Granules India Limited (532482) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Granules India Limited Q3 and 9 Months FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. Krishna Prasad, Chairman and Managing Director, Granules India Limited. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen, and a very warm welcome to you, and also thank you very much for attending our Q3 FY '22 earnings call. I hope all of you and your families are doing well and continue to be safe. Despite the continuing disruptions, we are happy that we are slowly getting back to normalcy as is evident from the increase in revenues compared to the last quarter and the same quarter of previous year. The revenue growth came in with a lot of underlying dynamics such as raw material price increases, unstable supply from China and also PAP supply constraints. Although our segment-wise gross margins have remained flat compared to Q2, the overall gross margin recorded is lower in percentage terms due to change in segment mix in the total revenue. Share of finished dosages had come down from 57% in Q2 to 46% in Q3, which is due to the rationalization of inventory by our customers, mainly in the U.S. During the quarter, we had filed 2 U.S. ANDAs, 2 Canadian dossiers, 1 U.S. DMF and 1 CEP and also had received 3 U.S. ANDA approvals. FY '22 had been a year of consolidation for us. The COVID pandemic has impacted the economy, government and business in lasting ways. These changes, whether induced by the pandemic, supply disruption and climate change, or induced by advances in science and technology, presents a unique opportunity in this disorder, and we, at Granules, strive to benefit from the emerging mega trends. The global companies across the world are looking out for reliability, robustness and sustainability in their supply chains and are seeking alternate options to Chinese dependency, especially for pharmaceuticals and chemical products. Peter Drucker had said, "The greatest danger in times of turbulence is not the turbulence, it is to act with yesterday's logic." Our growth so far has been built on scale, manufacturing excellence, focused execution and cost leadership backed by a solid track record on quality, compliance, EH&S. We have achieved leadership position in the key molecules and have achieved critical scale. We now have one of the world's largest facilities for PFIs and finished dosages. We are now ready to turn a new leaf in our journey. We are taking a leap to transform our business to the next level. Granules 2.0 will be built on the focus on R&D, technology and sustainability. We will be investing in R&D infrastructure, scientific talent and partnerships in science and technology, which will lead to sustainability, leadership and backward integration. Our R&D initiatives will help us broaden our capabilities, leading to increased focus on quality of our portfolio and higher regulatory filings. Sustainability. The world is set to move towards sustainable, environmentally responsible and green chemistry. We believe what is good for society is good for business as well. We will be building sustainability by design in our processes, products and our green facilities. We desire to achieve this through our long-term ESG strategic plan. The ESG journey at Granules had commenced last year with continued engagement with all key stakeholders, including our employees, regulators, customers, suppliers and communities around us. With innovation and the use of emerging technologies in the area of renewable energy, heat recovery, waste and water management, we will strive to reduce the carbon footprint comprehensively across all activities. We are confident that green and sustainable chemistry can be and will become cost effective as well. It requires scale with which we will bring down the cost as well as the carbon footprint. We are working towards becoming a carbon-neutral company. Backward integration. We will be leveraging our technology platforms to achieve full backward integration and control the supply chain for our key products. This implies going deep into the value chain and starting with chemicals that are commercially available in India and using new technologies, processes with sustainability built in the value chain. Organizational transformation. The key to business transformation is building capability and organization aligned to the transformation agenda, including leadership and culture. We have started this from the very top and strengthened our Board and executive leadership. Dr. Saumen Chakraborty had joined our Board as Non-Executive Independent Director. He brings a deep domain knowledge of the global pharmaceutical industry with his leadership experience across multiple functions. Mrs. Sucharita Rao had joined our Board as Non-Executive Independent Director. Her experience in organization and HR transformation initiatives and commercial orientation will be an added asset for us. Dr. K. V. S. Ram Rao had joined us as Joint Managing Director and CEO. Dr. Ram Rao has varied experience in the area of chemical and API businesses, including R&D and manufacturing through the adoption of innovative technology and best practices in sustainability. Dr. Ram Rao will be spearheading the transformation agenda to take Granules to the next level of the growth trajectory. We will continue to build management capabilities, both organically and inorganically through our people and transform ourselves into a learning organization. Our people are essential to what we have achieved so far and source of our optimism for a better and bright future. We are in the process of building a road map for commercial excellence, portfolio management, supply chain excellence and business analytics. We will be leveraging the advances in the area of IT and digital tools to bring transformative value by reimagining the business processes through a digital transformation road map and identifying key priority areas and early wins. Outlook for our future is brighter than it has been ever before, and we'll be sharing more details around the transformation road map in the coming quarters. With this, I would request Sandip to take you through a few key financial highlights. Thank you.

