Granules India Limited (532482) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Granules India Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Irfan Raeen from Orient Capital. Thank you. And over to you, Mr. Irfan.

Thank you, Rhea. On behalf of Granules India Limited, I extend the warm welcome to all participants on Q1 FY '25 financial results discussion call. Today on the call, we have Dr. Krishna Prasad sir, Chairman and Managing Director; Dr. KVS Ram Rao sir, Joint Managing Director and Chief Executive Officer; Ms. Priyanka Chigurupati, Executive Director; Mr. Mukesh Surana Chief Financial Officer. Before we begin the call,I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinion, expectation as of today. These statements are not guarantee of our future performance and involve unfortunate risks and uncertainties. And with this, I would like to hand over the call to Krishna, sir. Over to you, sir. Thank you.

Thank you, Irfan. A very good evening, ladies and gentlemen, and thank you very much for attending our Q1 FY '25 earnings call today. A detailed presentation of our quarterly performance has been uploaded on our website, and I trust all of you has read it by now. We had a robust performance during the quarter, hitting our planned trajectory after a few setbacks last year. Our strategic initiatives for a formulation-led growth trajectory driven by a new product pipeline and geographical expansion are taking shape. In line with our FD led growth strategy, the share of FD had progressed -- progressively increased to 76%. This is a significant rise from 65% in FY '24 and 55% in FY '23. Similarly, the sales of new products beyond our legacy 5 products have been growing well, contributing 35% to our Q1 revenue. Their contribution was 25% in FY '24 and 15% in FY '23. We continue to strengthen and grow our business in the U.S., our most important market. We are uniquely positioned to optimize our offering through Make in India at GIL and make in America at GPI and GPAK sites in the U.S. Our investments in GPI, which includes a local manufacturing arm in the U.S. with a platform for the CNS and ADHD segment are paying off very well and are a key driver of our growth in the U.S. Similarly, the capacity utilization at GPAK, our new packaging site in the U.S. is improving quarter-on-quarter. Our OTC private label portfolio sold through our commercial Granules Consumer Health, is also gaining good traction contributing to our growth in the U.S. We continue to prioritize investment in building R&D capabilities and improving the quality of our product pipeline. We have exciting product pipelines in oncology, the antidiabetic segment, large volume molecules and select non-OSD dosage form. We have made significant progress on products developed on innovation and technology platforms such as biocatalysis and continuous manufacturing. We are gearing up to put commercial scale manufacturing capacity at unit 5 in Vizag. Dr. KVS Ram Rao will elaborate on this further. As we expect the Formulation segment to drive growth moving forward, we are well placed with our FD capacity to cater to this incremental demand. The construction and capacity ramp-up of our new formulation facility at Genome Valley, part of Granules Life Sciences is progressing well. The plant successfully commenced operations in March for the first stage of 2 billion capacity and realization activities are ongoing. On the sustainability front, we completed the milestone of submitting a climate action gone to SBTI, aligned to the 1.5-degree pathway and net zero by 2050. Our net zero road map has been finalized and action plans have been initiated on efficiency measures, adoption of biofuels and renewable energy, supplier sustainability programs and the green molecule platform through our CZRO subsidiary. To summarize, we are excited about various avenues for growth, including advancing our core products up the value chain strengthening our position in the CNS ADHD segment, introducing differentiated new product lines and expanding and deepening our presence in new geographical markets. With this I hand over the call to Dr. KVS Rama Rao.

