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

Ladies and gentlemen, good day, and welcome to the Dishman Carbogen Amcis Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mark Griffiths from Dishman Carbogen Amcis Limited. Thank you, and over to you, sir.

Thank you, moderator. And thank you, everybody, for joining the Dishman Carbogen Amcis con call today. We sincerely hope that you and your families and colleagues are safe during these uncertain and strange times. Firstly, [indiscernible] Is traveling back from India to -- from Europe to India. And unfortunately, he's unavailable to join us today and sends his apologies. My name is Mark Griffiths, I'm the Director and CEO of the business, and I'll take the preview introduction. As you all aware, this year has been one of many challenges with COVID and the outcome of our EDQM [ review ] this year at the Bavla plant in India. Despite these challenges, we have continued to make strong progress at a global level. The market remained buoyant in the CRAMS space and despite the stringent restrictions on travel, we've been able to find new ways to keep in close contact with our clients around the globe. As a result of that, our CRAMS pipeline remains very strong with a circa CHF 90 million order book across the board. And our [ light ] CRAMS space portfolio remains in line with the previous predictions that we gave. Our marketing activities continued to strengthen, with a particular note for the [indiscernible] . And of course, with COVID our disinfectant product line remains quite strong. We have, as we anticipated last quarter, restarted manufacturing at our Bavla site, following the EDQM edict. And the first deliveries of 2 contracts into [indiscernible] were commenced in December and January to the section. That enables us to keep commercial manufacturing supplies on target for customers. We've received further notification from the EDQM now, and our submitted corrective plans have been reviewed by them and found to be appropriate. This is really good news because that enables us now to move ahead with full force pursuing these corrective plans. Clients have already recommenced auditing of our Bavla facility with the first full [ EDQM ] edict, which we received only last week being successfully included. It's anticipated that a number of similar audits will be performed by clients over the next 2 to 3 months, which will gradually enable us to recommence full supply to these clients and bring Bavla back up to its operating capacity. With that, I'd like to conclude the basic introduction and hand over to our CFO, Mr. Harshil Dalal, to take you through the numbers before we commence with the Q&A. Thank you for your attention, and we look forward to an interesting discussion. Harshil, over to you.

Thank you very much, Mark. Hello, everybody. A very good afternoon to all of you. Regarding the numbers for the quarter ended September 30, 2020, our revenue from operations was INR 440 crores, which was down by about 2% as compared to the comparable quarter last year. Before that, I would just like to, obviously, as all of you know, since the numbers of this year are impacted largely on account of the EDQM observations that we are in the process of resolving the Bavla does remain impacted. And hence, not all the numbers would be comparable to the same quarter of last year, and the same goes through for the first half of the year as well. As far as our EBITDA is concerned, we did an EBITDA of about INR 80 crores as compared to INR 145 crores in Q2 of last year. The INR 80 crores of EBITDA includes a negative ForEx impact of about INR 16 crores. Thus the EBITDA ex of ForEx impact comes to about INR 96 crores. Last year in the same quarter, we had a foreign exchange gain. So the EBITDA and ForEx impact of last year was, same quarter, was INR 139.6 crores. So the margin -- the EBITDA margin as a percentage of sales comes to about 22% ex of ForEx impact in this quarter as compared to about 30% in the comparable quarter last year. The profit before tax for the quarter was INR 3.9 crores as compared to INR 65 crores in the quarter last year, and the profit after tax was INR 7.37 crores this quarter as compared to INR 41 crores in Q2 of last year. As far as the performance -- segment wide performance is concerned, obviously, CRAMS India continued to remain impacted in this quarter as well, which we expect to improve -- the revenues to improve in the coming 2 quarters of the current financial year and going into the next financial year as we keep on resolving the EDQM observation issues. As Mark mentioned, in response to the corrective action plan, which was submitted to the EDQM, we have received a global report from them in terms of confirming that whatever actions we have suggested as part of the plan is acceptable to them. So we have -- we are already in the process of implementing the actions as outlined in the plan provided to them and agreed to by them. As far as the [ other ] entities are concerned as well as the [ Shanghai ] entity is concerned all put together, which we classify as [ Netherlands ], Switzerland, France and China, the revenue grew by about 53% in this quarter as compared to comparable quarter of last year. And this was largely driven by a high amount of commercial supplies which went out in this quarter. If you remember in the fourth quarter of the current financial year, the supplies out of the Swiss facility, which is the largest subsidiary, the development revenues were quite high and that was the reason the EBITDA margin was about 16% as compared to an annual average of about 19% to 20%. In the current quarter, Carbogen Amcis Switzerland along with France and China reported a quite healthy margin. So we reported a margin of about 22% at an EBITDA level, which is quite significant, and that's driven largely by the commercial supplies. CRAMS UK did a revenue of about INR 27.6 crores as compared to INR 24 crores in the last year same quarter. As far as our Marketable Molecules segment is concerned, Carbogen Amcis BV, which is the entity based out of Netherlands, where we manufacture the cholesterol and the Vitamin D analogue, did a revenue of about INR 52 crores as compared to INR 54 crores in the same quarter of last year. However, it delivered quite healthy margins. So the EBITDA margin at Carbogen Amcis BV for the quarter ended September was -- September 20 was 37%, which gives a first half average margin of about 34%, which is in line with what we did last year in the first half. As far as the other segment is concerned, within the Marketable Molecules, which includes the [ formulary ] Compound for Phase Transfer Catalysts, disinfectant and the API business, EBITDA revenue of about INR 35 crores as compared to about INR 50 crores in the same quarter of last year. And on the margin front, that was at about 15% EBITDA as compared to 11% in the same quarter of last year. So overall, as far as the EBITDA performances are concerned, these were quite satisfactory in the current quarter and most of them reported a growth as compared to Q2 of last year. Sequentially, compared to Q1, our numbers as far as the EBITDA is concerned and FX impact is concerned, that was much better in the current quarter as compared to Q1 of the current financial year. With that, I would like to hand over the call to Mr. Sanjay Majmudar, our Independent Director. Thank you very much, everybody.

Hi, everyone. Good afternoon, and thank you for attending this call on a Saturday, which is also marking the beginning of the tradition Diwali holidays in most parts of the country. So to begin on a correct note, I wish you a very, very healthy and Happy Diwali because as we all know, we will be happy if we remain healthy this Diwali, which is definitely what we pray for. Now coming straight to the point, being -- at the cost of being a little replicative, Harshil has taken you through the numbers. But from a very broader perspective, the key highlights of this first half of Q2, the dampener, so to say, is the Dishman India standalone performance. The company on a standalone view did just over INR 60 crores in the first half of about INR 30-odd crores per quarter, Q1, Q2 as against almost INR 311-plus crores of top line last year. This was entirely or to a very large extent attributable to the unfortunate audit observations and the remarks of EDQM. However, the good part is that, as Harshil explained, EDQM, our whatever -- corrective action plan that we submitted has been largely accepted, and now it's a matter of implementation. Most of the other European buyers who also had commenced to do their what we call it as risk reassessment procedures are being concluded satisfactorily. And as Mark explained, we are commencing the production at Bavla in the CRAMS category gradually from Q3, and it should really pick up with full force in Q4. So it is a hazard to guess, but definitely, Q2 and Q1 were an exceptionally poor performance, not because of the business model but because of these technicalities. And now Q3, Q4 are bound to be much, much better. Traditionally, Q4 has been very strong for Dishman. And we believe that whatever steps the company will be able to do to recoup the first 2 quarters' losses in terms of dispatches, sales and a recovery of a little bit of negative EBITDA that the company has done. On a standalone basis in H1 it's a very, very marginal EBITDA of just about 14 -- I'm sorry, a marginal EBITDA of just about INR 10 crores negative as compared to INR 144 crore positive EBITDA positive last year. So we are hopeful that we should make up quite a bit of what is lost, but the fact that what is lost is lost. So therefore, let us see and endeavor to definitely put all trends and recover and be back in positive growth trajectory and a very healthy growth trajectory from Q4 with early visibility coming from Q3. So this is a major takeaway, which I wanted to highlight. Having said that, the fact that on a medium- to long-term perspective, as Mark, during the course of the call, as is his custom, he will elaborate, Carbogen Amcis as our key major non-integral subsidiary continues to remain extremely bullish. They've done phenomenally well in Q2. So they have done overall very well in first quarter -- I mean, first half, and they will continue to do very well. They have a very healthy order book pipeline of more than CHF 90 million. And so they are absolutely full. The expansion projects are also on grounds and -- in France as well as Switzerland. The pipeline of new products and projects is also looking very, very healthy and bullish with several important '18/'19 late Phase III products. Commercialization process is also being happening. It's a bit premature, but we believe that over the next year, if I look at -- if I take away 2021 as an exception. From '21, '22 onwards, Dishman, as a group on a consolidated basis, will continue to strive and grow very handsomely year-over-year. And I think with that, I would request the moderator to throw open the house for Q&A.

