Dishman Carbogen Amcis Limited (DCAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dishman Carbogen Amcis Limited Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Mark Griffiths, CEO, Dishman Carbogen Amcis Limited. Thank you, and over to you, sir.

Thanks very much, and good afternoon, everybody. Thanks for joining the con call. Firstly, brief apologies. Arpit's on his way down to the meeting. So he is on his way down now, but I'll do some short introductory remarks. And then I plan to hand over to Mr. Harshil Dalal, our global CFO, and you can start to dig into the details that you wish, and then I can support with any discussions required on operations. So briefly, to introduce the call today, we are satisfied that our business continues to head in the right direction. Our strategy of providing a continuum of service for our customers right away from single-digit brands all the way through to multi-ton in market supply of APIs plus our innovative products in the cholesterol and vitamin D area and our quaternary ammonium salt business, all seem to be going in the right direction for us. We published the results today, I believe, Harshil? It's yesterday? And you should have the pack of the investor information data available to you. So without spending too much time talking about the introduction, I'll hand you over to Harshil, who can give you a color and flavor on the numbers, and then we can proceed into the rest of the call. Thank you very much, moderator. I'll hand you over now to Mr. Dalal.

Hello, everybody. A very good afternoon to all of you or a very good evening. I'll just take you through the numbers for the quarter and the 9 months ending December 31, 2019. For the quarter, our revenue grew by about 13%. So our total revenue, including the operating income was INR 542 crores, which then increased by 13% if you compare it with the corresponding quarter last year. Our EBITDA without other income was INR 125 crores, which represents 23% of the total revenue. The profit before tax was INR 50 crores -- INR 50.65 crores and the profit after tax was INR 32.82 crores. So this was the quarterly highlights for the company on a consolidated basis. For the 9 months, our total revenue up till December 31, 2019, was INR 1,531 crores, which represents a 9% increase over the corresponding 9 months of the last year. The EBITDA without other income is INR 390.55 crores, which represents about 26% of the net revenue. The profit before tax is INR 162 crores, while the profit after tax is INR 108 crores. As far as the major highlights for the quarter and the 9 months ending December 31, 2019, are concerned: first, talking about the quarter, what we saw in the quarter was that Carbogen Amcis AG had a phenomenal growth in their revenues as compared to the comparable quarter last year. So the growth in the revenue was almost 40%. So in rupee terms, against INR 237 crores, which was the revenue in Q3 FY '19, Carbogen Amcis did a revenue of INR 331 crores, and this is exactly what we had mentioned in the last call, that certain commercial orders were -- got deferred from Q2 to Q3, and hence there was an inventory buildup at the end of Q2. So that was largely driven by tax as well as certain additional commercial orders, which have gone out in Q3. As far as the India CRAMS is concerned, since many of the orders have been deferred to Q4, the revenue at India CRAMS was lower as compared to Q3 of last year. We did a revenue of INR 51 crores as compared to INR 76 crores in the corresponding quarter last year. However, for the 9 months ending December 31, 2019, India CRAMS kept on showing a good amount of growth. The total revenue for India CRAMS is INR 240 crores as compared to INR 210 crores in the corresponding 9 months of last year. We do expect that the India CRAMS revenue would increase significantly in the next quarter as compared to this quarter. That is largely on account of the commercial orders expected to go out in Q4 as compared to Q3, and that will also have a positive impact on the margins as well. As far as CRAMS UK is concerned, since the UK business is more of a non-GMP business and it feeds into the Swiss entity as well as it has its own external customers, it would be -- there would be a lot of [queue-ups ] in that particular business quarter-over-quarter. CRAMS UK, in this particular quarter, did a revenue of about INR 20 crores, which was a similar kind of revenue which is in the comparable quarter last year. And for the 9 months, CRAMS UK did a revenue of INR 81 crores as compared to INR 62 crores in the corresponding 9 months of last year. As far as Carbogen Amcis BV, that is a part of our Marketable Molecules segment, the vitamin D business is concerned. And in Q3, we saw that it did a revenue of about INR 57 crores as compared to INR 67 crores in the corresponding quarter last year. And these sales was largely driven by the sales in the cholesterol segment as compared to the vitamin D analogue segment, which we do expect that most of those sales should happen in Q4. For the 9 months, Carbogen Amcis BV did a revenue of about INR 185 crores as compared to INR 190 crores in the corresponding 9 months of last year. For the full year, we believe that it should do a revenue of close to about EUR 33 million to EUR 35 million for the full year. As far as the other segment is concerned, which includes the India Marketable Molecules segment as well as Carbogen Amcis Shanghai, we saw a significant increase in the revenue as far as the other segment is concerned. If