Thank you, sir. Let me now move on to the financials for Q3 FY '22. Despite the continuing challenges, we had a better performance compared to Q2 of the current year. We believe that our performance will further improve in the coming quarters. Revenue. The third quarter revenue was INR 997 crores as compared to INR 845 crores in Q3 of last year. Our volumes were down compared to Q3 of the previous year, but we have been able to pass on a significant portion of price increases into our customers as specified in our Q2 call, which has resulted in a better top line. Revenue share from other molecules is maintained at 19% for the second quarter in a row, thereby moving towards our ultimate strategy of reduction of our dependency on the core molecules. The sales breakup as per business verticals and regions are presented in our investor's presentation, which is available on the website. Gross margin. For the quarter, the gross margins contracted from 53.7% in Q3 of FY '21 to 46.6% in the current quarter, mainly due to reduction in the margin of some of the products, especially paracetamols, due to increase in raw material prices and freight cost. The overall share of finished dosages in the global sales mix has reduced from 50% in Q3 of last year to 46% in Q3 of current year, and this has also contributed to the reduced margin. EBITDA and EBITDA percentage. EBITDA percentage for the quarter was -- sorry, EBITDA for the quarter was INR 174 crores when compared to INR 212 crores in Q3 of last year. Apart from the gross margin drop, we have also seen increase in freight cost by INR 29 crores and increase in R&D cost by INR 13 crores as compared to Q3 of last year. R&D. Our R&D spend for the quarter stood at INR 35 crores compared to INR 22 crores in the previous year. The year-to-date R&D spend has been INR 109 crores compared with INR 64 crores in the previous year same period. Last year, we had some part of our R&D disrupted due to COVID. But in this current year, we are on track with our R&D goals, which we plan to achieve. Net debt. Our net debt increased by INR 148 crores on account of increase in the short-term borrowing to finance added working capital needs. Cash to cash cycle. Our cash to cash cycle increased by 19 days from 117 days in March '21 to 136 days, mainly on account of planned increase in the inventory. Operational cash flow. Operational cash flow for the quarter stood at INR 23 crores compared to INR 93 crores in Q3 of FY '21. This was mainly on account of higher working capital needs. The CapEx spend stood at INR 95 crores in the current quarter. And in 9 months for this year, the amount was INR 327 crores. With this, I would like to open the floor for questions.

[Operator Instructions] The first question is from the line of Harish Agarwal, individual investor. Due to no response, we move on to the next participant. [Operator Instructions] The next question is from Rahul Veera from Abakkus.

Good to see a sequential improvement in the top line as well as the bottom line. Sir, I just want to understand now, in terms of the gross margin, we have mentioned that the formulation revenues were impacted and hence the gross margins have sharply come off. So are we seeing any sequential improvement from here on? Or you still think that destocking at the front end is still going to take some time?

I couldn't hear it properly, Rahul, but I think I can understand what you're saying. So there are 2 factors to drop in gross margin. One is the FD percentage that has gone down. FDs are normally more profitable than PFIs and APIs. And the other one is also paracetamol. Paracetamol, there have been tremendous increases in costs, and we started passing on the cost increases -- some of the cost increases to our customers. However, the prices of raw materials have still been going up and there's a big time lag. And the margins on paracetamol have shrunk. The value of sale is very high, but the margin is low -- is very low. So paracetamol has eaten into our overall margins and also the next thing is FD. And coming back to FD, right now, there is -- we see a lot of rationalization of inventories at our customers and mainly in the U.S. But going forward, we see that this should definitely get corrected. We also see some signs of improvements in the last, I would say, few weeks.