Thank you, Chairman, and good evening, everyone. Through our efforts in portfolio management, R&D and continued innovation in new molecules, we have successfully created excellent platforms for the organization. A lot of progress has happened in terms of product development and filing, strategic approach to creation of infrastructure in the chosen segments and investment plans to reap the benefit in short-term and medium term. On oncology platform, oncology products have been an important portfolio for Granules. We have already built world-class infrastructure, both in API and formulations with our Vizag facility. Our portfolio includes Para-4, testify, Para-4 181 and first to launch in U.S., Europe and rest of the world. With this global development program, we expect to leverage technology and scale in a very effective way. We are quite satisfied with the progress of product development and expect to file a couple of products in the next couple -- next few quarters. The portfolio of filings include near-term launches and are likely to start in FY '26. To prepare ourselves for the launches, we have taken up capacity expansion projects. We propose to create a new oncology API manufacturing facility and also augment finished dosage and other infrastructure enhancements. The project execution is likely to start from September and should take approximately 12 months to complete. This should enable us to bring flexibility to our supply chain and enable us to become a significant player in the oncology segment. As mentioned in my previous communication, CNS ADHD is a very important portfolio for Granules. The therapeutic area is growing in the U.S. and also in other parts of the world. We expect to be a significant player in this segment. R&D efforts at our [indiscernible] facility with collaboration from our centers has progressed while in successfully developing a good portfolio of ADHD products. The portfolio in this segment includes Para-4, Para-4 181 and C-1 also Para-3. It's a blend of and medium term launches. Our R&D in also focuses on complex products, some of which have been launched at a brand level for several years without competition owing to the complexity of the development. This additional portfolio to our existing products should help us in a dominant player in the segment. Our strict policies and management around manufacturing and commercialization of these products have allowed us to gain momentum in U.S. With this well-balanced portfolio of immediate launches and IP-driven litigation launches in the next couple of years, we see a lot of excitement in this category. Ambroid and manufacturing technology platform. We have been communicating for the last 4 quarters on our progress on this platform. Five projects are significantly advanced and almost at the stage of completion of optimization in the lab. One of the projects have been tried at plan scale successfully. We are focused on creating manufacturing technology infrastructure in the next 2 quarters and start validation of at least 3 molecules in Q3 FY '25. This platform is expected to bring this global cost leadership, manufacturing technology excellence and help us lead towards our journey of sustainability. Our investment plans to build infrastructure in manufacturing of events is finalized, and we expect to start the project execution from quarter 3. Also we have finalized the investment plans to build infrastructure for the chosen products in this segment for the chemical steps. These projects will get into execution by September '24 and will take around 14 to 18 months to complete. The progress of this platform in a short period of 4 quarters demonstrates our commitment towards transforming the organization through site and technology. I will just clear from the above, Granules is fully focused on building world-class products platform and drive business growth through bottom line sustainability and living the purpose and vision of the organization. To achieve this transformation, spend in R&D has also been increased and stands at INR 62 crores for the quarter and is likely to increase in the subsequent quarters. Thank you all, and over to you, Mukesh.

Thank you, CMD and GMB. Let me take you all through the top financial parameters now. Revenue, the first quarter revenue were -- could be INR 11,799 million as compared to INR 9,855 million in quarter 1 FY '24, with a growth of 20%, driven by formulations. Revenues grew by 0.3% as compared to Q4 FY '24. In line with our strategic focus, FD sales growth continued. It has been offset by a decline in Para API and PFI sales volume and price erosion. The sales breakup as for different divisions, geography regions are presented in our investor presentation, which is available on the website. Value-added. Our value-added as a percentage of sales for Q1 FY '25 was 58.9% as compared to 51.4% in Q1 FY '24. Value-added as compared to Q1 FY '24 is up by 7.6% points attributed to a higher FD sales and lower raw material costs. Value added as a percentage of sales for Q1 FY '25 is down by 1.1% points from Q4 FY '24, primarily on account of product mix. EBITDA and EBITDA margin. EBITDA for the quarter was INR 2,593 million, that is 22% of sales as compared to INR 1,368 million, that is 13.9% of sales in Q1 FY '24, an increase of 89% in value terms, mainly on account of improved VA. R&D. Our R&D spend for the quarter was INR 620 million as compared to INR 413 million in Q1 FY '24 and INR 609 million in Q1 -- Q4 FY '24. Net debt, our net debt was INR 7,941 million as compared to INR 8,421 million at the beginning of the year. The net debt has decreased by INR 481 million. Cash to cash cycle. Our cash-to-cash cycle was 183 days in the current quarter as compared to 161 days at the beginning of the year. New launches and Red Sea issues impacted both inventory days and overall PCP for both. Operational cash flow. Operational cash flow for the quarter was INR 2,151 million as compared to INR 35 million in Q1 FY '24. CapEx. CapEx spend during the quarter was INR 1,444 million, primarily invested in Granule Life Science INR 691 million. ROP. ROP for Q1 FY '25 is 19.6% as compared to 16.5% in Q4 FY '24 and 9.4% in Q1 FY '24. That increase is primarily on account of increase in EBIT. With this, I open the floor for questions.