you compare it to the comparable quarter last year, we did a revenue of about INR 59 crores. So this was driven by about INR 20 crores of revenue coming from Carbogen Amcis Shanghai and the rest of the revenue coming from the India Marketable Molecules segment. For the full year, we did a revenue -- for the 9 months ending December 31, we did a revenue of about INR 160 crores as compared to INR 120 crores in the corresponding 9 months of the previous year. As far as the margins are concerned, India CRAMS continues to show significant amount of margins as we have seen historically as well. So India CRAMS did a margin of about 54% in the quarter, and for the 9 months, it was 56%. The CRAMS, Carbogen Amcis and the RIOM business put together did a EBITDA margin of about 21.5%, which is again a good amount of increase as compared to our historical average of about 19% to 20%. And this is largely driven by the commercial orders that were supplied out of Carbogen Amcis. The CRAMS UK business, we did a margin of about 14%, and for the 9 months, we did a margin of about 16%. But again, that is largely driven by the intermediates and the non-GMP material required for the other projects. Carbogen Amcis BV did a margin of about 31%, and for the 9 months, EBITDA margin of about 34%, which is a bit lower than what we had done last year, which is largely driven by the sales of analogue, which was higher last year as compared to the cholesterol sales, which is higher this year. But we do believe that in Q4, we should have a higher amount of analogue sales happening out of Carbogen Amcis BV. So these were some of the key highlights of the financials for the quarter and the 9 months. Certain important points that I would like to draw your attention to, one of the things is in relation to the realized foreign exchange gain, which you know is part of our other operating income. So it increased last year. For third quarter ended December 31, 2018, we had a realized foreign exchange gain [ heading ] an operating income of INR 41.65 crores. As compared to that, we have an operating gain on account of ForEx of only INR 13 crores in this particular quarter. So there is a clear delta of about INR 28 crores on account of the realized foreign exchange gain, and this is on account of the forward contracts that we keep on looking to hedge our exposure. So some of those forward contracts are becoming due in the next quarter and in the following quarter. So we would see certain realized gains coming in the next quarter and going forward. But last year, most of them were bunched up in that particular financial year. And the same story continues for the 9 months ending December 31, 2019, as well, wherein the realized foreign exchange gain for the 9 months was INR 35 crores as compared to INR 84 crores in the corresponding 9 months of the previous year. As far as the employment cost is concerned, you will see that the employment cost as compared to Q2 has increased. So that is largely on account of an additional month salary that we pay out to our overseas employees in the month of December. So that is one of the reasons. Secondly, we have recruited certain additional scientists at Carbogen Amcis because of which the employment cost has increased. And thirdly, on account of the conversion of the foreign exchange on account of the employment cost overseas in the Indian rupees, which is also having a negative impact on the overall employment cost. Fourthly, other expenses on a consolidated level includes a foreign exchange loss on account of mark-to-market of INR 10 crores in the quarter. So if you see our other expenses, the total cost is about INR 92 crores. So that includes -- the INR 94 crores, I'm sorry, and that includes INR 10 crores of foreign exchange loss on account of the mark-to-market. And lastly, as far as the depreciation is concerned, that has definitely been increasing as compared to the last year, which is largely on account of the new accounting standards related to leases, which has been adopted at our subsidiaries as well as at the parent level because of the Ind AS 116 being implemented. On a net debt basis, we were at about USD 120 million as of 31st March 2019. As of 31st December 2019, our net debt is USD 108 million. Since most of our debt is denominated in foreign currency, this has been normalized in U.S. dollars. So there is a reduction of about USD 12 million as far as our net debt is concerned. With that, I would like to hand over the call to Mr. Sanjay Majmudar to say a few words, and then we can open the floor for Q&A.

Thank you, Harshil. I think this was a fairly elaborate presentation on your side. And since I see a very long list of participants, let's quickly go on to Q&A. Moderator, you may throw the session open for Q&A.

[Operator Instructions] The first question is from the line of Aditya Khemka from DSP Mutual Funds.

Two questions. Firstly, on the buyback that was announced. Is there a official starting day and official ending day by which you would have to complete the buyback?

Yes. Thank you, Aditya, for your question. So we have given a public announcement, wherein -- and it's also -- they are on this stock exchange that says wherein the starting date for the buyback is Monday, the 27th. And as per the regulations, we have a total period of 6 months, within which the entire buyback needs to be completed.

Right. And given that the price of the stock remains below the buyback price, is it mandatory or compulsory that you need to finish the entire buyback?