Sure. Sure. Fair point. Sir, and in terms of the paracetamol, we mentioned this quarter saw a sharp Q-o-Q increase in the sales of paracetamol. So do you think -- specifically for the European region. So do you believe this wave 3 was kind of a reason that we saw a one-off kind of a sale and this may not repeat going ahead?

I cannot say what is one-off, Rahul. There have been so many uncertainties going on. Actually, in the past, we never thought that this uncertainty is going to last so long. Even today, while we see rays of hope everywhere, still, I would not dare make any assessment today. We'll see as we go on. But definitely, 1 thing we see here is there's going to be a quarter-on-quarter improvement as we go by. How much improvement, I cannot say, but there definitely will be an improvement.

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Service.

Sir, just taking forward Rahul's question. Sir, inventory rationalization, how long -- maybe in like next couple of months, we should be normalizing in terms of the supply or it will take longer than that?

Tushar since this is mainly, I said, is from the U.S. market, Priyanka is also on the call. Maybe it's good that she takes the question. Priyanka, are you there?

Yes, I'm here. So inventory rationalization is very company specific. We -- like you know, we do have a B2B arm and a B2C arm. So on the B2C division, which we handle ourselves, we have a decent level of inventory that we are comfortable with. But on the B2B side, some of the partners that we still work with, we are not aware of how much inventory they hold at the moment. So I do believe that in the U.S. market, though, there is a situation where there's too much inventory that's being held, and most companies that weren't able to get market share [indiscernible]. So I do believe that as we go forward, the existing companies with large levels of inventory will cut it down to a more normal level, which we have started right now. But that said, there also is an increase in sale time to the U.S., which could potentially mean that some customers with market share, which includes us, could increase their inventory levels going forward, depending on how the situation is. So to answer your question, at this point, we're not sure how our customers -- how our partners would act. We have to just wait and see over the next couple of quarters. They could increase their inventory, which means we would have to produce more batches, or they could rationalize it a little bit more.

Got you. And so considering for the Ibuprofen, we've seen a good amount of decrease both Y-o-Y as well as quarter-on-quarter. Any specific reason to highlight there?

Ibuprofen during the COVID times, Tushar, there has been more emphasis on paracetamol as the drug for COVID. And Ibuprofen has taken a beating. So that is one of the reasons. And the other side is Ibuprofen prices as you -- I don't know if you remember some time ago, Ibuprofen API used to be sold at $20. Today, it's down to $10 or $11. And subsequently, the selling prices also have come down. So margins while they are protected as a percentage, the absolute sale value had come down.

Understood, sir. And just lastly, so considering these scenarios and the more requirement of inventory, so does it mean that the working capital requirement will remain elevated going forward?

It's the sailing times. The inventory is wanting to keep a lot of safety stock. I think we are fairly in good position on that. And with today's sailing times, which have increased by almost 70%, 80% of the normal sailing time, so the inventory on the water also increased. So unless the sailing time still worsens, I don't think we may need more inventory, but it depends on how the logistics are going to work out.

Okay. So just lastly on this, so what kind of net debt levels estimate on end of FY '22?

Sorry, Tushar, can you come again?

Net debt level. Yes. So Tushar, net debt level will be probably at this range only, at a net debt level certainly, because there will be some loan repayment which will happen in this quarter. And probably, we'll have a scope of having some additional debt to fund our working capital needs. But net level, it will be same.

[Operator Instructions] The next question is from the line of Ranvir Singh from Sunidhi Securities and Finance.

Congratulations, sir, for good set of numbers in this quarter. Sir, my question was related to paracetamol. Paracetamol, from last quarter, we have been saying that there is a problem in availability of raw material, basically in PAP. This quarter, we see a sharp jump on Q-on-Q. So the availability has normalized now on raw material side?