[Operator Instructions] The first question is from the line of [ Suresh Agrawal ], an individual investor.

I'm a long-term investor in Dishman Carbogen Amcis last -- around 8 to 10 years, but I am basically much disappointed with the management. It seems that management under Arpit and Mark and Harshil is not doing anything meaningful other than just big talk and some type of -- career in the management community. And all other companies, whether domestic and international, are doing great. This is going back and back. And a lot of CapEx is expanded out this year in the name of maintenance CapEx as told in the investor presentation, CapEx of INR 119 crores in H1 '21, which seems a hit and not meaningful. I am very very very much disappointed with this company. I don't know, but I have invested around -- lakhs and rupees I'm having, from my family, around [ 50,000 ] in Dishman company but pretty much disappointed. This Mark, this Arpit and this Harshil and Sanjay Majmudar only have bit of doing nothing -- only maintenance CapEx, they did and they can -- they are talking money just like anything and not doing anything. No, they have made this Dishman Carbogen Amcis -- they have taken and broken the company too. I'm very much determined that I'm really set to, that I will share my experience with you people in this [ call ]. Very much disappointed. We have money -- I have incurred a great loss. And all other pharma companies did double and triple there, but in Dishman Carbogen Amcis, actually, it's going down and down, down and down.

So Mr. [ Suresh ], thank you for voicing your concern. So as we have been mentioning all year, we had the EDQM observations, which came out in the month of March or April. And that was related to the Bavla site. And we are in the process. We have now, I mean, changed the entire management. We have appointed a new Chief Operating Officer at the Bavla site, responsible for the entire India operations. We had to undergo a massive restructuring, and we are trying to address whatever observations have been brought out by the EDQM. The corrective action plan has obviously been accepted by them, which is obviously the core thing. And if you see -- apart from the Bavla site, the rest of the businesses, whether it's Switzerland, France, the Naroda site in India, all of them have been performing excellent results. So what I can say is that once we are able to resolve these issues, which have unfortunately come up at the Bavla site, we should be back on our sync and the growth number should be visible on a consolidated level.

Well, EDQM actually observations were around 1 year old. 1 year old, you see. But your company is performing last several years. Several years, a lot of maintenance CapEx. I don't know where this CapEx is going.

So as far as the CapEx is concerned, so if you see across the globe, just the total gross [ cost ] that we have is close to about INR 2,500-odd crores even if you to exclude foreign exchange impact on the gross [ cost ]. So essentially, we would have to incur close to about 4% to 5% as a maintenance CapEx because most of our plants are based in Switzerland, France, U.K., Netherlands, where, obviously, the cost of maintenance is quite high as compared to India. So if you see about 50% -- or 40% to 50% of the CapEx that we do. So for the current year, we believe that we should be doing the CapEx of close to about INR 250-odd crores, including the gross FX between Switzerland and France. We would have to incur close to about 4% to 5% as the maintenance CapEx in order to make sure that all of our facilities are compliant with the U.S. FDA regulations and other regulatory requirements. So with the asset base and the cost base, which we have across these geographies, that would be the kind of maintenance CapEx that we would have to incur.

Sir, this -- like people cost is increasing day by day. In every quarter, this employee cost and all these things are increasing day by day. But no meaningful EBITDA increase, no meaningful turnover increase, nothing is improving. The company is making fool of the investor. The company is coming in every quarter for the [ comfort ] but making fool of the investors. I don't know, but I a, very disappointed.

So sorry [ Suresh ] for getting that feeling. But the reason for the increase in the employee cost, one is because of the additional development capacities, the additional development orders that we are getting out of Carbogen Amcis. So that does require recruitment of additional scientists, which we have done over the last 12 months. And we believe that the incremental revenue on the development side would be visible starting this financial year and going into the future. So that is #1. So most of the recruitment has happened at the Carbogen Amcis side. Secondly, as far as our costs are concerned, since most of the costs are incurred in foreign currency, especially in Carbogen Amcis and Swiss brand, there is obviously an impact of foreign exchange fluctuation on the cost part as well. So for the current quarter and for the first half as compared to the last year, there is an impact of about 10% to 11% in the employee cost as well as the other foreign currency costs on our P&L. So if you -- so the INR 214 crores, speaking specifically about the employee expenses, close to about INR 22 crores to INR 23 crores is just on account of restatement of the employee expenses in INR as compared to CHF, which is the Swiss franc.

Suresh, I will -- I want to add 2 things here, not in defense, but just as a matter of clarification. The first, we completely agree that very, unfortunately, because of the there is a very disappointing performance at the standalone level, which is completely contrary to the pharma, normal trends, which you have seen in all other companies. But this is, as you know, we work -- the company works with regulators across the globe, and there cannot be any complacency or anything to cut the corners whenever there is a regulatory remark, which warrants a complete comprehensive event. I'll just give you 2 examples. On the employee cost, if you see standalone, in the first quarter of current year, there is a reduction of almost INR 10 crores at the salary wages level because the compense are corresponding to the reduction in the level of operations. The labor cost and the manpower cost has also come down. There is also some retrenchment happening -- some massive event happening at the employee level on a standalone basis. Another point, just for your knowledge, just said in the Board, we will inform that all the promoters, there's all the management that is Arpit, myself, Sanjay as well as Mr. Griffiths, they have voluntarily decided not to draw any managerial remuneration this year. So they have actually forgone their entire managerial remuneration only because of this unfortunate thing that has happened in Bavla. And there is a more than redoubled commitment. There's no point in giving you unnecessary promises, but I would have only mentioned that if this EDQM edict had not happened, Dishman would have been really reporting a stellar performance this year. But we have to accept it with all humility at the management level. And at the Board level, we have been very, very strict and vigilant about every possible aspect. This is just to make sure that this kind of situation does not arise again. Mark, if you have to add anything at your level as the Global CEO?

No. I think at the end of the day, we're very disappointed about what happened with EDQM. It has given us the opportunity to restructure the business. Outside of Switzerland, our operations are doing very well. We're continuing to capture high added-value business. We've got some very interesting projects that are starting to come to fruition. So yes, if we were performing as we did last year or the year before in Bavla, then the numbers would be particularly strong. And it's that one particular issue that's called us out for some people. If you look at the operations outside of the Bavla site, we are performing very strongly.

[Operator Instructions] The next question is from the line of Nitin Agarwal from IDFC.

Mark, 2 questions. On the Bavla business, this year is the impacted year. And we're talking about a normalization from Q4 onwards. When you look out, say, FY '22, FY '23, I mean, how should we look at the India business, given the fact that you talked about a lot of restructuring that you guys have had a chance to undertake in the business. What is the outlook for this business now for another -- if you look out 2 to 3 years from here on?

Yes. I think we're actually going to be in a better position, frankly. I think we're going to be focusing more on higher added-value products rather than volume. Obviously, if we can get very high-value products at high volume, that's what we're going for. But the reality is that we were chasing some -- or were working on some very low-margin business. So similar to what we did in Holland a couple of years ago. We are changing the focus a little bit to moving up the food chain a little bit in terms of what we do. So complex intermediates and larger volume APIs, I think, working closely with Switzerland, forging those links even better than they were in the past. And I think that's where the future is for the business, frankly. We have some great skill sets in India, and we've got to make better use of them rather than chasing volume, large volume projects, we need to be chasing large margin projects. And we have the capability to do that. And I think that's what we're pushing the business. And frankly, we're already doing some of that with some of the work that already commenced. These projects are very, very expensive intermediates, often significantly higher in -- than the full APIs that were being manufactured in the past. So that represents a big opportunity there and that opportunity is still there. So we're quite bullish. The ability to restructure the business has been very good actually, and we're pleased we've been able to do that because it gets us to the right size. We can change the mix of the people a little bit and move forward again.

Maybe just to add, in terms of numbers, I think -- Harshil, correct me if I'm wrong. But next year, everything is normal, you can expect at least around INR 600-odd crores business from Bavla?

On a standalone basis, yes, but obviously on a consolidated basis, a lot of it gets marked out because of the scale of the subsidiary. But yes, I mean...