[Operator Instructions]. The first question is from the line of Rashmi Shetty from Dolat Capital.

Congratulations on this set of numbers. My first question is on the contribution of FD. We have actually now 76% of the FD contribution to the overall total stake. How could this -- for the entire year and are we not focused on increasing the sales of API and PFI during the year. What I want to understand that whether the composition would fluctuate quarter-on-quarter or more or less, it would remain stable during the year.

Rashmi, I'll take that question. One of your question was that you're talking about the contribution of FDs as a part of our overall sales. With the number of launches we have going forward, we think there's a very strong possibility that it will remain this or grow a little bit further.

And what is your target contribution of FGP total sales? And what are you aiming to achieve this the next 2, 3 years?

Rashmi, if you are saying our strategy is always to keep on increasing FD that's why FD is up all these years, and we are on the past, most of the APIs were naive to go into our FDs and PFI and PFIs going to FDs today. So even if we sell on the API elsewhere and buy the APIs request on FD, our revenues would have been at a different level. But most of the APIs are made for in-house consumption. So we see that this mix will -- this ratio will continue at the same level or possibly grow.

Okay. Got it. So then in that case, we expect that these should be declining both API and PFR submit for this particular year because your FD contribution would be pretty high due to the increase in launches.

Yes, that's the strategy, Rashmi.

Okay. Got it. And then what about the gross margins of the FD contribution also sustains, then do you think that the gross margin of this 58%, 59% of a sustainable during the year?

It should be around this a little bit here and there. Plus or minus a few points, but it should be around that.

Okay. And then any guidance on operating margin, we would like to get since our gross margins are being improved by around 300 to 400 basis points in FY '25 over FY '24?

Rashmi, can you repeat that, the line was clear? I think there's some problem with the line.

Yes. So on EBITDA margin, any particular guidance you are giving, I mean, I understand that your R&D and other expenses has been increasing. And your -- but your gross margins are improving as well. So are we still at the level of around 22% or you've seen for FY '25 with the increased launches and we would be able to do higher EBITDA margin?

Rashmi, again, I always maintain that we will definitely be much about 20% and will keep improving year-on-year. So the 22% margin has to improve a little bit, how much it will improve we will see.

Got it, sir. And then last question on your OTC business, as a percentage of your formulation business, how much is your OTC contribution?

Actually that's about 15% of our overall business.

15% of overall sales or of formulation business?

Overall sales.

Overall formulation sales.

The next question is from the line of Tarang from Old Bridge.

Congrats on an extremely strong set of numbers. So just a couple of questions. Specifically on geographies, North America, are there any industry tailwinds? Or would you describe most of the performance to systematic -- sorry, idiosyncratic to your business? Second, if you could just comment on what's happening in Europe. And third Chairman, I heard you speak about the large, I mean you made some reference to large molecules in your opening comments. If you could just elaborate a bit on that.

I think Priyanka will take this question. But before that, let me clarify, I didn't say large molecules, I said large volume molecules.

Okay. Sure.