Yes. So ideally, we would want to finish the entire buyback within the period of 6 months. So yes, that's the goal, and that's what's been approved by the Board.

Fair enough. On the second question, any updates, if you may, on the investigation, the IT investigation going on? That would be much appreciated.

Sure. So as far as the IT search is concerned, the status remains the same as what we had updated to the stock exchange that we have not received any official communication from the IT department. Whatever information was required, all of that had been supplied. And it would be very premature on our side to comment anything further on that.

That's fair enough. Considering that your business momentum is doing well across segments, and obviously, there are quarterly variations, could I get a -- some sense on what you plan to do with the free cash flow that you generate in FY '21? So in that line, what would your CapEx be and where would you guide us for a ballpark EBITDA number for FY '21?

Sure. As far as the free cash flow is concerned obviously that would be put back into the company for its own growth and part of it would be utilized to reward the shareholders as well. As far as our CapEx plans are concerned, as far as Carbogen Amcis and some of overseas entities are concerned, we are almost hold up to capacity, and maybe Mark can also elaborate a bit on that. So we would need to keep on adding capacities at our overseas operation, for which the cash flow would be utilized. So we remain -- I would say, the annual CapEx outflow for us has been, I mean largely -- it is the normal CapEx outflow as we have been guiding 1 year would be close to about $35 million, so -- annually. So that's the kind of run rate with which we will be working. And then there'll be sort of CapEx, which might be front-ended, but if we take overall period of 5 years, that would be kind of the average annual run rate.

Fair enough. So is there a debt repayment number as well as a target for next year?

So we don't essentially have a target for the debt repayment. I mean as far as our debt is concerned, we have already reduced the debt about $5 million, though it's not -- it wasn't like a target that we need to reduce it by $12 million because as you can see, the nonrecurrent cost for us is also quite low. And since the business is increasing, the revenues are increasing. There is also a working capital blockage, which keeps on happening. So I would say, on a normalized basis, close to anywhere between $5 million to $10 million would be kind of our target, but then we also have to think about how we need to reward our shareholders like we have announced our 5-year plan as well.

The next question is from the line of Dipan Mehta from [ Excelsior Equities ].

Yes, sir. Sir, when we took over Carbogen Amcis Switzerland, the whole idea was to bring a lot of manufacturing from the overseas facilities into India. But even after so many years -- yes, can you hear me?

Yes. Yes, we can hear you.

Even after so many years, we are not able to get bulk of the revenue from the overseas subsidiary back into India, which has got, of course, higher margins and better flexibility and improved productivity. So what exactly is preventing us? I was just observing that only INR 50 crores out of the INR 400 crores comes from India. And ideally, it should be significantly higher, which is the case for a lot of other similar businesses?

So Dipan, one thing to understand is that what we report in the presentation, all the breakup that we mentioned to you, so these are the sales which happened directly from India to the end customers or through the marketing subsidiaries. Now there is also a lot of work that India does for the Carbogen Amcis, the Swiss operations as well. All of that revenue gets captured on the Carbogen Amcis AG. So if you see the India's stand-alone revenue, last year was about INR 550 crores. This year, it could be in excess of INR 600 crores or closer to INR 650 crores. So that's the kind of revenue that India does. But the goods which get -- or the services which get sold to the Carbogen Amcis AG or the goods that get sold to Netherlands, all of that sales gets clumped under the nonintegral subsidiaries.

Yes, there is significant activity between the operations in Asia and the operations in Europe, significant, significant.

Sir, now my question is, therefore, if you could just, as a thumb rule, tell us of the INR 520 crores of gross sales for the last quarter consol, what will be India manufacturing share?

Sorry, sorry, the INR 520 crores of...

Gross sales, consolidated.

India manufacturing in each plant -- manufactured out of -- products manufactured out of Indian plant.

So that for the quarter was about INR 100 crores. For the full year, it would be close to about INR 600 crores to INR 650 crores. Out of the consolidated revenue, if we use a ballpark INR 2,100 crores, then it would be close to about 30%, 30% to 35%.

Dipan, I would like to add a couple of things. First and foremost, you mentioned that when we acquired Carbogen Amcis, the idea was to bring additional business. So yes, I think there is a little bit of a misconception here. See, you must understand that Carbogen Amcis was a very strategic acquisition. And today, there is a lot of technology transfer that has happened between Carbogen Amcis, which is -- for example, we have started Unit 9B here. We are in a lot of complicated chemistries. There was a front-ending and a back-ending synergy, which has actually happened over a period of time. So just to give you an example, when we acquired Carbogen Amcis, it was doing only some 3, 4 or 5 commercial projects. Today, it is doing more than 25 commercials. And there is a massive increase in the overall activity level. So there is a lot of synergy that has happened on a back-to-back basis. So it is wrong to assume that our idea was to downsize Carbogen and make India a major production hub. I think that was never the focus. The focus was to project Dishman and Carbogen Amcis on a consolidated basis as a very unique business model rather than just talking about shifting of production. I think you have to look at it in a very different perspective, if Mark can...