After the March 20 call, I had made a statement that because of the EDQM this year, we expect an overall 10% de-growth. I have made that statement very clearly understanding that we will be losing at least INR 200 crores to maybe INR 250 crores turnover relating to Bavla in the first 6 or 7, 8 months of the current year. Now that is the normal. And you add it to the fact that -- so supposing if I end this year, say, around INR 1,800 crores. This is just a hypothesis. I'm not even making any numbers or anything, but let us assume INR 1,700 crores, INR 1,500 crores or INR 1,800 crores on a constant basis, given the fact that we did close to INR 900 crores in the first half, it should be slightly better. I think next year, on a consolidated basis, at least a 15% to 20% -- at least a 15% plus growth over this year minimum or I would say even 20% is what we should expect, because we will make up the loss and we will resume the normal growth. But as you know, we are not giving any guidance, but this is just an indication to let you know that fundamentally, in the business, per se, there is nothing wrong. But unfortunately, the good part for Dishman for so many years because it had never had any problem at all with any regulatory authority. This is just -- it happens because when you work with so many regulatory authorities, you can't control everything. And therefore, this alteration has happened, which doesn't alter the fundamental strength or the direction or the opportunity landscape of the company.

Right. And just to sort of build on that, sir, on the India business, I guess the business essentially has a challenge trial assessment of having very few large contracts in the past for commercial supplies. I mean, with the restructuring now that we are undertaking, do we see anything meaningful changing on that front in terms of reducing the consolidation risk on 3 or 4 products -- projects rather, which are driving the entire business for us?

Yes, we do. We do. And the way we're selling the business is -- for CRAMS only, is that we've got a consolidated offer. So depending on what you want and where you want it, we can manufacture anywhere you like, okay? So a lot of these projects that we're talking about now, and there were -- the Brinzolamide project is the one we've talked about before. Well, Bavla is making that intermediate. That intermediate is an exceedingly high-value intermediate, far in excess of most of the APIs that we've been manufacturing out of Bavla, okay? And that has enabled us to be much more streamlined. Bavla has enabled Switzerland to be more streamlined to make more product for the customer, to bring more revenue into the business. That is one of the key fundamentals that Carbogen was bought for all those years ago, and we've got to get back to that fundamental, okay. We're also selling the business on the basis that initial supplies can be done when you create your IP out of Switzerland. Once the product becomes established, there's an opportunity to get higher volume, which is what Bavla can offer us -- or offer the customer and also life cycle management across the world. So the message is the same in the market. What we've got to do is to get back -- get this EDQM thing put behind us, and we are substantially moving towards putting that behind us. And move on with that strategy and really push that strategy. And there were a number of barriers in the past to enable that strategy to happen. Those barriers no longer exist. We've restructured that, and we have a way forward. And we are absolutely committed and focused on this. That doesn't change the fact that -- at the end of the day, what we want to try and do there is to create value for the business, okay. And the value for the business isn't just chasing large volume contracts. We could bring business in at $50 a kilogram. That's not the business we want. Some of these intermediates are far in excess, far, far, in excess of those values. And they're smaller volumes, which means that they're utilizing less capacity. We can make more money. And that's where we want to be, okay. We proved that by doing that in Holland, and that's the same sort of strategy that we're going to pursue, but it's much more integrated with Switzerland. And that's one of the benefits because it's integrated with Switzerland. If we capture the customer in Switzerland, we're already ahead of the curve in terms of bringing Bavla into the supply chain. Yes. I had a discussion last week with a large agency [ we could payload ] in manufacturing. And one of those intermediates is going to be costed out for Bavla. So Bavla is going to look -- manufacture one of those intermediates. That enables us to create more volume in Switzerland for that customer. That is a very, very compelling sell to customers. And that's what we've got to get back to.

Just to add, Mark. I think we are almost closer to a double-digit number of long-term visible contracts in Bavla, am I right?

Yes. I think the intermediate for Brinzolamide is a long-term contract. The other one, too. Yes, they're all long term. They're all 5-year contracts, generally speaking. And if you're the incumbent supplier, unless you really mess up, then you're going to be in a good position. There's no reason to change. Of course, there's always commercial discussions about pricing as the product matures. But one of the big advantages at Bavla and of the entire group is that Bavla has the headroom to enable us to do that, which means that it keeps us in the supply chain. So the message is clear. The strategy is clear. We've got to get back to our strategy. And some of the barriers that were preventing us from doing that are no longer there, which means that we can do this. So we only started production on 2 projects, which are complex intermediates, which are many, many times larger than some of the APIs that were audited during the EDQM order. So we asked ourselves the question, why are we bothering to do these things that caused us all this trouble, when we can make a lot more money and utilizing less capacity by doing some of these complex intermediates and starting materials. As well as some of the APIs that we've been manufacturing. Eprosartan, we will continue to manufacture eprosartan. We have [ rialumib, rialumib ] was [indiscernible] last week. So we will continue to manufacture eprosartan which has been on a fundamental basis for Bavla for a long time, a good product for us. We will continue to manufacture eprosartan and that's a large volume project. But if I can make the same amount of money on a ton of products rather than 90 tons why wouldn't I? So that's -- sorry, Nitin, go ahead.

Sorry. So just to squeeze in one last one on that. On the 4 projects you got commercial in Carbogen last year, any sense on if you started or how close you are the commercial supplies against some of them?

Yes, probably [ rialumib ] is the most urgent, if you like, in terms of asking the customer is this ADC link that we're manufacturing for a large Japanese company. And there's a lot of activity at the moment in Switzerland with the customer on preparing for commercial supply. So we're now looking at details, looking at all of the supply chain, looking at the security of the supply chain. Intermediates, there's 3 intermediates for the manufacture plus the API. The customer is co-investing with us in Switzerland to enable us to get to launch capacity. So that's probably the biggest one, and that's probably the one that can significantly move the needle for the business in the next 2 to 3 years. The other ones are as we predicted, they're niche volumes. They're high value, but they're never going to be multi-ton products. Some of the ones behind them are, and potentially the ones that we commercialized before that we discussed. The agency linker is the highlight. Without a doubt, the agency linker is the highlight. That's got a lot of attention within the business at the moment, working with the customer to secure the supply chain, ready for large-scale volumes.

Our next question is from the line of [ Diman Shah ] from [ One-off ] Financial.

Yes. Just to follow-up on the Bavla facility, I think the resolution has already happened. And now from next quarter or current month, this would normalize and slowly pick up and kind of normalize around the fourth quarter. That's what you're essentially alluding to?

Yes.

Great. Of the new molecules, I mean, what would be the current order pipeline? And in your opinion or in your estimate how much can the new potential order pipeline come by before we close the current financial year?

Well, the pipeline for the last -- probably for the last 3 or 4 quarters, the pipeline has been hovering around about CHF 90 million. And what's happening is we're processing projects, okay? So we're paring down the pipeline, and work is coming in, which is refilling the pipeline. So what that tells us is very clearly is that the market has an appetite for what we do. And we talked about this before on various other calls. That unlike the last recession, this one is health care driven, a health issue driven recession. And that means that the health care business in general has a much higher profile. That means that venture capital money going into our customers. So a lot of our customers are small and medium biotech. Venture capital money is flowing in, which is enabling these customers to progress their products. So that's a major contributor to why our pipeline is so strong. Our relationship with large pharma still remains very strange. And I think large pharma's relationship with the contract manufacturing industry is rather strange. We have some long-term relationships with a couple of companies, but we don't have long-term relationships anymore with many of them. And that's because they shop on price only. They're less concerned about value. And we're an organization where we don't really want to chase on price because that's just a race to the bottom. So we think that the focus on high volume, speed -- sorry, high value, speed, great customer service is where there's money. And we've proven that within Carbogen Amcis over the years and the pipeline seems to like that. What we want to do now with the strategy is to now get Bavla involved in that, very heavily invested in that, which is why the changes that have been made have been made. So that they see the organization not as a Swiss company with a parent company in India, but a global business. And that's what we've got to try and translate -- transition to. And that means we've got to work much closer together. And that's what we've been trying to do, but now a number of those barriers have been relieved. So yes, the issue is the pipeline is strong. The pipeline remains strong. I don't see a drop in the pipeline. As we work the pipeline down, more work is coming through. And for the last 4 or 5 quarters, it's been at the CHF 80 million, CHF 90 million level, and we don't see any drop in that. And one of the metrics we measure is the amount of venture capital money going into small to medium biopharma. And we track that on a monthly basis using various data that we get from around the industry. And there is no drop-off in venture capital money going into small and medium biotech. And that's one of our markers. If that starts to drop then we start -- we start with [ new technologies ], but there is no drop. There hasn't been for quite a long time.