So I think the U.S. has been -- has always been a very, very strategic market for us, as you always know, and we are built for regulated markets. So on that front, it was obvious that the U.S. would be the biggest and continue to be the biggest. And that's primarily because of one, our strategy, like I said, our service levels, our quality and compliance that I'm sure you've seen in the news that we've had absolutely no issues. So I think the combination of all these 3, and of course, having the right products at the right time, all of them contributed towards growing U.S. sales, which will continue to grow as we go. Number of launches also attribute caused relative increase in the U.S. numbers. Just a clarification on Europe. What exactly did you mean by, can you provide some commentary on Europe?

Europe business is down about 35% in INR terms. So I just wanted -- I mean, is there something that you've already commented and I missed or.

Okay. Yes. European sales were led by paracetamol all these years. And only recently, we made the shift to FD and FDs are picking up. Paracetamol, like I have mentioned in the last quarter and most of you may know, is in a very bad shape today. There's a lot of inventory which the customers have built up across Europe and U.S. and some of them have another inventory sufficient for another 6 months. So literally, there's no big market. And also, there's a lot of capacity that was built up, anticipating a huge demand. So paracetamol is in -- has not contributed and we do not expect it to contribute for at least another 2 quarters. I think it's only possibly next year, paracetamol will come back and add to our revenue and profitability.

Got it. Just a follow-up on U.S. I mean, roughly the run rates moved from about INR 700 crores, INR 710 crores in March '23 quarter to about INR 870 crores. And in that time span, we've seen additional approvals of about 10 products. So if you could just give us a sense on how much of the incremental 25% the dollar hasn't moved as much, would be on account of really the traction on the new products? And how much I mean just a ballpark would be on account of you getting more volumes in your base business?

I think it's a mix between both -- sorry, I forgot your name, my apologies. It's definitely a mix between the both. The new launches, to be very honest, we just touched a launch in Q1. So you see those making a bigger dent going forward. But primarily, it was increased market share from the existing products.

The next question is from the line of Darshil Jhaveri from Crown Capital.

Yes. So just wanted to get an idea on currently how are sales are panning out. So maybe like, correct me if I'm wrong, but I think since the last 7, 8 quarters, we've in the range of around INR 1,100 crores to INR 1,200 crores. And I understand that U.S. has grown that much, but I think because of our European business that's eating up all our gains. So now I just wanted to understand like in terms of our trajectory, we could see the similar growth in U.S., but will the European business stabilize? Or how would we see our growth going forward? Because I think March '23 and '24 have identical number on the face of it, I understand in depth, there are a lot of differences. So just wanted to get a color on your perspective.

U.S. will always be a primary growth driver unless as a way. And so it will always continue to grow, and we see no reason why it should not grow at the same pace. The only thing that will happen is Europe has degrown, and we expect formulation growth to come up in the next few quarters. And in addition, when API sales also come up possibly next year, there will be a better growth there, and we are also addressing a lot of other geographies, like many times I mentioned South Africa and Asian countries. So these are also -- will be contributing to growth in future.

Okay. Fair enough, sir. So any kind of revenue guidance could we have for FY '25, sir?

I think, we're not as a little bit clear, we will not guide anything, but we would see the trajectory improving.

Okay. Okay. Fair enough. Sir, and just in my last question in terms of overall like except of North America, like in LatAm and India, what kind of market are we seeing? Like how is it performing currently? And anything -- any surprises from there or something on the positive side, you can expect from that?

Yes, let no surprises. Paracetamol, LatAm was mainly led by PFIs in the past, paracetamol and other PFI. So paracetamol being in what stage it is today, there was a different Paracetamol sales in LatAm. However, we managed to make it up with other PFIs. And today, the focus in LatAm is to shift away from PFI into every. A lot of efforts are being put into that and also new countries in LatAm also are being addressed right now. So we see that LatAm will keep growing, not at the pace like U.S. will, but it keeps growing.

[Operator Instructions] The next question is from the line of Sajal Kapoor, who as an Individual Investor.