Essentially, it's cumulative. So we've moved, and I can take one perfect example for you. We moved the complete API from Switzerland over to India. And there are a number of benefits that we've already accrued. Number one, in renegotiating the contract for that API with the clients, it gave us the opportunity to sell that product outside of that client, nonexclusively, which we weren't able to do out of Switzerland. So that also increased the revenue, but also increased the customer base for India because we were able to expand the customer base for that product. What it also did, just as importantly, was freed up capacity in Switzerland, which we were able to sell at a higher rate. So in actual fact, it's a double win. If we could just transfer that and shutdown operations in Europe, then you'd have had a win for a little while. But what we've got is a double win because we've had free capacity, which we've been able to sell for a higher price, which has enabled us to continue to grow Carbogen Amcis while we continue to fill the pipe for India. And that is one example of probably 15 or 20 activities, I assume, today ongoing.

Yes, ongoing. That's correct.

And there's been many that have finished to dive in the clinic. So there's an awful lot of that. Maybe what we should do, next time, we do an investor pack, maybe we should put some statistics of the number of projects that have been transferred and we're working jointly on, might be useful.

Yes. So if you look at Carbogen Amcis this year, this is probably to maybe CHF 150 million in that range. That is completely nonintegral in the sense that India does a stand-alone of say INR 600 crores including the marketing subsidiary sales, and Carbogen Amcis does close to about CHF 150 million and then that adds up. But there is lot of seamless technology transfers. And because of Carbogen Amcis front-ending, Carbogen Amcis is able to take highly complex jobs. And when it is scaled up, it goes to India and then that -- it enables India to further give a push. So it is actually a complementary activity and synergy rather than just a manufacturing cost-cutting exercise.

[Operator Instructions] The next question is from the line of Satish Bhatt from Anvil Shares and Stock Broking.

Mark, I just wanted to know if you could throw some light on your -- how your pipeline is developing and how the drugs have moved in the -- like last 6 months? And what type of commercializing you're expecting in the next 6 months or something like that? And I think we were talking of going into immunooncology segment in the -- for developing capability, either we are -- have we shortlisted something or we are going to develop everything on our own? Because it's already a high time, I think, we are seeing globally, I think, 30% or 40% of the new drugs are coming from the IO segment. If you can throw some light on that?

Yes, sure. I'll answer the first question first. The pipeline is very healthy. Anecdotally, you've heard me talk about kissing frogs. We are still kissing frogs at a very healthy rate. I think the challenge we're coming up against now is one of maybe we've been a little too successful. So our capacities have been tight for a while. I've deliberately kept them tight because the tighter the capacities are the more efficient we work. We are reaching the point where we're now, as Harshil mentioned, we're starting to look now at a slightly elevated CapEx for the next few years to enable us to incrementally add capacities in certain areas beyond our strategic planning, which is an ongoing process. So I think as an organization, we're very satisfied with the pipeline. We continue to transition it about the right transition from development into validation and through to commercial at about a rate we've always been talking about. We had 1 confirmation last week for a Northern-Asian company. So we're quite satisfied with the rate. We're still transitioning at about the rate we've always said we would. Anything that's in Phase III, we're working on the basis of anywhere between roughly 50% of those would go commercial. And we're transitioning at about that rate. So we're quite satisfied. That's sizing very nicely when we talk about immuno-oncology and other things. That's part of our long-term strategy, which is an exercise that's constantly going on between Arpit, myself and Harshil with support from the relevant operations around the world. We continue to look. The difficulty is that we've got to get ourselves in a good position for our core business. So part of what we're putting effort into is the vitamin D and vitamin D analogues. We still continue to push those very hard. And we're starting to see some success on those. Our core business, of course, is CRAMS and chemistry, and we continue to make sure that that is a stable, sustainable and growing business going forward. Formulation, as you know, is something of a significant interest to us. And we're reaching the conclusions on our strategy for that. Hopefully, we'll be able to talk about that at the next con call after the next board meeting. So immuno-oncology is one part of the jigsaw, along with biologics, along with additional ADC potentially. We've just had some recent news, another customer signed up to do some early phase development work in antibody drug conjugate with us. So we're now starting to see that gain some traction. So again, exciting times for us.