Just as a sub-question to what you just answered, 2 things. I mean this $90 million pipeline, can it improve by 30%, 40%, 50%, just as an indication, I mean, if you can help with that? And also, while your strategy is great, having high speed, high value but would you also want to kind of conjoin it with some amount of base value as well? So it may not be meaningfully lower-value, high-volume kind of stuff, but something to set off or at least have a high significant utilization so that it can dovetail with the entire piece?

Yes. These -- I'll answer that one first. These are what we call baseload projects. So we have baseload projects. These are the ones that cover a large majority of the fixed cost and then enable us to cover that fixed cost whilst we pursue the high-value ones. And we have a number of those projects already in place. And that will be a strategy for Bavla and for Switzerland, let's be clear. We need the baseload. About $50 million to $60 million in Switzerland is commercial. And what we call then, these are long-term commercial contracts. Some of these projects we've been working on for 15, 20 years, and they are baseload. Okay. They're important products, but they're baseload products, okay? And that's part of the strategy of the business. We need to have those baseloads to enable us to pursue the other projects. So yes, you're absolutely right, and that is already embedded in the business. Looking at the headroom within the pipeline, yes, of course, there is opportunity to increase the headroom. Hence, the large CapEx projects that we're starting to pursue and we've discussed for France and for Switzerland, okay? For Switzerland, it's much easier. We know we need more small-scale capacity, and these are small vessels not that Bavla has. And we know that our customers are going to buy it. We have a very high level of confidence that customers are going to buy it. And that will enable us to increase our headroom in capacity terms, probably by at least 1/3 of capacity, which is really, really good news for Switzerland because we are basically full, okay. And you will know that last year and the year before, we increased R&D capacity. So we developed more products, therefore, we need to translate them into larger scale manufacture of intermediate starting materials and clinical trials materials and then those translate into the new stream [ rushes ], some of which will bleed over into our facilities in India and China. So yes, that's why we're doing the expansion because we believe the market is there to serve it.

So you are saying that essentially, this pipeline can normalize at least 30% higher? So around 120, 25 markets you have to get?

In the next 3 or 4 years. Once the facility is built, it's going to take us 2 or 3 years to build the facility, okay. Riom, the French facility is a slightly different profile. But for the facility in Switzerland, it's going to take us 3 years to build it, and then that's going to give us another 30-odd percent, we believe, in terms of capacity to grow the pipeline. In the meantime, we're doing a number of, what we call, enabling projects, which allow us to increase our capacity for -- to basically use that -- every last space we've got to enable us to continue to grow the business whilst we're building the new facility. The French facility is almost like a new venture, but it's not. It's an extended adventure into an early experiment we did. And there is a large opportunity for a formulation, for trial formulation, sterile for [ pipeline ]. So that's why we're getting that one.

And my last question is almost related. When do you -- what is the peak capacity. Or can you add -- if you take the current prices and more or less the current raw material prices and also the exchange rate to add to that. And if I adjust your capital employed for the non-charge, which means that the -- more or less, we arrive at the number of close to a net capital employed of around INR 4,500-odd crores. What is the peak turnover that you can hope to get from this once the -- once your entire year and all the other issues have subsided?

Harshil, do you want to take that one?

Yes. Yes, I'll take that, Mark. So if you take the current capital employed and if you are able to utilize our capacities in an optimal manner -- so right now, you can see the unutilized capacities. These are largely at our Shanghai facility, and right now because of the EDQM issues in Bavla. So if we are able to optimally utilize these capacities, I think we can touch a revenue of close to about INR 2,500 crores so that would be kind of the revenue which we could achieve.

But that's still a meaningfully less number because if you mark the INR 4,500 crores capital employed to INR 2,500 crores, steady state, let's say, margins of around 25%, 26%, plus or minus 50, 100 basis points here and there, that would still correspond to a very kind of low double-digit ROC. So what is so exciting about the entirety then?

So if you take our gross [ loss ] ex of the ForEx impact, that will come to about INR 2,500-odd crores. And on top of that, if you add the working capital within the business, which is on a normalized basis, roughly about 4 months, so that gives us another INR 600 crores, INR 700-odd crores. So the total capital employed as we would see it would be close to about INR 3,100 crores, INR 3,200-odd crores, on which we could do a revenue of about INR 2,500-odd crores. So that is how we would look at it, which obviously is not optimal, but what happens in our business is that it is capital intensive. And if you look at the assets outside of India, the sort of fixed asset turnover ratio that we are able to achieve right now is about 0.6 to 0.7. I mean we can try and bring this up to about 0.8 to 0.9. But beyond that, with the kind of geographies where we operate, especially in Switzerland and also in France, it would be difficult to achieve an asset turn of more than 1:1 even once we commercialize all of these products. And these product are near to their peak as far as the revenues are concerned and we have more profitable products in our basket.

So that means that the ability of the business to leave growth capital is a bit suspect?

So growth capital, well, what will happen is that by the time we complete this cycle and once we are able to optimally utilize the assets or even before that, we will have to start thinking about the next phase of capital or CapEx, which will help us to fulfill the orders, which would be for the product that moved from the development phase to the commercial phase. So we will obviously have to always think in advance of the products actually becoming big on the commercial scale because, otherwise, the customer would just not come to us. So that's the cycle that we would have to always keep on following.

I'll just add that as this optimal turnover of INR 2,500 crores, which is at an average capacity utilization of around 70% to 75%, it can be taken up, but I think Harshil is, perhaps wisely so, being a little conservative. I think the EBITDA margin will be a minimum -- global EBITDA blended will be at least 30%.

The next question is from the line of [ Ranvir Singh ] from [ Sunidhi Securities ]. As there is no reply from the current participant, we move to the next question from the line of Nishid Shah from Ambika Fincap.

Yes. I have a couple of questions. One, last year, you had commercialized and there was a press release that 4 products were commercialized. If you can just give some broad outline as to how will that help Dishman over the next 3, 5 years?

Well, of course, they're commercial. So we've got supply contracts for these. They will be on...

Can you speak a little loudly, Mark. I'm not able to hear you.

Sorry. Can you hear me now?

Yes, a little better.

Okay. Okay. So these are under supply -- commercial supply agreements now. And I think all 4 of those are on 5-year supply agreements. So we have fixed sales price to the customer, and we have commercial schedules. As these products grow, then they'll hopefully reach the customers' predicted peak. So each one of those, on average is probably generating something like 5 million to 10 million in their early phases. And depending on how successful the customer is in the market, those products will either grow or they will die. That's a part of the business that we're in. So -- but they're baseload, if you know what I mean. Once they go commercial, they're baseload. They're predictable. They're understandable. We know what we're doing. We have at least some visibility, okay? So that's how they benefit the group. They provide baseload and they provide surety to enable us to understand what we need to do to continue to grow. So what we have to do is to continue to try and commercialize, although we make the most money per unit during validation because of the amount of work that's required to validate. We need to continue that pipeline, and that pipeline needs R&D work, which we grew last year and the year before. So we've grown up the [ custody ] in R&D, which enables us to keep the pipeline moving. And now that's translating into a higher rate of products moving into late Phase III. And at late Phase III volumes grow outside of laboratories and also in Phase II. So we need more small-scale [ reactive ] capacity. So that's the way it works. It benefits us by giving us clarity, it benefits us by giving us a baseload and it also benefits in terms of our ability to look forward and see where we need to invest.

Mark, my question was on those products, which FDA has approved, those 4 products which went commercial. One of them is in ADC, which according to the company's own prediction, it can be a couple of billion-dollar product. Now it would be useful to know that if a company, the innovator, achieves $1 billion of revenue on a particular product, would it translate into at least $20 million of sales for us?

Our forecast for that product is somewhere in the next 3 years of $25 million to $40 million.

Annually?

Depending on what they -- annually. That depends on how successful they are in the market, how successful they are in partnering. They've already got one partner, but they're looking at other indications as well. So our top estimate is, knowing what we know, conservatively, is about $40 million per annum of growth, and our bottom estimate is somewhere between $20 million and $25 million. So we're seeing $25 million to $40 million on that one could well be the range that we're in. So that's why it's quite an important product.

This gives us some handle to do some kind of numbers that on $1 billion of sales, we can be expecting at least $30 million to $40 million of kind of revenue coming in for us.

I think you can run those scenarios. But honestly, it depends on the type of product. It depends on how successful they are in the market. It depends on many things. I mean -- and it's an ADC. So an antibody drug conjugate drug is a very expensive drug indeed to make, a very expensive drug. So it's not the same as...

If we can talk about the CMS drug, which also went commercial. That is a little larger molecule compared to an ADC molecule, because ADC molecules are a smaller molecule and oncology products. So in a CMS product on $1 billion of revenue, can we expect $40 million to $60 million kind of revenue for us?

Potentially, you could. Yes, potentially you could.

