see that in 3 years or so that this business and whatever we have has a solid chance of -- in 3 to 4 years of almost doubling and growing significantly faster than this, right? Now that's directional. It's not what our strat plan target is and what it will be, but I'm just trying to share with you what I think can happen. The second business where I see a huge amount of growth is on the ADC side. I think currently, that business, we're seeing the cost more than the revenue at this stage. And I think that because of reasons where specifically on the ADC side and NJ Bio, the cost basis of that business is today challenged for more revenue. And I think once the revenue trajectory there comes back, which is what we are hoping will happen as we did lose some level of FTE customers there because of the biotech funding concerns that happened some time back, at least even if the profitability of the business doesn't reach where we want it to be, I believe that the cost base would get amortized significantly, right? And as we speak, Sanj Bio and the combination with Cohance in terms of our payloads and everything else can -- is beginning to build a pipeline that we think is significant. So my objective on that side of the business, to be honest, is just to make sure that the cost -- the amount of cost that is running in that business is commensurate to the amount of revenue we can generate in the future. I think on the small molecule chemistry side, I actually see very large potential for several reasons. I think our teams have been in the marketplace for a fair amount of time now, and this is about the time when conversions begin to happen. We're not seeing much of that in the -- up until the previous quarter. But in this quarter, which is the late period of quarter 1 and in the beginning of quarter 2, we're beginning to see some solid reload orders and some solid conversions coming through, which is building to this thesis that Yann has laid out in terms of our pipelines beginning to look good and the pipeline is looking good. So half 2 of this year, I think we will have a pretty strong -- hoping to see a strong CDMO performance. I also think that this next quarter in CDMO will be significantly better than quarter 1 that we've done. And I think longer term, this business is poised for good growth because, quite honestly, when I look at the reporting universe outside in India, that side of the business is showing growth across most of our peers. And so therefore, I do think that getting back our ability to service customers here and new business is very strong. Let me go to the API plus business. I think this is for us as much an API business as we -- as people generally call it, but also a business that has legacy where we deal with innovators and in a very significant manner with a few innovators who we also deal with on the CDMO side of our business. So there is predictability to this business that we are beginning to see now. And in many ways, if you were to understand the Cohance model, this is the bedrock of what the CDMO business and the Agchem business will add to as we begin to top up and add up as a company. So I see very steady growth, pretty sustainable. I think Gunjan and his team are doing a good job in terms of just being able to look at locking customers. And I think this could be a CAGR business going forward where eventually, I also think at the size and scale of this business, we're still probably just 30%, 40% of our potential over a 3- to 5-year period, right? So I think that's where I think this business will go. And the profitability also in this business can be significant. Coming to our Performance Chem and Agchem business, I think one of the things that Amrit has spoken about is the need for this business to move up the value chain to partner with innovators. So far, for whatever reasons, we have been in this business of trying to partner with a limited number of molecules and a limited amount of capacity. And I think we're trying to unlock some of the existing capacity, refurbish some of it, but also tie up with innovators on challenges that they come across. And I think -- and Agchem also has the unfortunate issue of going through a downturn across the world. But I think from what we are seeing in terms of new products that we're landing with innovators, et cetera, this business has also got a very strong potential to improve its profitability and improve its top line. And it could be in the same ballpark range that we have been talking about for the rest of the businesses. So I think that all 3 businesses have the potential, some because of the base effect, some because -- they just mined the opportunities now over the last 1, 1.5 years with new BD teams and some because they have reached a size like the API plus business has reached a particular size that offers the stability and bedrock for Cohance going forward. So in simple -- I'm sorry, I gave you a very long answer, but I think that the business has the ability clearly to begin to show solid growth over the next 3-plus years. And most of this will start becoming visible on the second half of FY '27.

And just from your pecking order perspective in terms of, let's say, the capital allocation or the future capacity addition, it very nuanced as to just look at that, okay, chem, I can do this molecule, hence, I invest? Or is it more top down that CDMO is the biggest delta generator and hence, all focus on CDMO. And then how do you think about this? Because -- and the synergies of this business, right, what is your sense on the synergies of this API and probably CDMO small molecule CDMO is almost everyone is doing. But chem and specialty chem business, how does that fit into the overall scheme?