Just to add, there are more than 20 projects in Phase III.

Yes. And we've got a lot going on at the moment. We are very busy, and we're happy to be there.

And there would be a steady addition of commercial projects out of this pipeline.

[ 2 or 3 ].

Yes, clearly. At least 1 or 2 every year, that's what we are thinking.

That's what we've always targeted. And I think we've been pretty consistent with our expectations on that and the delivery of those expectations. Clearly, I can't talk about customers. We've had this discussion before. We've got to respect confidentiality, but we're satisfied.

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

Just a clarity, you said India CRAMS business, part of it has been deferred to fourth quarter. I see other elements has also been deferred part of it in fourth quarter. So was there any anything to do with that IT-related issues? Or this is normal...

No. No. No.

No. So this was just how the customers had placed the orders. So if you see even historically, Q4 has been our strongest quarter. And typically from India post 15th of December, as it is the shipment [indiscernible] because of the Christmas break overseas. So it's just part of it. Even last year, if you see India revenue was -- stand-alone revenue was INR 413 crores. So we do expect that with the kind of order book that we have for this quarter end, going forward, we should see the India CRAMS business growing in the current quarter. But it has nothing to do with the IT raids because all the business operations, everything was going normally.

Okay. So where we stand in terms of supply of eprosartan? Are we still supplying to Mylan or we have...

Yes, it was.

Yes. Yes.

Yes. So in this particular -- in Q3, there was, again, one of the reasons in Q3, we had just one shipment of eprosartan versus we should have 3 suppliers in this quarter.

Just to be clear, in Europe, where eprosartan is going, December is only a 2-week month. So basically, everybody is shutting down their operations to do long-term maintenance, people are on holiday. So that generally tends to be what happens.

And we have already got consistently good repeat orders, and this process continues. For the whole next year, the order had already come. So there's no -- nothing to worry about. It's a decent growth actually.

That's fine. So my understanding was that the contract with Mylan has some date or probably by next year. Can you give some clarity how long we have to supply under the contract?

So it's a 5-year agreement that we have with Mylan, and that gets renewed at the end of the fourth year for another 5 years. So that keeps on happening on an ongoing basis. So we already have orders in hand for the current calendar year.

Okay. As long we are supplying to Mylan, we are -- we'll not be looking at different partners, right?

Well, ideally...

Because we are the only manufacturer of the specific root which is the x sold by Abbott root, we're the only company in the world that makes through that root and we're the only company licensed to make through that root. There are other generic versions of eprosartan, but we're the one -- we make the one, which is the registered innovator. So that's why we continue to supply to Mylan.

Okay, fine. And then last one. On ForEx side, ForEx gain this time was lowest. In fourth quarter, that ForEx gain should be in line with what you have got in this quarter? Or what's your scenario there?

So it all depends upon how the [ changers ] move in this particular quarter. But we believe that, yes, it should be a similar kind of payment this quarter as far as the realized gains are concerned because we don't book the unrealized gains through the P&L.

The next question is from the line of Nitin Agarwal from IDFC Securities.

Sir, on 2 things. One is on China, can you just update us on how the performance has been for China business for the 9 months? And explain strategically, how is Chinese restructuring really playing out?

I'm sorry, I'm struggling to hear you, and it's Mark.

He wants to know about the Shanghai business.

So Shanghai is doing a considerable amount of work for Switzerland at the moment on a couple of very complex intermediates. We are working closer and closer now towards approval for the Chinese FDA -- Chinese quality authorizations. As always, there's more we can do there, and we're pushing hard, but we are probably also in China now, which is where we said we wanted to be. We're continuing to put effort in that area, but we're not concerned.

Mark, so have you got any live customer contracts in China right now? Or how...

Yes. Yes. Live ongoing project.

Okay. And then Harshil, is it -- is Chinese business or the Shanghai unit are now breaking even for the 9 months?

Yes. So the only reason why a loss was reported was because there was a deferred tax asset which was created in the past when China was incurring losses. So by the end of this quarter, by December 31, 2019, all of those deferred tax assets have been written off. So from the next quarter onwards, I think we should see a positive path going forward. But on an EBITDA level, at an operating level, it is already generating positive numbers.

And any sense on what kind of profitability levels are there in China at the EBITDA level?

Sorry, at EBITDA level?

Yes. The EBITDA margin. What kind of EBITDA margins are we -- do we envisage in the Chinese business?

I think it should be at least 25% to 30%.

So it's similar to India.