I do think that there may be one more supplier that innovative but at least, it will be safer to assume that we should be able to get at least 50% to 60% of the work as an initial project partner?

Normally, when they're in launch, you're the primary supplier. If we're the ones who've developed it, normally, during launch, we're the primary supplier and they're bringing on another supplier. So probably, I would think it's reasonable to say that for the first year or so at launch for the first year or so, at launch you'd be the only supplier, they'd be bringing on another supplier. We always ask for 80% of the year -- of the commercial volumes. Very rarely do we get that, but that's our starting point. And 50% is not unreasonable. We would be very disappointed with less than 50%.

Mark, my second question is relating to your relationship. You have a fantastic relationship with a lot of large pharma company as well as a lot of biotech companies. And somewhere in your annual report, you mentioned you have relationship with almost 170 large, small pharma as well as biotech companies.

Yes.

What -- is it correct to say that we still now have not been able to leverage this relationship to the potential extent that you would want to exploit it for an outsourcing business into India? I mean, what I'm trying to say is -- I'm just trying to elaborate that can we not have -- like we are doing an ADC for a large company in Europe, can we not make the manufacturing excellence center in India and do 2 or 3 large products for them, like a lot of other large companies in India? Or like we are doing a CNS product for an American company, can we not make a manufacturing excellence center in India and do 2 or 3 more products for them and do a large outsourcing business from India? I think it is useful if you can elaborate on this issue.

I think in the past, there's been some barriers to that, yes both internal and external barriers, frankly. Long term, the opportunity exists. And yes, eprosartan is a perfect example of that. Carbogen Amcis, back in the day before we were acquired by Dishman worked on that product and it ended up in Bavla and did a very successful product for us. And it built the foundation of -- in many respects, built the foundation of our India business in CRAMS. So very successful. We continue to use Bavla as our ability to life cycle manage. And by life cycle manager, I mean that products get too big and they get competition in the market, volume goes up and efficiency goes down, then you've got scale manufacturing facilities. So the strategy is exactly as you say. That's what we want to do. That's what we want to strive to do. And we have to behave as one organization. That's the way we have to do it. There's a lot of nervousness. The big pharma companies, mostly, generally, once they get commercial products, the big pharma companies want to reduce price immediately, okay? The small-to-medium biotechs don't. What's important to them is speed because they're in a highly competitive market. And what they want to do is either increase the wealth in the product quickly so they can license it or they want to take it through themselves and generate large amounts of cash. So speed is the critical issue. And we have the ability to do both, and that's what we should be selling, and that's what we've got to try and continue to project in the market there. Our relationship with large pharma is strange, frankly. Large pharma companies, you work with, I used to work a company called [indiscernible]. That's gone through a number of different iterations now. And those companies change. Pfizer and Pharmacia were 2 separate companies. We work with them a lot. They merged, they stopped outsourcing. [ Sharing Pal]. We used to work a lot with [ Sharing Pal ], that no longer exists. We've never had a relationship with Merck. We have a new relationship with Bristol-Myers Squibb because they acquired Celgene. So those relationships are interesting relationships, and they're not straight line. So with a small-to-medium biotech, it's very simple. They want high-quality work. They want it fast, and they want to protect their IP. That's the game. And a number of customers are very happy to work in India. A number of customers will not go anywhere near China. A number of customers are very happy to work in China, but won't go anywhere near India because of bad experiences. And there are other companies that won't work in Europe because it's too expensive. So want to go to Asia. And what we have to do is cater to all of those customers. And that's what we want to try and do and continue to do a better job at as we go forward.

So Mark, looking at your annual report, that 18 products are on the verge of commercialization and 4 products were [indiscernible] last year. Does that mean that on a 3- year to 5-year perspective, we could be seeing a completely different Dishman emerging? Or is that a [ correcting version ]?

It's a possibility. And that's what we're driving for. It's a possibility. We still get situations like we had with niraparib. So you can't control these things. But as we said before, we risk manage. At the end of the day, we get paid for every piece of work we do. If it goes commercial, that's great news for us because it's baseline. If it fails, we still get paid and we move on to the next one as long as the pipeline is full. And we've got to continue to push that pipeline. But we are not [ reinnovators ] . And we do not own the commercial rights to sell these products in the market to doctors and [indiscernible] . So unlike a generics business, where you can say, yes, we've got 10% of the market, this is what the product sells for, and we'll be making this for the next 10 years, we don't -- that's not our business. We don't do that. So it's a little more speculative. So -- but that's why we're putting in additional capacity because we know we can get there. And we've already got capacity in India, and we've got to get it utilized. And that's the goal, that's the goal. To sell the organization as a global business with the ability to do pretty much whatever any customer wants to do in chemistry anywhere in the world. Or at least in any continent in the world, and the U.S. So that's the goal. So that's the goal. And we've never had a pipeline like this. So yes, genuinely, in '20 years, we've never had a pipeline this strong. So obviously, it's going to play out in a good way, obviously. But it's never been this strong.

The next question is from the line of [ Jigar Walia ] from OHM Group.

One question. What percentage of our existing business and particularly at Bavla? And maybe also on this $90 million pipeline. Would be they -- be the primary suppliers? Would it largely be there? These products that are [indiscernible] suppliers?

In Bavla, I would say that the products we manufacture for innovators, I would say probably in a high proportion. I'd say probably 60% -- 60% to 70%, we're the primary supplier [indiscernible] .

Okay. And in terms of the pipeline that you're looking at?

With the pipeline, we are -- as far as we're aware, on these products that we're doing development on, we're the only ones doing the development. [indiscernible] is not going to tell you if you've got a competitor in the early stages. Generally speaking, we might discover that. But generally speaking, for the pipeline of 18, I'd say no more than about 5, we're the only people working on it apart from the customer, of course. We're the only people working on it. I'd say probably a percentage, maybe 5 of that 18. there's other companies, other CMOs working on it. But not too many.

The next question is from the line of [ Lalit Kumar] , an individual investor.

Sir my question is regarding the long-term growth of the company. So even if, let's say, we leave EDQM on for [ big returns], so if I take like [indiscernible] for financial year '16, we were doing like INR 1,600 crores kind of top line. And now we are doing almost [ INR 2,000 crores ]. So this is like 5%, 6% CAGR. [indiscernible] What you're saying is if everything goes in your favor, you may be able to grow low double-digit growth in the next 3, 4 years. But practically, everything will not go in your favor, so you may end up, again, in single-digit growth only. So is this the kind of growth we see Group promoted this happily?

So Lalit, thank you for your question. So basically, if [ you see ] the last 5 years, what we had done, obviously, on the revenue side, you're absolutely right. But what within the revenue is that we have done a lot of shuffling as far as our strategy is concerned. Like, for example, Netherlands, where our revenue growth rate was close to about 15%, 20%, but our margins were actually dropping. So we changed the strategy in Netherlands where we removed the entire distributorship model. The revenue growth has not been more than 3% to 4% year-over-year. But if you look at the margins, the margins have gone up substantially. So from 20% EBITDA -- 19% to 20% EBITDA, we're doing an EBITDA of about 35%. So if you compare the margins -- and similarly, there had been a reshuffling of the products people in India, even in rest of our other subsidiaries as well. So if you see the margins vis-à-vis the revenues, those have actually increased substantially. So 2015, we were doing a consolidated EBITDA of about 20%, 21%, which now has gone up to about 26% to 27%. Obviously, this year is an exception. But otherwise, that's kind of the average margin that that we have been achieving. So while we do expect that over the next 3 to 5 years, we could be delivering a good amount of revenue growth. Our focus on the margins would not change. So as Mark has been explaining on several answers to the question, our focus is going to be on the high-margin products. We would not compromise margins just for the sake of increasing the revenue. And that is the strategy that we will continue with over the next 3 to 5 years. The molecules which have gone commercial, including the -- if you look at the therapeutic breakup of the molecules that are in development or towards the close to commercialization, we have now oncology as a major focus area, which contributes almost 45% to 50% of the CRAMS revenue. And obviously, unfortunately or fortunately, the margins in oncology are very higher as compared to some of these other therapeutic areas. So we keep on developing those kind of molecules where we believe this would be sustainable molecules for the future, and this would be yielding good amount of margins for us. So that's going to be our focus for the future, and that will drive more of the revenue as well as the profitability.