Yes. I think if your question is how do we characterize capital allocation in the business, -- let me answer it not potentially by business segment, right? Because quite honestly, I could see a really exciting opportunity in an API plus business or an innovation partnered Agchem business, which might actually be higher than the ROI in some of our other business segments, right? So what we are prioritizing in terms of allocation of capacity, where is the Cohance hook, where is it that we are better than the world, could be areas like colored compounds, could be other areas where we believe we have positions where we've historically done intermediates for innovators. And we prioritize that section of the business, the section of the business that works with innovation, the section of the business that has the ability -- innovators across our chain, whether it's pharma, whether it's life sciences, ag chem, right? And that's the part of the business that we are trying to feed. Now a lot of it naturally gravitates towards pharma CDMO -- but even our API strategy is equally about building positions with innovators and more solid positions that offer stability. So the ROI rubric within the organization is significant from an NPV perspective, but it's also trying to drive the company up the value chain to partner with innovators.

Sure. And from a synergy perspective, is it very different, the ag chem and specialty chem manufacturing? Or do they share some of the scale, there is some economies of scale that is being...

Well, let me put it this way. If you -- logically, the API and the CDMO businesses are closer, right, than the Agchem and the Performance Chem business. However, having said that, we have a few facilities where Agchem and more importantly, performance chem happens in the same location may not be in the same block, right, as we make our production. So the synergies that we get from our Agchem and Performance Chem business are around the areas of deleveraging common overheads, right, as facilities, but also some customers operate in this segment as well, right? Some of our innovator customers on the pharma side are also kind of common with the -- I mean, the companies are the same. The teams may be different on the performance chem side of the business, performance chem and Agchem side of the business.

Sure. And lastly, on the cost side, while you talked about NJ Bio where our near-term plan would be to match the cost with the revenue. But overall, at a consol level, do you see opportunities to optimize the cost? And if yes, what's the potential there?

I think -- let me put it this way. There is always potential to optimize cost, whether it's in supply chain or in the organization. But I think for us, optimizing those costs which are not creating the value we want. There could be capacities which are running at low utilizations. They could be, as I mentioned, around the whole ADC space and the amount of costs that we incur in the U.S. on MJ Bio, et cetera. So we're trying to optimize that section to generate more revenue, to generate more utilization as against taking an approach right now to begin to cut and curtail.

Our next question comes from the line of Shyam Srinivasan with Goldman Sachs.

Just on the CDMO business from a macro standpoint, how are things looking right now is this legislative angle around the Department of Defense peers of yours. So I just want to understand what's happening from a macro front. How is this translating into RFQ and order win rates for Indian companies, including ourselves -- if you could just give us some color.

Yes, we can. Okay. So the overall megatrend, right, for Indian CDMO has not changed, right? So there are several trends that are helping Indian CDMO. The first one is the geopolitical situation where we see large pharmaceutical companies and also biotech trying to diversify their supply and that are coming more and more to India to shop for R&D support and manufacturing support, okay? So that has not changed. We also see more and more alignment in terms of supply for intermediates and starting material between India and U.S., as you may imagine, right, there are significant efforts in U.S. to derisk some of the supply coming from other countries. So that's good. We see that translates into increased number of RFQs that we are seeing, especially in late-stage RFQs, the Phase III and commercial I mean for those in mind that the clients always [indiscernible] That's the situation today, and we are benefiting from that situation...

Just my second question is on the API business. I think there's some commentary that you shared around pricing discipline. So again, are we able to kind of adjust our prices upwards in response to input how this transform..

I'll take this one. So first, thanks for the question. The price increase which happened during the last quarter, largely due to the larger raw material price escalations, which we witnessed because of the geopolitical situation, we tried our level best in terms of transferring a decent portion of that increase to our customers. The business is typically on relationships. So we have to be mindful of the near-term and the long-term play there. However, we were able to pass on a major chunk of the cost escalation in terms of price increases. In this business, typically, and as Umang also mentioned, the profitability and the growth still remains robust. The key sources of growth are going to be with new product addition and building up further on the relationships like the life cycle management opportunities with the innovators and capturing the value chain proposition with our play all across intermediates, APIs, pellets and formulations. So these are the key drivers for growth, which we are trying to capitalize on.

Just my last question on financial metric, which is EBITDA margins. Stand-alone, we did 9%. Historically, we have had higher margins operating leverage plays out. the foresee that margins whenever they normalize fiscal '28, '29, whenever you want to call out, would be very [indiscernible] So just any outlook on how we should look at overall margin? I'm not saying a specific year, but just how we should look at it in the...