Not really, Ranvir. Actually, we were hoping that one Indian manufacturer had started production already and others would start -- one more would start, but their manufacturer has already started, is also having a lot of quality issues. So that way -- I mean even though we had some material from them, it's not in a -- I mean we had to stop purchasing from him. And that way -- and Chinese, none of them have increased their capacity. So as of today, there has actually been no improvement in spite of our hoping there will be. But possible good news is the biggest plant in China that has shut down, we hear from them that they will be starting within a week, but then there would be trial runs and validations and other things. So it may take about 3 months for us to start getting material and achieve some sort of normalcy. So another 3 months, we may have to go through this.

Yes. So I wanted to understand in this quarter the kind of -- because pricing has also been pressured. So volume has gone up significantly Q-on-Q. So where did we get the raw material if that...

No volume had not gone up, Ranvir. What has gone up is the price -- selling price. Raw material price and the selling price. So the -- part of the paracetamol revenue had been driven up only by pricing. Like you said, last time we were talking about passing on some of the increases. So some we were able to pass on.

Okay. Fine. Because then we also see that -- so okay, so gross margin was also impacted due to that pricing pressure on paracetamol just like you said.

You are right.

Yes. Okay. And secondly, what was the CapEx during this 9 months?

CapEx so far is about INR 325 crores, and we think we'll be completing this year with about INR 400 crores.

Okay. So we see free cash flow in negative. So basis -- working capital has increased basically?

The working capital has increased by about INR 70 crores approximately.

Okay. Okay. And going forward, how -- what would be the working capital cycle for a full year basis?

We should be in the range of this only, maybe a little bit, INR 120 crores would desired number [indiscernible].

Okay. And full year CapEx for FY '22?

The CapEx for next -- you are talking about FY '22?

Yes, for FY '22. So 9 months -- so for full year will be...

About INR 400 crores, Ranvir.

Okay. Okay. On business side, we see that growth in noncore molecule has gone up significantly. Just on longer perspective, we wanted to understand that growth in core molecule is getting matured now and so our focus would be on noncore business. So -- can we expect that if the core business can recover going forward in a significant way?

Core business is more potential less, Ranvir, because today, it may have matured in the U.S. where they have a decent -- fairly decent market share. But we are opening up venues in Europe and Canada and South Africa. So these are new areas where we see the core business growing. And in fact, in this quarter, we should be launching 1 or 2 products with our own dossiers in Europe and also possibly the U.K. So there is potential for core business, but also the real growth going forward has to come from new molecules, and we have been working on so many molecules, strengthening our back-end, going all the way to the basics and doing a lot of filings.

So going forward, contribution of noncore molecule, can we expect some 40%, 50% kind of thing in the next 2, 3 years?

No, not next year, maybe 2, 3 years later, it could be around that because like I said, there's still growth left in the core molecules. There are still many countries where we can -- now we are in a good position in the U.S. We want to be in the same position in different parts of the world. And going forward, the existing molecules and the newer molecules -- whatever we do, we are going to strive for global leadership in these molecules. So there's still a lot left.

Did you say 50%?

Yes. Yes. So currently, it's around 20%, I believe, the noncore. So core molecule is around 80%. So the kind of growth we see, 40%, we have growth in this quarter on molecule. So wanted to understand is this kind of growth rate?

No, I don't think we'll get to that 40%, 50% level coming from noncore molecules within the next 2 years. This is not going to happen, but we certainly see a significant increase. And all the R&D activities that we -- most of the R&D activities that we are focusing on, like CMD said in his opening speech, will also be focused on noncore molecule. So you will see a significant increase in the contribution from noncore going forward?

Okay. Fine. And just sir, last one. On R&D, you see in this quarter, the R&D intensity has significantly come down Q-on-Q. So any particular reason? Or what would be the outlook for the full year or next year, if you could give, for R&D as a percentage of sales?