So just to add to what Harshil said, one second just add. As you will be aware, we have made an announcement that between Carbogen Amcis Switzerland and France has almost $90 million to about close to $100 million expansion that will happen over the next 2 to 3 years. That will significantly add to the revenues from the third year onwards. And I would say that if this year, I have made an earlier comment that given the exceptionally down, you can consider us more than 15% to almost close to a little closer to 20% growth. But hence, thereafter, at least a steady 10% growth in top line is something that we are looking at year-over-year. But more importantly, the margin growth, as Harshil explained, from 21% to maybe 26%, 27% now, and I would believe that our target is also that the margin growth should be higher than the top line growth, and that is 100% likely to happen given the wonderful mix of new very profitable products that are coming up and a very conscious strategy on part of the company to look at profit. So a sustainable EBITDA in the next 2, 3 years can be easily 30% plus as against 26%, 27% that we are talking about.

Okay. So another thing in the same line of [ thought concerning with the tightening of ] consolidated employee cost. It's approximately 45% of your turnover. So I'm not sure I can understand that you are in European countries. And so can you give us some benchmark the percentage of turnover, how would be your competitors place like in terms of employee cost as a percentage of turnover?

So if I -- I think competitor would be 10%, 15%, actually. So 10%, 15% of turnover would be there in employee cost.

No, no. So [ Lalithji ], Harshil here. So [ Lalithji ], if you see our employee cost, the major part of the employee cost contribution comes from Switzerland. And the reason for that is that we need to employ highly qualified Swiss German scientists in order to develop the niche of complex molecules that we do out of Switzerland. And that has to be considered, so to say, along with the cost of material in order to calculate the gross contribution because bulk of the revenue in Switzerland, almost 55% to 60% comes from the development work that we do. And if we don't have this quality of scientists employed out of the Swiss facility, we would not be having so many molecules under development and hence, that could translate into lesser molecules in late Phase III and hence for commercialization. So that is a cost that we have to incur. But what that also means is that we are able to generate high amount of profits when this molecule become larger, especially when the intermediates and the final APIs get manufactured out of India. So the right way to look at it would be on a consolidated basis, but this is the kind of cost that we would have to incur. I don't know which companies you are considering as our competitors, but we would not consider any of the Indian companies which call themselves CRAMS companies to be our direct competitors. Most of our competition comes from companies based in Switzerland in some of the other European countries as well as in the U.S. And when you do a comparison of this company is because their employment cost is not less than 50% of the revenue. So that is the kind of cost that we have to do -- that you have to incur when you're talking about development of new chemical entities for the customers. What we obviously consciously try to do is that when the molecule moves into Phase III, if the volumes for the product are expected to be large, that's when we try to transfer the technology for the molecule to India. And we also utilize the CRAMS facility for manufacturing the intermediates for the final API. So -- but we can think about the cost optimization only when the molecule goes into Phase III. Before that, it is all about trying to help develop the molecule for the customer. While in the initial phases, we help the customer try and [ fill ] the molecules, which we believe are not going to progress to the next phase. So we need to have that kind of an employment cost as far as this certain entity is concerned.

So very quickly to add, Lalithji, if you look at Carbogen and its standalone performance of first half, normally, the employee costs will be around 50%, 52%. And the raw material cost will be 15% to 17%. This is very contrary to a normal margin analysis. This is because more than 40%, 50% of the revenue is developmental and not commercial, correct? Now if you look at India standalone, don't look at this first half because, here, the production was low, but fixed of original form of salaries have been paid. But if you look at last year, India, then the salary -- that employee cost is about 15%, and raw material cost is about 35%, 36%. Now if you compare this with any other efficient Indian company, you will find there is a match. But on a consolidated, as Harshil explained, because Carbogen Amcis' model is very different, raw material cost is there hardly 10%, 15%. Lot of work goes into R&D and development and developmental work is contract R&D, where, as Mark always loves speaking, Mark [indiscernible] , we're in the business of teaching the frogs. And we have to see which frog turns into a prince. So there are, on an average, some 400-plus developmental projects going on every year, out of which as against that you find a late Phase III pipeline of 18, 20 products, which will have the potential of becoming commercial over and above the regular commercial that we are doing.

So I can understand that. So my concern is not really regarding the high employee cost. I just wanted to note some of the benchmark actually. And my concern is really that despite the high cost on the employee, the growth is not really up to that mark. So if the growth would have been like 20%, 30% CAGR, I would have been pretty happy with the employee cost. But if it is not translating into the growth of the top line as well as the bottom line, then that's a concern.

No, I think there is a little bit of disconnect here. You see the fundamental part of the business is, as Mark explained, we have relationship with big pharma, small/medium pharma and biotech companies. What happens very classically is a very long cycle. So when -- if we are working with an innovator, when he starts the product life cycle, we are there at the very, very initial stages of Phase I, Phase II, Phase III until the product goes commercial. Now during that period, we keep on supporting them on synthetic chemistry, doing multiple R&Ds, pilots, stability studies, so many things as a long-term partner. Now in this business, we own handsomely, but the volume is very low. We are having the relationship going on for years. When the product goes commercial, again, a new phase begins then as he scales up, his penetration in different parts of the world, we are his long-term partner. And as a very classical example, it was Solvay, then it become [ Advair ]. Now it is Mylan. Their product [indiscernible] is there commercially since 2003. Today, it is more than 17 years, and we are one of the prominent suppliers. So there, the company and the product has changed hands 3, 4 times. We are there consistently. And the whole life cycle of the product is now over and still, we are very much there. So there are many such products. The big -- good part is it's a very long-term business. The bad part is, it is very unpredictable business. You have to be painstakingly patient. You have to wait, you can't control the processes through which your customer goes. You -- but at the same time, you know that as and when he gets commercial, more often than not, you will be a predominant supplier, if not the only supplier. And therefore, there is a very strong stickiness. And we -- most of our cases, once the customer is onboarded, hardly ever 1 or 2 exceptions, you will always find, but that is beyond our control, but more than 90% products and customers are there with you for life. The business model is different. In this kind of business, a CAGR of 20%, 30%, frankly, is not imaginable. If you are working with a very fundamental model with which we are working. However, improvement in profitability and ROC ratios will happen as more and more contracts come into your fold. So today between India and Switzerland and other parts of the world, we have more than 20, 25-plus long-term contract relationships, which are really long term. And then there are multiple developmental projects happening at various levels, and there are a mix of molecules. So very honestly, I don't think any other company in India, it may sound a little tall statement, has a similar business model and a similar front-end and back-end structure with seamless technology transfer. Sorry Mark if I'm sounding a little more -- not very modest, but I think this is what it is.

That's fair enough. I think the success you see, frankly, if you look at the success, the success today is the size of that late phase pipeline. It's never been that big. And that's really the success. And if we could still translate the late phase pipeline, 1 to 1.5 a year on average every year to commercial, and that's where the strength in the organization is. And as I said, it's taken us 4 to 5 years to build that size of pipeline at that level for the late phase, and they're starting to come to fruition there. So some will still die, but some will not, and they will go through. And some of those we'll be sole supplier. Some of them we'll be primary supplier. Maybe even some of them we might be a secondary supplier, although that's not where we want to be. But nevertheless, we anticipate we will be a supplier of some sort. And most of these have a range of volume where Bavla is critical to us, in fact. We could not have grown that pipeline if Bavla had not been able to manufacture the critical intermediate for [indiscernible]. We would not have been able to have this pipeline today. For example, [indiscernible], like eprosartan, was developed in Switzerland that [indiscernible] in 1997, I believe, '96. That product is still a very strong product for us even today. And we are 1 of 2 suppliers, and we have 80% of the volume. That customer is now no longer Alcon, it's Novartis. So there are a number of examples. I mean there's many legacy commercial products manufactured out of Breedenbroek. We don't really include those in our pipeline, if you like, because we've been doing them for many years. There's a lot of those kinds of products that's relatively small volume. They're very loyal customers, and they pay out. But the pipeline has never been as big. I can absolutely assure you. The pipeline has never been as full as this in [indiscernible] in validation. We've never seen this level of activity. So that's where you see the success is the investment over the last 3 years, maybe 3to 4 years in R&D, the purchase of the piece of land down in Breedenbroek where we expanded our high potency lab capabilities. That is now borne through in late Phase III. The large ADC project we talked about will soon be developed in those labs that we built 2, 3 years ago. And if that goes the way we all think it's going to go, and we hope it's going to go, then that -- there's significant fleet for the business going forward. And by the way Bavla will be manufacturing, we very much hope one of the intermediates for that. Because it's too big for Switzerland. And it doesn't make sense to switch to another manufacturer. So Bavla is already going to be part of the supply chain. We're already in discussions with the customer about securing the supply chain. So it's -- that's where the fruit is. And again, I'm very nervous about talking about particular client names that aren't out in the public domain. Because confidentiality is important to our customers. But that pipeline is highly diverse as well. I mean there's a lot of oncology, I have to say. But in oncology, they're very diverse. There's agencies, there's one at full ADC in there. There's 1, 2, 3, 4 linkers. Then there's a number of other more straightforward oncology drugs. There's some CNS in there. There's hearts. There's a couple of eye indications in there. So we're diversified across the map as well in terms of therapeutic indication. We're not just all in on oncology. So there's a high level of diversity in the pipeline as well, which is very nice. And it's a range of small to medium and large pharma. So we're not just completely aligned on one subset of customers.