At least 25% to 30%.

Okay. And secondly, Mark, on the vitamin analogue business. I mean there is not much scaleup that you've seen versus last year for the 9 months. I mean how should we look at this business, if you take a 2- to 3-year view?

Yes. I think as -- I've said before, Nitin, the current business is what we call -- that's the baseload. What we're doing is we're looking now at other innovative applications for these products. So I mentioned that we are nearing the end of a clinical trial for a vitamin D analogue in the U.S. at the moment. That, and along with other particular concepts, we're looking at for those derivatives is going to be the future of the business long term. We will continue to manufacture cholesterol. But more and more, that cholesterol will be utilized for captive use to generate our own products. And that's where we provide strength for Holland, but utilizing the assets that Mr. Vyas, Sr., has created over here to produce bulk for potential markets where we're pushing it.

But Mark, in terms of -- is there a point in time over the next few -- when you see a sort of marked pickup in these analogue volumes?

Not less than 18 months. And it's not volume business, it will be sales business. And it depends where we recognize those sales as well. That's something that hasn't been clarified yet. We haven't decided yet where we recognize those sales. But I would suggest you're probably not going to see a massive uptick in the next 18 months, but after that, there should be quite some activity. These things take time. But in the meantime, the business is stable. The business is generating significant funds back into the business, and we're not too concerned.

Okay. And lastly, Mark, how many have you -- how many products that you've been working on have got commercialized in 9 months? And do you have any specific outcomes that you were awaiting on certain of the products where the clients have undertaken validations where FDA approvals are expected over the next couple of quarters or so?

We had one a couple of weeks ago that was approved. There's another couple of clients who have done their submissions and they're waiting. As I said, we're on target for 2 -- for 2-year -- 2- to 3-year. But again, as you know, Nitin, it's not in our hands. We finished the validation. We submit the data to the client, the client does the submission. So again, it's not in our hands. But the rates at which things are getting commercialized is consistent with what we've been saying for the last 2, 3 years.

If I could probably add on that. I remember, you mentioned something about a multiple sclerosis product. Is that -- has the FDA...

What's that?

Multiple sclerosis.

Yes. The client's waiting. We submitted. Client's waiting. So we're in a hold pattern, and we're using the capacity for something else.

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

Just some more clarifications. Has the China unit been already audited -- or the Shanghai unit has been already audited by U.S. FDA what we had indicated earlier?

No. As I mentioned in Nitin's question, we're preparing now. We've got information back from the Chinese authorities that they intend to have a look at the site. But again, we're prepared, we're ready. We are working on bringing projects in, which will trigger an inspection. It's not in our hands. We're ready.

Okay. So we're still awaiting.

Yes. Now, it's up to the authorities to come.

Okay. And in terms of -- Mark, you -- in your some of the responses, you were mentioning that we have kept our capacities tight. And there is a very good demand that you are seeing. So could you elaborate a little bit more in terms of the R&D projects where we are standing which are related to us? How should we look at it? And what is the demand scenario looking like? And if I could further add to it, what should be the capacity relatively that we would need to get in place?

Well, I'll try and answer those 4 questions in 1. We see market demand being very strong. We still see healthy compound annual growth in the market, especially for the early phase. We see still very strong financial investment, particularly in the U.S. and Japan into startup and small to medium biotech. We still see a lot of activity there. That money going in is translating to early phase development work, and we are well placed to continue to take on business. So we are not at all concerned with the market demand. I'm actually more concerned in my ability to take as much as I want. So that's where the efficiency changes that we're trying to work through right now, plus the incremental CapEx Harshil mentioned earlier will come into play. We need to continue to create additional capacity to feed the pipe, but the pipe looks very strong.

So any color on the present order book at the CA? And if we had recently added our capacity and -- in what way we have already seen it getting utilized? If you could add some comment on that?

Well, if you remember last year, we added -- we introduced some more high-potent laboratory capacity. We filled that within about 3 or 4 months with projects, which has enabled us to utilize better the production units. So it's actually fed the production unit very nicely. A lot of what we're doing now is focusing on efficiency. The busier you are is the best time to drive efficiency when you're really busy because there's an imperative every way to do so. And we want to make sure that when we make investments, we're making them not on the basis of an inefficient operation but on an efficient operation so that the impact of the investment is felt very quickly. So we continue to see that trend happening. So not so concerned about it. From a market perspective, unless you guys know something is going to happen in the market that we've done, we see still a lot of strength, especially in the U.S. Especially, Japan is becoming very interesting for us. We established an office there about 18 months ago with a native Japanese speaker, which is absolutely vital. And we've seen significant uptick in interest and inquiries of opportunity in Japan. So that is really exciting for us.