First, I would like to point our attention to Slide 13, where we have listed our historic asset terms. So -- and historically, 2x is what we got to fiscal '22 as well as fiscal '23. Now moving up the value chain and introducing better and more complex products, increasing gross margins. I mean, logically thinking we should try and improve our historic asset turns much better than 2x at full capacity, of course. I just wanted to understand what your thought process is. And I'm not looking for any sort of guidance for this year or next, but on a directional basis.

Thank you, and good evening, Mr. Kapoor. Now what has happened is U.S. is performing to decent capacity rather close to full capacity. And Unit-5 in Vizag is going to be utilized and [indiscernible] is almost fully applied. So the asset terms as we go by will definitely improve. And you are also right, some of the products being made in the U.S. are high value, so the asset terms will improve because of that too, the denominator being seen. I think denominator will keep increasing. So you're right, it will definitely improve.

Mr. Chairman, I just want to add a clarification. So as you rightly said, API is going into FD, so captive consumptions are increasing. That is also in the overall asset turn instead of sales, we are getting better margins. So our return on capital employed is improving. But asset turn is reducing because of capital consumption also of API, PFI. Secondly, we are also investing in new projects in Granules license those asset turns will happen starting from next year.

Right. But directionally, we are all set to breach our historic high at some point, right?

We should. We should. Definitely. That's the whole ideal strategy.

Yes, sure. Understood. And I think so Surana mentioned that about the backward integration as the reason for the reduced or the reduction in the asset turn. So all you have seen on this molecule, are we backward integrated? If yes, are we backward integrated at the intermediate level or just the API.

So it is a very small molecule Mr. Kapoor. The volumes are quite the same, are not very high. It's a very low dosage product maybe 0.5mg. So there even if we are integrated, they doesn't really make any difference. And such very low molecules, we prefer to vitamins, if they're available. If they are not we'll make it ourselves.

Right, right. And finally, to your previous participant's question, Dr. Prasad, you mentioned that paracetamol uptick is still about quarters, possibly 3 quarters away because of this inventory issue across Western world. So does that mean that in the immediate next couple of quarters, we may not be reporting a decent top line growth because we need paracetamol contribution to get back to a better top line, albeit with slight dilution in our gross margins. I mean how do you look at the sales trajectory in the near term because paracetamol is still off as well as gross margins impact because at some point in time, Paracetamol will start hitting our P&L.

In the next few quarters, let's say, the next 2 quarters where I can definitely have some visibility. There will be very marginal growth in top line. But we do expect the bottom line will not be proportionate. It will be little higher than -- disproportionately higher than the top line. But maybe next year, the paracetamol will contribute and demand will grow along with bottom line next year. But definitely this year, the bottom line will not be stagnant. That will be a little dynamic and move forward.

The next question is from the line of Harit Ahamed from Avendus Spark.

So my couple of questions on...

Sorry to interrupt, Mr. Harith can you be a little more louder?

Yes. I'll try to be louder. So a couple of questions on Granules CZRO. I hope I'm audible now. So last quarter towards the end, we have commissioned a pilot plant for DCBA, so any takeaways from that pilot plant so far and any updated thoughts on our INR 2,000 crores CapEx in this project. And finally, any time lines around the PAP plant that we were planning to commission.

So Harith, interesting question, something close to my heart again. CZRO, we did commission the pilot plant, we had some teething issues like always been saying, this is a new technology. It was demonstrated in lab scale. And pellets we had some issues. These are huge equipment. So we are making some changes. And I think with the changes we will again restart next month, modification of equipment. And hopefully, it will go well. And once this is demonstrated for a few months, consistent yields and consistent quality then we will start working on the main plant, which is to come up in Kakinada. The main plant equipments have been ordered already and we are waiting for some modifications that will be needed before they will be delivered to us. And regarding the INR 2,000 crores investment, we have mentioned that we are very cautious in going forward at every place we have a stage gate. And once we cross that only, we'll be investing more. So we are cautious. And right now, there has been a little issue on infrastructure creation in Kakinada. Power has to be brought in from resistance. So a lot of discussions are happening with Antiquity, a partner has already is working on that and also discussing with the government and all on taxes for billing and the power and also for electrolyzer building and all have happened. Electrolyzers, they're making their own electrolyzers, which will take some time. So in view of the infrastructure creation getting delayed, we are in no rush to get there. And we also understand, we think to be far ahead of anybody else and being too early also cannot be the wisest thing. We will take it a little easy, become stronger and then go ahead.