The next question is from the line of [ Manish Singh ], an individual investor.

Am I audible?

Yes, Mr. Singh, you are.

Yes. First of all, I would like to congratulate you for low par results. I think you guys are very good at keeping your reputation. I have just 2 questions. The first is, I want to understand this business from the perspective of economic value. What is the economic sense of running the business? I'm not talking about this year or last year. I'm talking about last 5 years, 10 years. So what kind of value has been generated if you compare it to

Ladies and gentlemen, we lost the line for the current participant. We move to the next question from the line of Nishid Shah from Ambika Fincap.

Thanks for taking my question again because last time I had not finished and you moved on to the other participant. On vitamin D, you are one of the second largest or one of the top 3 producers in the world. And with the pandemic, we have seen that there has been a substantial increase in the consumption of vitamin D as well as the prices of vitamin D. Your turnover, if I look at it, first quarter June as well as September is not showing any sign of improvement or any sign of realization. I would like to have some clarity on that. And also on the progress that is being achieved on the clinical trials which are going on and a color on what kind of money we are spending currently on the clinical trials of vitamin D?

You want to do the money side first Harshil? It's fairly modest anyway.

Yes. I mean on the clinical trials, I mean we're not spending a whole lot right now, Nishid bhai. So it's very insignificant right now compared to the -- I mean, in terms of the overall consolidated financials. Not more than $0.5 million to $1 million.

And that's because we're in Phase II with one of the trials, we're in Phase I in one of the other ones. So we're still in early trials. Once we move into later trials, the spend will be a bit more.

So how long this trial will continue? And are you likely to get an OTC status in U.S.A. any time during FY calendar year '22?

We would hope to be in that sort of area, yes. We hope to be -- in '22, '23, we'd hope to see some real fruit from the U.S. clinical trial. We might even be quicker in the other one, which is being carried out in Middle East where that's Phase I the approval process is much quicker in the Middle East. So we may actually be -- we may actually see more traction there at a quicker pace. And that's really related to COVID because there was -- there was clear evidence that vitamin D -- strong vitamin D helps the immune system to fight the virus. It's a number of -- it's not -- it's not a cure, but it certainly helps you to fight the virus. So yes. The trial we've got -- the initial readout from the U.S. trial, we've moved into a Phase II because the initial indication in those 20 patients are very strong. We've got an initial readout for the trial in the Middle East, and that looks very good, but it's not the completed trial yet. So it's only an interim report. But we're hoping that trial will be finished in the next, I think it's finishing [indiscernible] in February. I'd have to check with the project manager and get [indiscernible] . So yes, we sincerely hope that those will move forward. And that's something that we want to move towards. That's something that very close to [indiscernible] that we not only are a CRAMS player, but we also have a good, strong pipeline of products. That also provide stability in baseload for us. And that's part of [ pilot phase ] desire to take the business in an additional direction, which is very exciting for us. As it relates to vitamin D per se, a lot of the growth in vitamin D is in the nutraceutical, and that's where we're focusing on our Softgel facility in India. And we should be livening up that facility, I think, in the next month or 2 Harshil, I think. I'll have to check with Harshil on that one.

Yes, I mean, we're just waiting for the [indiscernible] inspection.

Yes. Yes, that facility wasn't part of the EDQM. So it's a separate facility. It wasn't audited by EDQM, it's not affected by the EDQM, but we're waiting for World Health Organization audits. And of course, because of COVID, people can't travel across so easily. But that's where our nutraceutical piece is. The pharmaceutical side of our vitamin D and vitamin D analogue and cholesterol business has continued to strengthen. So our high-quality cholesterol, our cholesterol HP has seen quite a significant uptick. And cholesterol is both a pharmaceutical and a cosmetic product for us and an animal feed, a very high-volume, low-value business, where we try to compete with [indiscernible] , which is not easy to do it. And the vitamin D analogues where the pharmaceutical grades of those are highly valuable products and low volume being highly complex. And we've seen increasing that side of it as well. So although the top line hasn't grown significantly, the margins continue to strengthen on that one. Do you have the specific numbers on [indiscernible] Harshil?

Sorry, Mark, I missed that.

The specific revenue number and percentage EBITDA because that's continuing to strengthen.

Yes. Of course, yes, the EBITDA margin is at about 35%, 37%. So yes, that's still strong.

Has it increased, Harshil, over the last 6 months because we have seen price increase in vitamin D and at least in the Softgel capsules as well as in sachet, the prices have gone up and the consumption has gone up. So have we benefited by that? Or why is it not reflecting in our numbers?

So Nishid bhai, obviously, we don't manufacture the D3. What we manufacture is the cholesterol and analogue, which are the derivatives. So over there, obviously, in the first quarter, what we had was larger share of sales of cholesterol as compared to analogue. But analogues, as such, the margins are pretty high. So just to give you a bifurcation, the cholesterol business for us does an EBITDA of about 25% to 27% as compared to that, the analogue business does an EBITDA margin of 55% to 60%. So clearly, the analogue is something which is extremely profitable for us. And we obviously try to increase the share of analogues, but it's not like a commodity like the D3. So that is something which we consciously took a call about 5 years back, Mark, that we would get out of that business?

Yes, 4 to 5 years, it's dominated by a company called [indiscernible] in China. And he's got about 80% of the market volume-wise, and he has got all the cost benefits. He doesn't do much in the pharmaceutical, cosmetic way, but he dominates the feed market. And every time somebody jumps in, he raises -- he lowers the price. And if you look at it every -- I think it's every 4 years, there's a cycle when people come in because the price increases. And then he dumps the market and then he dominates the market, then people jump in. And he dump some prices. I mean if you're interested off-line, I'll give the information to Harshil, the historical information having sent it to. It's entirely predictable, and we were playing that game and it was killing us. So we out of that business.

That will be useful. So if I have to -- and if I'm permitted to say, a lot is expected from you, like an expectant mother. Let's hope in next 9 months, you are able to deliver a good baby.

My plan is to give birth most definitely. I've been pregnant for a long time.

Mark, in a lighter way, you had said you want to deliver at least twins or maybe...

Triplets.

I think, Mark, if we don't have any further questions because the call has lasted quite a bit and being festive -- moderator, what is the question queue now?

Sir, we have 3 of them as of now in the queue.

And we quickly take it.

Sure, sir.

Let's take the questions because the people ...

Yes,[indiscernible] .

The next question is from the line of [ Mani Singh ], an individual investor. As there is no reply from the current participant, we move to the next question from the line of [ Viral Valashani ] an individual investor.

My name is [ Viral Bansali ]. My question is regarding your expansion in France. My question to Mr. Harshil is, Harshil bhai, what is the optimum turnover that we are looking at after the complete CapEx in this plant? I mean, at optimum utilization, what could be the turnover revenue from this plant?

Sure. So Viral bhai, basically, the total CapEx plan that we have announced is for about $100 million. 50% of it would be spent in Switzerland, one for the [indiscernible] project; and secondly, for the larger expansion, again, in Switzerland. And this is going to be for both development as well as small-scale manufacturing setup. That is number one. And number two, the rest $50 million would be spent in France. So there is a forward integration of our existing facility, where we do the development of injectables as a formulated product. And now we'll be moving into the manufacturing of products where injectables is the delivery form, providing the finished formulation to the customer. So in that way, we try to complete the entire loop of services that we can offer to the customer right from the development of the API to manufacturing of the finished formulated product by injectables as the delivery form. So as far as the revenue is concerned, post the expansion, what we expect is that the French facility should give us an asset turn of about 1.2 to 1.3x of the CapEx, which has been spent. So we are talking about close to about $70 million to $75 million that is at its peak, or I would say, in 5 years after the expansion. And as far as the Swiss entity is concerned, with the Swiss expansion, we should be, again, be able to achieve a revenue of close to about 1.1 to 1.2x. So we're talking about another $60 million of addition coming from the Swiss entity. So overall, we are talking about close to about $130 million to $140 million of additional revenue coming from the expansion that we plan to do with the $100 million.

Okay. So based on your low single-digit projection, I think this plant would be sufficient enough for the next 3, 4 years, at least to take care of COVID?