So if we can relate it with number of projects or the funnel size that we refer to always. So if you could tell us how it is moving for us from R&D projects that we are handling right now compared to what you're relating in terms of the demand in that funnel?

Well, at any one time, there's probably -- Carbogen Amcis is probably working on at any one time in excess of 120, 130 projects at any one time. Over a year, you're probably looking at something like 250 to 300 development projects. Most of them preclinical Phase I, Phase II. Our ratio in terms of Phase III, there's a healthy 20-odd in Phase III, 20, 25 in Phase III. So the ratios are about what we've been consistent on. The kill rate is about the same. So we don't see any significant differences in the profile of the business over the last 2 or 3 years.

Except for the fact that currently, even the last leg of capacities created in Carbogen Amcis are now almost full, almost full.

Yes. And that's what the incremental CapEx is for over the next 2 or 3 years, whilst we finalize our long-term growth plans. And as I said earlier, I would very much hope, I think, Arpit, myself and Harshil would very much hope that by the time we get to the next investor con call -- quarterly con call, we'll have some exciting news for you on the finalization of those plans.

Yes. Yes. Hopefully.

Okay. That's very helpful. And just a few bookkeeping questions. Harshil, what should we look at effective tax rate going ahead for '21, '22, if you could just help us?

So right now, we are evaluating -- so you know this is new tax regime, which has commenced from June 2019. So we're just evaluating right now whether to opt for the new tax regime or to continue under the older one. So there could be significant benefits by adopting the new tax regime. And if we do that, then the effective tax rate would be 25% from the next year onwards.

Okay. Okay. That's helpful. All the best, guys. And just last one, in terms of EBITDA -- I'm so sorry, in terms of EBITDA, for the full year, we should maintain our earlier guidance of around 27%-ish, is that a correct assumption?

Yes. No problem.

Yes, I would say so.

We will move on to the next question that is from the line of Vaibhav Gogate from Ashmore.

This is Ashwini here. I was looking at the Others revenue segment and EBITDA segment. So the revenues in Others grew quite rapidly, which I'm assuming is because of the ramp-up in China. In response to one of the earlier questions, you mentioned that China EBITDA is probably around 25%. So why has the margin for the Others segment fallen on a year-on-year basis so sharply? Could you help us understand that, please?

Sure, Ashwini. So that is -- so the 25% would be going forward. So right now, you see that the margins are close to about 15% for China. And then the Others also include the Marketable Molecules segment in India, which is the quaternary compound, the PTCs, the Disinfectant, et cetera, where, again, we saw a good amount of sales happening in this particular quarter, so where again the margins are not more than about 10%. So this is the major reason why the margins are close to about 10%, but the revenue was higher. From next quarter onwards, we should see a good amount of margin or maybe what we'll be doing for the benefit of all the investors is classifying now Carbogen Amcis Shanghai separately so that the margin can be seen separately and the revenue can be seen separately for the Shanghai operation.

So has the Quats margin fallen in India?

No. So it does -- so I think it's more like, I would say, like a commodity business. So it does depend upon, in that particular quarter, what the prices of the Quats would be. So it will be very difficult to have a consistency on the pricing of the Quat quarter-over-quarter or month-over-month.

I was just trying to understand why year on year, 9 month to 9 month, it's fallen from 21% to 10%; and Q3, fallen from 18% to 9%. So there is a halving of the margin, and even if you're getting 15% from China, that indicates that Quats, something has seriously gone wrong or there might be something else hidden there, which is dragging the numbers down? I don't know.

No. So it does include the 4 things that I mentioned, [indiscernible] Quats, phase transfer catalysts and -- yes, so that's what we're supplying from India and the Shanghai operations. So if you want, I can give you the granular breakup of data as well offline so that it would be clear.

Okay. Okay. And the other thing is that would it be more useful just as a suggestion to actually -- probably clump CRAMS revenues in U.K., France and Switzerland, along with that in China because they seem to be kind of working in the same business environment feeding off each other?

Yes, exactly. So that's what I had mentioned that from the next quarter, what we'll do is, now since China is becoming significant, the CRAMS China revenue would be classified under CRAMS as a separate component.

Okay. All right. Okay. No, that's great. Okay. Yes, you've already given the answer to the other question. But on vitamin D launch in India, there is still no visibility as to when that might happen?