So actually, I will take this. The other reduction is there in terms of R&D, which is last quarter, there were certain filings and the pivotal and pilot studies were paid for. And more or less, the amount of spend that we have made in 3 months, that will be an average run rate. So our average run rate for the quarter -- next quarter will be around INR 40 crores. So last -- second quarter was high because of certain specific spends. Third quarter normalizes and fourth quarter will be around INR 40 crores based on the run rate of these 9 months. We will be around INR 140 crores to INR 150 crores at the end of the year.

[Operator Instructions] The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

A fairly good set of numbers in a very, very difficult scenario. So -- I mean the way I -- it's more of a comment than a question. The way I think about it is the 2 of your key molecules, right, paracetamol and Ibuprofen, are seeing different stories around them. On one hand, you have very high prices and thinning of margins because raw material prices of PAP and availability of PAP is a question mark. And on the other, the prices have completely collapsed, and there's unwinding of inventory at the customer's end. And second thing is that, overall, your working capital in rupees million or rupees crores is looking bad, even though your actual number of days or cash conversion cycle hasn't materially worsened for the simple reason that prices have gone up and you've got additional inventory on the sea, as you say. It is kind of a perfect storm. So I'm more looking for -- you've been in this industry for over nearly 40 years now. So when you look back and think about it, I mean, how do you see things normalizing? I mean what's your best guess? How long will it take for things to come back to normal? 1 or 2 quarters or could it be longer? How do you think about it? I mean these are very exceptional times we are living in.

Ashwini, based on the current scenario, I mean if unexpected things happen, no fourth wave or fifth wave, I think things should get back to normalcy in about 2 quarters. But now everything is so uncertain. We are hoping that it will be within this time frame.

Which would basically bring back your paracetamol volumes back, prices down, margins up. And on Ibu, it would bring back prices to a more sensible range than these current depressed levels or at least your margins back to what -- or spreads back to what they would be in a normal circumstance. That should be a reasonable expectation on a 2-quarter basis, right?

Yes, Ashwini. We think that -- I don't -- I cannot say that we will go to 57%, 54% gross margins, but around 50% gross margins, we should be able to achieve within 2 quarters.

No, I think that's great. I think it's a wonderful performance in what has been nearly a perfect storm. So congratulations and all the best.

[Operator Instructions] The next question is from the line of Harith Ahamed from Spark Capital Advisors.

Just a question on the MUPS block at our Gagillapur facility. Sir, can you provide an update on the time lines here and some color on the kind of products that we are targeting and how many we file?

The MUPS block is almost done, Harith, and we are trying to do the qualifications of equipment and also validation of products also will start there. And as I've been mentioning in the past few quarters, we have 2 products already approved in the MUPS area, which is the KCl tablets and KCl capsules. So these we have been doing in other blocks. They will be scaled up in this MUPS block now, and we'll have enough capacity. The capacity was constrained in the past, but now we'll have enough capacity. And we filed a few -- 2 more products already -- 3 products actually in the MUPS area. And before March, another 2 products will be filed. And next year, we expect to do about 8 to 9 -- approximately 8 to 9 filings in the MUPS area.

So can we expect commercial supplies from this facility to start maybe in the second half of FY '23?

Sometime towards the end of first quarter itself, we should be able to start that. In a limited way, it won't be all out.

Okay. Okay. In your release, there's a footnote on duty drawback claims of around INR 17 crores that you've recognized. So trying to understand in which line item this has been included.

Yes. Go ahead, Sandip.

So duty drawback has been recognized as other operating income.

Okay. That's part of the revenues?

Yes.

The next question is from the line of Mohit Mandhana from Fidelity International.

Sorry, my question has been answered. So you can move on to next participant. Thanks a lot.

[Operator Instructions] The next question is from the line of Harshal Patil from Sharekhan.

Sir, my question is for the CapEx for FY '23. Sir, did you call out any number for FY '23, CapEx?

I'm mentioning this in the last few calls, and we stand by that. It's going to be -- next 2 years put together, it's going to be about INR 600 crores.

Okay. And the composition also stays the same as was discussed earlier?