Yes, absolutely.

At least.

Yes, and the building is slightly bigger so that we have the opportunity at a lower cost to continue to expand beyond that by putting an additional line in. So we're building the additional space, just not filling it up.

Okay. So in case of any requirement, we can scale up in a pretty short period of time?

Exactly the concept we had, yes, exactly.

Okay. My next question is regarding -- referring to your previous con call on September 9. You had mentioned that there is -- the shortfall in the first half would be made up in the second half. So are you still continuing with that guidance?

Yes. So as far as the Bavla site is concerned, so the major shortfall is occurring from the Bavla site, so we do expect that the second half should be much stronger as compared to the first half. So as we explained earlier, we do expect that -- well, we have already started the operationalization of certain plants in Bavla, certain units in Bavla, and that is exactly what we mentioned on the last call as well. That is pretty much on track. We have already, as Mark explained, we have already undergone our customer remote audit because they're desperate to get the products out of the Bavla site. And we expect a similar kind of trend from the other customers as well. So we do think that there would be a good amount of increase in the revenue in the second half. How much of the first half lost revenue would be recouped? That would be something very difficult to give out right now. But what we can say is definitely the second half would be much stronger.

So just to clarify, frankly, we cannot recover fully, it's impossible. What is lost is significantly lost anyway. What Harshil means is that we are trying to recoup as much as possible. But supposing there is a annual run off, say, INR 550 odd crores to INR 600 crores, you can never reach there in 6 months. That is impossible. So from my standpoint, at least INR 200 crores around that shortfall overall would be there. But as much as possible, the company will try to recover. It's very difficult to recover fully. It's impossible, rather.

Yes. That is exactly what I wanted to understand...

Yes, yes, yes. So what I would say is that the right way to look at the business right now would be to take the current year and the next year into consideration. What we can say is that once we are done with this EDQM, over the next, I would say, 18 months or 16 months, that is the next till March '22, we should be more or less done with all the issues related to EDQM as well as the customer audit. And during this course, we should see more products coming to Bavla, the existing products going out without any issues. So that is something which we believe right now, we are pretty confident. So over this next 16 months, we should be pretty much back on our feet. In addition to that, we should see a substantial growth over the base business.

Okay. My third question is to Mark. Mark, how many more molecules can we expect to get commercialized in the next 2 to 3 years?

Well, our guidance still remains the same. With the pipeline we've got, 1.5 per year is the average that we would see. So over a 2-year period, 3 to 4. Last year was a bit extraordinary, should I say. But the normal run rate is 1.5 per year. So over 2 years, a good run rate is 3.

Yes. So in the last year, we -- in the last year, we got 4 approvals -- 4 commercial -- 4 molecules got commercialized, right?

Yes.

So what could...

Extraordinary.

And congratulations to the Dishman team for it. Well, what could be the market size of all those molecules put together, I mean?

Well, if you take the large ADC projects, the Japanese ADC projects out of the game. As I said earlier, at least in the first sort of phase or 2, we're looking at somewhere between $5 million and $10 million of revenue for each of those projects. So that's the sort of anticipation we see, which is why, as Harshil mentioned, with some of the CapEx, that's going into what we call enabling projects. These are ones that enable us to extend our capacity in a limited way at a relative low cost and quickly so that we can address the commercial needs of some of those projects. So that's what those -- that residue of CapEx will be used for in the next 18 months to 2 years to bridge the distance between the new facility coming on board in Switzerland and where we are today. So yes, that's what we anticipate. Somewhere between $4 million to $5 million per product.

Yes. So assuming like another 3, 4 molecules getting [Audio Gap] in the next 3 years, let's say, 3 years and 4 already approved along with ZEJULA, right, that's a total of around 9 molecules. Even based on your conservative estimate, say, $5 million to $10 million revenue per molecule, obviously, it's not as linear [indiscernible] , but just assuming an average of $5 million to $10 million, that could be a sizable revenue for our company over the next 5, 7 years, assuming a molecule reaches its maximum optimum revenue in 6 years maybe?

Actually a little bit below that, to be honest, we would anticipate -- if it's not got a lot of competition in the market, then somewhere between 3 and 4 years rather than 6 for maturity in the market, especially in oncology.

So based on -- based on what you just said, then I think the next 5 years look to be quite a dream run for Dishman if all the molecules seem to work?

Yes. If the -- well, even if only half our pipeline of 18 or 20 work, then that's already pretty good. And you get the outliers like this project we've mentioned before the ADC. That's an outlier in terms of value and in terms of its efficacy in the market because it's probably going to be a first-in-class drug, probably. So yes, you get those outliers, and then you get the ones which follow a normal path. But in oncology, there is no normal path.

Yes. So just even now -- even if you consider assume a 30% success ratio or strike ratio, that will be a total of 10 molecules along with niraparib. And that's like a dream situation to have.

Well, it's kind of a dream, but niraparib, as I said before, it's very unlikely we'll see niraparib again. It's one of those projects that every so often either they fail or customer takes decisions, which you are not in control of. So I doubt very much whether we'll make any more niraparib.

Have you lost niraparib? Is that what you want to say?

Well, I think -- I suspect we have. And I addressed this in some length at one of the earlier con calls. Yes, that customer was acquired by a large pharma, and the large pharma decided to outsource it to China because they weren't comfortable with India. So we made launch quantities also, to be fair, they've not been quite as successful in the market as they were projecting to date. That doesn't mean that they're going to fail in the market, but they were second on -- AstraZeneca beat them by about 3 months to approval. So that also impacted their projections, but yes, and that happens, you know? [indiscernible]

Astra's molecule had a progression-free survival of 42 months, I guess, against 22 for niraparib?

[indiscernible] was first. And it was first on the market.

The next question is from the line of [ Suresh Agarval ], an individual investor.

Mr. Harshil, can you give us the turnover of vitamin D analogue and cholesterol business in last 4 quarters?

Last 4 quarters, yes. I mean, so on an average, the revenue for the last year, Netherlands was roughly about EUR 30 million -- EUR 30 million, EUR 31 million. And this year, for the first half, it is close to about EUR 15 million.

This is regarding vitamin D analogue and cholesterol business?

That's right.

That's correct.

And how we are seeing it in the near future? How much it can increase?

So we do expect -- so we don't expect a significant jump coming out of the Netherlands business in terms of the revenue. It could be a low single-digit kind of growth as far as the Netherlands business is concerned. But what will be ensuring is that the EBITDA margins, which we have been able to successfully increase from earlier 20% to now on an average 35%, we are able to sustain these margins for the future and try to see opportunities where we could grow this further. So what we are trying to do is to even forward integrate this business into manufacturing the Softgel capsules. And we are also performing certain clinical trials that Mark mentioned about in the U.S. and as well as in the Middle East. So if those clinical trials actually go through, then that could be a significant opportunity for us in the future.

If you are not doing anything of vitamin D analogue and cholesterol from our Bavla unit from India [indiscernible] ?

No. Right now, we are not directly selling it from India. We are doing one of an intermediate for the Netherlands plant from the site, but that is just internal. So there is no external sales coming out of the Bavla site as of now. But that could change in the future.

Bavla site is actually -- what is -- Bavla site is manufacturing -- what is [indiscernible] from Bavla site?

The Bavla site is focused on our biggest segment of the business, which is the CRAMS segment. So what we do over here is do contract manufacturing as well as Phase III development for certain molecules. And we have -- so that's our major part of the business, which in this quarter was almost 80% of the revenue. So that is something that we do out of the Bavla site. In addition to that, there are also certain generic APIs that we manufacture from the Bavla site.

Okay. Thank you very much. But lastly, I will request all the management to please see towards the investor towards their growth like all the manufacturing companies, pharmaceutical companies are doing. So I will request you all that please do something for the investor also and wish you happy Diwali to you all.

Thank you.

Thank you, Sureshji. So I mean, it is always our endeavor to have the investors interest first. And that is what we try to work for day-in and day-out. So please be rest assured.

As there are no further questions, I now hand the conference over to Mr. Mark Griffiths for closing comments.

So thank you, moderator. First of all, I'd like to thank everybody for taking the time and the interest and asking such good questions. We really appreciate your support, your input and your trust in us, and we very much want to assure you that we're doing everything we can to make this business as a success as possible and to enable the business to reach its potential. I also want to record my thanks and my respect for our colleagues around the world who are working very hard right now in very difficult situations sometimes to continue to supply our customers. So I want to thank our employees very much for their efforts and also thank you for your support. Look forward to speaking to you next quarter. Thank you very much.

Thanks. Have a good day, and happy Diwali.

Thank you very much, everybody. Happy Diwali.

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