Yes. I think we're focusing on the clinical trials for the smaller but much higher value indications. The soft gel plant is coming online gradually. So the next thing is going to be the approvals. Hopefully, by the next con call, we should be able to give you a lot more definitive information about when we plan to launch those products. But the focus at the moment is on the scientific side of the filing for the smaller indications for the very high added value ones for the pharmaceutical use, which is led by the clinical trial we're running in conjunction with Boston University at the moment. So there's a lot of focus going on that.

What would be the -- I mean assuming that you have the Phase II results with you, then you'll have to file those results with regulators? So the commercial launch is at least about 2 years away, would that be a fair guess?

18 months, I would suggest. 18 months to 2 years. But there's an awful lot of work to do. And that work isn't just making product. That work is regulatory filings, patent work, as I mentioned earlier, we're doing quite a bit of work on patents at the moment. We want to make sure that what -- this is an interesting and innovative solution to treat -- for this particular trial, to treat a very, very particular subset of surgical patients, which at the moment, there is no treatment that really exists. So we want to make sure that we've got at least our efforts locked in and some -- and protected in some way. So we're not making a lot of products at the moment, but we're doing a lot of work, regulatory and legal. And that's consuming a lot of time and effort. We -- unfortunately, around the world, we don't have thousands of people hanging around waiting for some work to do. So we're trying very hard to employ everybody every day. So we're really busy. We're just not making a lot at the moment.

And the soft gel plant would be ready by -- in another quarter or so is that correct?

I think we'll be ready to give you much more color about that. It's still sort of semi in construction and testing. The little pilot unit is running, and that's doing some basic training work and piloting work, optimization work and the larger lines coming to fruition. So I hope we'll be able to give you much more color by the next meeting.

The next question is from the line of Dipan Mehta from [ Excelsior Equities ].

Yes, sir. This is regarding the goodwill. So I'm referring to your note in which you said that there is INR 1,326 crores of goodwill, which will be amortized over a 15-year period. So I'm just wondering that that is part of the INR 3,464 crores goodwill, which is there in the balance sheet as of September '19, right?

Right, exactly. So the INR 1,300-odd crores of goodwill is basically the intangible assets which were recognized at the time of amalgamation with impact from 1st of January 2015 on the India balance sheet. And at that point, the investment in our overseas entities were also revalued to the fair market value. So on a consolidated basis, you'll see a larger amount of goodwill, which is close to INR 3,400-odd crores, of which the goodwill eligible for amortization is the INR 1,300 crores and the rest represents the goodwill on consolidation, which largely arises from the revaluation of the investment in our wholly-owned subsidiaries from India.

Okay. Okay. Second question is that the INR 22 crores, that is the additional amortization, which is there from this fiscal, if you reduce it from the depreciation/amortization of INR 72 crores for December '19, then actually, the depreciation has come down year-on-year from December '18 to December '19 because December '18 was INR 57 crores. But INR 57 crores would have been -- become INR 50 crores have been -- not been for this INR 22 crores of additional amortization?

No. This is -- so the amortization has been in place since, I would say, 4th April 2017 or '16. So that's been an annual charge or a quarterly charge, which keeps on happening. So it's not just from this financial year. It was there last year as well. The increase in the depreciation is on account of the new accounting standard for leases which is the Ind AS 116, which is applicable from the 1st of April 2019.

Okay. So it's not that excluding this amortization, there's a decline in the depreciation?

No. No. No. The depreciation has increased by about INR 15 crores on an average every quarter.

[Operator Instructions] The next question is from the line of Dhruv Shah from Ambika Fincap.

Harshil, I just have one question. Have you decided anything on the goodwill write-off?

The goodwill right now, of course, INR 22 crores is the quarterly charge. We are discussing whether there is a possibility of an accelerated write-off of the goodwill. But yes, nothing decided as of now. We are discussing with our auditors as well if there is a possibility and whether it makes sense to do that.

Even if it is there, so it will be a P&L impact or it will be an -- a balance sheet impact?

No, it would be a P&L impact.

But as -- I mean as we mentioned, right now, there is nothing frozen.

No. No. I'm just asking on the accounting part. So you will have to take it through P&L? So there will be a big write-off through the P&L as well?

Yes. So the thing that we are doing right now, it will have to be through the P&L.

[Operator Instructions]

I think moderator, if there are no further questions, we can end the call.

Sure, sir. Would you like to add any closing remarks?

I'd just like to thank everybody for their continued support. We very much appreciate your questions, and we're looking forward to speaking to you on the next con call. Thank you very much, indeed, and enjoy the rest of your day. Thank you.

Thank you very much.

Thank you.

Ladies and gentlemen, on behalf of Dishman Carbogen Amcis Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.