Yes, about -- as of today, it's going to be about INR 450 crores for the APIs and backward integration of APIs and all the green chemistry sustainability initiatives we have taken up, and INR 150 crores will be the new formulations block.

Okay. That was that. And sir, just one thing I wanted to ask is on the -- if you could just speak a bit more on the transformation thing which you mentioned in the opening remarks, maybe. What kind of benefits or growth that you're targeting after this transformation exercises is over?

Harshal, basically, this is something very close to everybody's heart in Granules today. And we have embarked on a journey where we want to become a sustainable company. And every bit of sustainability is built into our design or whatever we do, we think of sustainability first, okay? While ESG is the most important thing, environment is the most difficult thing. It's not easy to get to near carbon neutrality or be sustainable on the environmental front. So there are so many initiatives were taken up, mostly driven by technology and also like flow chemistry and biocatalytic reactions. And a different way the pharma industry works and going all the way backwards into chemicals -- basic chemicals, and starting all our products from chemicals that are available in India, and almost -- I mean I would drastically reduce dependency on China and any other part of the world. So this needs a different mindset, a different skill set and different capabilities. Most important is the mindset. People have to believe we can do this. We, as a team, believe we can do it. And we are building on capabilities and talents of people. A lot of talent acquisition happening. And also not only bringing in talent, we are also working on partnerships with different companies to attain this talent and know-how. So, so much is happening. That's the reason I said we will update you as we go back in -- quarter-on-quarter, but a real transformation is on the cards in Granules. And like I said, Dr. K. V. S. Ram Rao, who is with me today here, has already settled down in the company, and he's going to be leading this transformation.

Okay. Okay. So it would be safe to kind of get it more so from a 1-year, 2-year down the line perspective. Would that be a good...

It's a multi, multiyear journey, but we will start seeing some results after the second year.

[Operator Instructions] The next question is from the line of Tushar Bohra from MK Ventures.

Congratulations to the management for a recovery after 2, 3 quarters of challenging results. A couple of points. Sir, just first, quick clarification. We have included the duty drawback in the other operating income. So it's part of the P&L?

Yes.

Okay. Right. Sir, if you could help understand how the noncore molecules as a block has been performing. Let's say, some kind of qualitative comments on volume market share, any kind of insights you want to highlight around those products. And also the pricing environment, whether our strategy on the noncore molecules, whether the strategy something about -- as we had envisaged, say, 4 to 6 quarters back?

Priyanka, would you like to take that?

Sure. Tushar, you're asking us about the market share for noncore molecules and also a little bit on pricing, right? And our approach towards that?

Yes.

Okay. So -- I mean without getting into product specifics, because every product has a different market share, I will say that for the larger products where especially the ones coming from India, we still have to tap at least half of the market share that we have in our mind. We only went to half our target share. That's primarily because we are in a phase of the generic industry where most of our -- most of the suppliers or competitors are defending business because they probably are not receiving further approvals or for whatever reason. So we don't want to engage in that right now. We want -- I do see that today a little bit nonsustainable because we understand the sourcing landscape of each of those products, and we don't think it's very sustainable to maintain those prices. So we are being patient right now. We did capture a good share of each of the market that we wanted to already. Now over the next -- as we speak, we are continuously bidding. We do see a lot of shortages because of the reason that I mentioned already. So we are bidding slowly at the prices that we want, and we're accepting price -- we're only accepting business if we get the margins and the prices that we think are sustainable going forward. And again, for each of these products, we have a long-term vision of where it would be because of everything that we are doing right from backward integration to CIP activities that we're implementing in place. So we do adjust pricing accordingly.

So as a strategy, would it be fair to say that you're looking at, say, maybe anywhere from 15% to 30% market share, may be higher in a few? And at least corporate average margin profile possibly slightly higher for the new molecules?

Yes. If you look at the gross margin, it should be a little bit -- I think they are a little bit higher. And in terms of market shares for our core molecule -- for -- not -- sorry, not core molecules. So the key molecules amongst the noncore, the big, high-volume ones, our market shares will be a little bit -- will be higher than the 30% that you mentioned.