Okay. Sir, one related question. So we have announced the expansion of the backward integration projects when the prices of BCD and PAP were much higher than where they are now. Now that PAP and BCD prices have corrected is the case for backward integration as strong as it was at that point. And is that also factored into our capital allocation into this project.

Eventually, not as effective as it would have been in the past, Harith. But again, when you look at where the world is going, these prices overseas manufacturers giving today may not last. And our experience in the past is these type of products which are low and again slowly start creeping up to abnormally high prices. So we think we are on the right strategy wanting to do these APIs ourselves, intermedius even though it may not give us any great traction in the short term.

Okay. So my last question is on the -- yes.

The carbon footprint is going to be much, much lower than what we get from overseas. And as you know, with C-band coming in Europe and other places and incentives in other places, this is going to be a tremendous, make it tremendous difference, and it's definitely the right way to go.

Okay. The last one on the formulations business. So in FY '24, we had received quite a few interesting approvals like metoprolol, esomeprazole, pantoprazole or modified lead versions. And then we had -- we were preparing for launching these in FY '25. So are there any time lines that you can share or any updates on specifically these products? And if I may add one second part to the same question, Priyanka mentioned that 15% of our formulation sales is from OTC. I was hoping if you could give some more color regarding the share from the control substances, the ADHD products and legacy molecule, some ballpark breakup would be very helpful.

Harith, I take your first question -- sorry, your second question first. The share from the control substances was legacy products is we have something we can really share, but I would say that both are equally contributing. There is no significant change in the percentage of contribution necessarily. And on your -- yes, we did receive a lot of launches last year. We launched about 3 products at the very end of Q4, which essentially we launched in Q1 and also another 2 products in Q1. So that's about a total of 5 launches that we did. But we just started the business. So the actual value from the businesses you see over the next couple of quarters.

[Operator Instructions]. The next question is from the line of Sahil Vohra from M&S Associates.

I just had a couple of questions. The employee costs and other expenses have increased by approximately 16% to 18% year-over-year. So when can we expect the operating costs to grow at a slower rate than revenues.

Yes. So employee expenses have gone up, you're right. Other expenses are coming down. The increased percentage will be lesser in F '25. So we see employee expenses will still be at a double-digit rate of increase in the FY '25, which will come down in F '26, where we can see a better operating leverage of employee cost.

Okay. Understood. My second question was the paracetamol API sales have been declining and witnessing a price erosion somewhat. So where do you see this stabilizing?

Mr. Vohra, so it's already sort of stabilized at the very lowest uneconomical levels. Now it's only the way up. Like I said, only end of this fiscal year or early next year, we will see that things will look up. It's going to take some time. These are cycles that happen once in about 7, 8 years these type of cycles happens, and this is one of the worst cycles I have seen in about 40 years of existence in Granules.

The next question is from the line of Tarang from Old Bridge.

Just wanted to check on the OTC business, about 15% of formulations revenue in Q1. There was a comment in Q4 FY '24 that the OTC business grew by about 25% in FY '24. But if you could give us a sense of how big the business was for full year '24 and full year '23?

It's been growing at from INR 40 crores to INR 60 crores this last year. And this year, we expect a similar growth rate in the portfolio, sorry, in the current quarter is about INR 20 million. So it is increasing and strong double-digit quarter-on-quarter as well as year-on-year.

And how much was this for FY '24 and '23?

FY '24?

Yes.

FY '23 full year financial numbers you are asking?