I think Umang to Kunal's question gave a very good view on how we are looking at the business and how the business would pan out in 3 to 4 years. I mean the fact is that the current quarter has a significant operating deleverage given the way the revenue is. And our expectation is that as the top line increases, which it will, the operating leverage will start to play in, right? And so given the way the business would pan out, the margins will start to come back. Now whether it will reach to 235, I mean, at this point in time, it's difficult to articulate that. But yes, we are expecting the margins to steadily increase year-on-year given the operating leverage that will play in.

Our next question comes from the line of Bansi Desai with JP Morgan.

So Umang, my first question is to you. In your opening remarks, you mentioned your confidence in Cohance's recovery stems from the fact that there is scientific capabilities. And we appreciate the fact that when it comes to ADCs and oligonucleotides, Cohance does have a differentiated positioning. But if you look at the broader small molecule business, which is still a bigger part of the CDMO TAM for the industry, where the competition is so intense, why -- what will make a customer choose Cohance over, say, other CDMO companies? So where do you see the differentiation there that will help Cohan win more business?

Great question. Thanks, and I'm happy to answer it. And I think, look, there are certain types -- so there are -- in this business, my understanding so far, and again, in as much as I can just tell you what I've seen in the last 3 to 4 months and what I know about this business from outside. I think there are 2, 3 things that happen. A relationship starts with a customer, which begins to result in scientific exchange of ideas across both sides -- I mean, across the customer and the client. And eventually, what begins to happen is that because of the scientific expertise that is transferred, that relationship continues to grow. And along with what gets transferred, you also begin to build capabilities that are structured in your organization for the benefit of the partner that you're working with. If you look around the CDMO universe today, many of our peers have these 2 or 3 anchor relationships with customers, which have resulted in their businesses reaching a critical size. And it's all because the relationship started with 1 or 2 customers and eventually moved into multiple products, but deepening the relationship with those. I think some of our peers may have actually moved faster than Cohance, and that's a certainty now considering where Cohance is in the molecule business. And -- to some extent, the leadership churn that has happened in Cohance did not help this going in the past. However, the way we look at it now, we have anchor relationships with our customers. We've built significant trust with at least 2 or 3 customers we've had over the past couple of years. And to be honest, a lot of these customers did not necessarily increase the width of their business with us in the past 2 to 3 years. And we are hoping that, that changes now. That's one source of revenue, which is not easily replaceable because gaining this trust and building this trust and widening this relationship, at least for the businesses of Cohance has taken 7 years. And the general sense is that this investing of time takes 7 to 10 years for everybody like Cohance to do across the universe, right? So that's number one. That's your biggest hope. And we feel confident about our existing relationships widening. The second, where you compete is because of this transfer of technology information of science that happens between large innovator companies and yourself, you start becoming better at what you do. You start having more differentiated analytical methods. You start creating a team of scientists that customers want to call when they have a problem. And at that point in time, when you begin to see just the type of people who are very big in our sector, the companies like Divvy, companies like Laurus, right, they have matured this capability over several years. And I think Cohance is in a journey where it's getting on to that path to get and develop the science envelope for itself. So you compete on the basis of your relationship, you compete on the basis of your science and your capability, which is the journey that we are on, right? And from our starting position, if you were to take where we are today and our starting position, I think we've come to the conclusion that we have capability capacity and hunger to be able to do it. The third is costs. Right now it's a great area to play cost because everybody wants the lowest cost. But my general belief that's not a very sustainable proposition. So you have to bank back on your relationship and on your scientific prowess and the science envelope that you have as a company. So this is where we will compete. We will compete in what we know best. We will compete in things where our manufacturing setups have unique features, which require certain types of chemistry. And we will compete and widen what our partners for the partners who have worked with us and try and get new partners as.

This is quite helpful. And if you -- if we look at our Phase III pipeline, so we have a good number of assets there, 10 assets in Phase III, if that's the updated number. Just basis on that, do we have the confidence to grow this business significantly over the next 3 to 4 years? Do you believe there are those high-value opportunities sitting there? Because these opportunities is just a matter of commercialization, right? We already are there in Phase III with these customers. So just looking at our late-stage pipeline today, do we have confidence of delivering that high growth over the next 2 to 3 years?

Yes, I think so. I think those 10 products in pipeline in Phase III are what technically should be driving a lot of the growth. But let me also request Yann to talk about those 10 and what he thinks could be potential going forward.