Sticking on the subject, we have a number of launches done, say, over the last 4 to 6 quarters. What is the optimum time line over which these molecules start to stabilize into a market share? Or what is the vintage when you start to get the real results? Is it 2 years or 3 years for the strategy as a whole?

See, we already started seeing an increase in the contribution of core molecules as you even saw in the presentation. In terms of a percentage, that growth might be -- might look a little bit minimalistic to you. But if you look at the absolute terms -- absolute numbers, the growth is quite a bit. And now if you expect, say, growth like a metformin, it will certainly take us a few years to get there because of the size of the -- sheer size of the molecule. But look at absolute terms, we certainly are growing and that's coming even from a deflationary market at the moment. All that growth is coming from noncore molecules.

Yes. Agreed. Just to clarify, what I meant was, let's say, molecules that you've launched in H2 FY '20 or H1 FY '21, so 4 to 6 quarters back, would it be fair to say that sometime in FY '24 you should start to see a significantly higher contribution from those molecules as they start to stabilize at much higher market share from today?

I would say even before that we could capture the market. But yes, it really depends on the nature of our suppliers and how receptive they are to stabilizing prices, et cetera. So from our side, we are doing everything we can. That number seems reasonable, if not earlier, a quarter or 2 earlier.

Okay. A question on the backward integration thought process. I'm assuming we would be starting prioritizing PAP given the challenges we've had in paracetamol last 4 quarters, but just to help us with the clarity for backward integration for us overall amongst the portfolio? And how are we approaching this for the new molecules also?

Tushar, now the journey for all the new molecules has been actually starting with -- right from basic materials. So there's no such thing as KSMs buying from outside. So that's where the new molecules going forward. But on the existing molecules which we have, we have also started working on integrating all the way backwards. PAP is one, but all other products also we are working on. And this is what where I said will be a sustainable journey. These products, again, when we make, it will be done in a green way. They are not going to be done in the normal way where you cause a lot of pollution and other stuff. So a lot of work is happening. This could take about 2 years to see the first results, but we are on the job.

And sir, the [ annual revised ] plant for PAP, when do we expect that to come on stream again? Do you have any clarity from that one?

Which one, Tushar?

You mentioned one Chinese supplier. But I think one of the largest...

Yes. Okay. He is supposed to be starting as trial runs this month, and we think in 3 months from today, we should be seeing the first supplies from him.

Great. So we would already be in conversations to sort of secure the earliest supplies, I suppose, being large...

Yes. Yes. That's going to be a huge plant, Tushar. And when he was in full production, there was a surplus of PAP around the world. So we do foresee that things will normalize once he streamlines his production.

Okay. Great. Sir, just 1 last question on the, say, Vizag onco [ hypo ] block, any visibility on revenue from there? And also on the new MUPS block, when does it start contributing to revenue for us?

Yes, next fiscal, it will start contributing, maybe beginning of Q2 or end of Q3. Q2, yes, beginning, it may start contributing, the MUPS block. But on the Vizag plant, while onco is going on, it's a small part of our business. The real -- we have invested some about INR 80 crores, INR 90 crores last year -- or this year in building a new API capacity there for high-volume molecules. And this is going to be our future area of growth for new APIs. That's where some of our initiatives in green chemistry will also be implemented. So maybe we'll start seeing revenues -- decent revenues next year. But '24, we can start seeing some of our green initiatives coming to shape from that site.

[Operator Instructions] The next question is from the line of Gagan Thareja from ASK Investment Managers.

Am I audible?

A little louder, Gagan.

Okay. Is this better?

A little more, closer to the mic.

Yes. I'll try and speak a little louder.

You're better now. You're better now.

So my first question is on your year-to-date reported sales, if you could bifurcate the growth into volume and realization?

The volume and realization of different products you are meaning or what exactly do you mean, Gagan?

If you're comfortable giving it for your key products, it would be helpful, or if you want to, on an overall basis, I'm okay with that.

One minute, I think, Sandip, you can check...

You're asking about the total growth in volume versus total growth in prices? Or...

I'm simply asking the split of the reported growth in volume and prices. I believe volumes would have dropped year-to-date, whereas prices would have gone up. So I'm simply trying to understand the impact on your growth from volume of products sold and the realizations on those products?

Okay. Sandip, do you have that?

We may not have the split right now, Gagan. But -- yes -- but I can broadly say we are operating our paracetamol capacity at around 60% and getting these revenues today. And these revenues from paracetamol are more or less equivalent to running the plant at 100% in the past.

Okay. That would be for paracetamol. Could you also elaborate a little bit on Ibuprofen and metformin?

It may become a little sensitive, Gagan, with that. So -- there is some data in the investor's presentation. Sandip, can you explain that?

On an aggregate basis, would it be possible to share this breakup? Or that's not possible?

That maybe a little sensitive too, Gagan, sorry about that. I think let's skip this.

Okay. Second question on Ibuprofen, your peer company on their call today indicated that BASF's new capacity is fully automated and actually has a lower OpEx than they themselves. That being the case, even when demand comes back, don't you see this impacting the pricing of Ibuprofen and possibly also market share for [indiscernible] Ibuprofen?

Let me, first of all, explain, Gagan, that we used to have an API facility, a JV in China. We have exited the JV, so we're no longer with the API. So when we had Ibuprofen API shortages, the JV really did help us a lot. But today, there's a lot of surplus capacity in the world. And of course, BASF is the greenest and the lowest cost technology in the U.S. So they make product in the U.S. much cheaper than anybody else. So yes, it's going to be a tough time for the API manufacturers. But as formulation manufacturers, we are well protected. We should be able to maintain our margins on Ibuprofen.

All right. And you've been emphasizing on backward integration. If you could give us some idea on the degree of backward integration as it stands today and as we envisage it 5 years down the line?

Today, we are not backward integrated into the -- I would say all of our products today. But we have this blueprint getting ready, and we are working on it. So from 5 years from today, we will be integrated almost in most of our raw materials -- basic materials.

Okay. And we keep hearing about the China Plus One narrative from a lot of companies. There's this bid by large global pharma companies to try and attempt and reduce their dependence on Chinese PPIs and formulations. But -- I mean the sticking point that I see is that the key starting materials in any case are always sourced from China, unless that -- unless there is a substitute there. Do you see a viable proposition for a shift of formulations and APIs away from China?

No, formulations are already in and India dominates much better than China. And even in APIs, most of the APIs are made here but the key intermediates for all the APIs, we depend on China. The shift is already happening. And like I said, that's one of our biggest initiatives. We don't want to be dependent on anybody. We want to go all the way backwards and start from the basic chemicals into the final product ourselves all the way. So the shift is already happening. And I'm sure like we are doing, some other companies are also working on this basis. And I personally feel that in the next 6, 7 years, the dependency on China will become minimal.

Okay. And finally, just your thoughts on the company's road map over a 5-year time frame -- your aspirations and your road map for both the formulations and the API business with a 5-year time frame in mind?

Let me put it another way, Gagan. In 5 years, our aspiration is to become a fully integrated, sustainable company, highest level of compliance on everything. Compliance is what -- I would say our aspiration is to become a near-zero carbon neutral company and integrated all the way. And by doing that in all our products, the advantage we get is not only helping the environment, we do believe all these things will give us better sustainable margins.

When you say better sustainable margins, could you give some idea of what...

Whatever the current technologies can offer by going green, the margins could improve further.

[Operator Instructions] I now hand the conference over to Dr. Krishna Prasad, Chairman and Managing Director, for closing comments.

So once again, ladies and gentlemen, thank you very much for being with us and hearing us out. And I would like to sum up by mentioning that we have embarked on a very exciting journey, and we are going to transform ourselves and we wish to share our progress and achievements on a quarter-on-quarter basis with you. Thank you very much.

Thank you very much. On behalf of Granules India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.