Yes.

FY '23 was roughly about INR 40 million, FY '24, about INR 60 million.

Sure. Just a last comment Sir, if you could just give us a comment on your top 5 products, one? And second, given the performance that we've seen in FY '24 considering the cycle that paracetamol has been going through, would it, therefore, be safe to presume that here on, even though paracetamol and the top 5 products are significant contributors, but in a large sense, you've been able to hedge your business or your dependency on these products or is there still time for us to reach that conclusion?

I think as mentioned in the strategy, both by Chairman and me in the last couple of communications, while it's core products like para, metformin continue to be a very, very important products. But we started looking at the increase in the FD shares. And also, we are looking at the addition to different product portfolios and trend baskets. So you clearly see that in quarter 4 and quarter 1, although the Paracetamol decline is seen in the API we are still able to maintain a very healthy and sustainable bottom line. I think this itself is -- as I told before, this itself is a good example of our derisking and also making sure that we have a very positive way forward in terms of looking at FD growth in U.S. and other geographies and this should enable us to continue to have. And when para comes back, as told by Chairman as well, I think we will only add more to the bottom line.

Most of the capacity creation that's happened in Para has been mostly in India, right?

All in India.

[Operator Instructions] The next question is from the line of Foram Parekh from Sharekhan.

Congratulations on a good set of numbers. My first question is, I see North America sales growing by almost 45%. And I understand it's because of the lower base. So may I just understand like what would be the normalized growth rate going forward. I mean how do we see North America region? I mean, do we see any price erosion pressure there? How do we think about it?

Yes, you're right. Last year, Q1 was lesser because of cyber incident as well, but we are seeing North America region to grow in excess of 20% and largely driven by formulations.

Okay. So my second question is now that we expect formulation sales to increase even from here on and European region also contribute from next year as paracetamol sales kicks in. So do we expect margins -- EBITDA margins to go north of 22% and settle somewhere around 25% in a year's time or so?

Yes. So that is the accretion, but we are currently staying around this range is what we would maintain and also inch up quarter-on-quarter as we see with the increased revenue of formulations.

Okay. And my last question, if I may squeeze in. May I just understand that on a sequential basis, though our sales have gone up and RM costs have come down. Then why are we -- I mean, what has impacted gross margins by 100 bps almost on a sequential basis?

Yes. On a sequential basis, it is not because of raw material costs, raw material costs were more or less flat. It is primarily the product that's within the formulations.

Okay. So is it the API sales, which has not kicked in? Or what products sales?

In the formulation also, there is a product mix. So largely sequentially, the formulation mix has changed. It's a more of product mix, nothing major, but this 100 basis point plus finance, we will see every quarter plus minus, depends on the products that we sell and customer mix and product mix.

Right. So largely, we would want to maintain around 60-odd percent on a gross margin level, right?

Yes, plus/minus around that level.

The next question is from the line of Rashmi Shetty from Dolat Capital.

Priyanka, a question to you. In the U.S. business, what is the price erosion now?

Prices have -- price erosion has stabilized to a very large level. I would say an average of mid- to a little bit of the higher single digits, but it's more mid-single digits.

So you said that -- earlier that we have increased the share in the existing products and with this mid-single-digit growth, you are not seeing any sort of value erosion in the U.S. business. Is this right to understand?

Yes. I wouldn't say no value erosion. I wouldn't say significant value erosion.

Okay. And I mean on the launches, how many have been -- I mean, how much are you targeting for the new launches this year?

In terms of number of products, like I think I mentioned to somebody earlier, we did about end of Q4 and early Q1, we did about 5 launches. So in addition to increasing share on those launches and starting to see value on those launches, we'll be doing about 3 to 4 launches in the U.S. and roughly about 8 launches in the rest of the world. As we -- for the rest of this year.

Okay. So for the full year in the North America, that is in the U.S., we will be doing around 67 launches?

Yes, it will be about 3 to 4 more launches and we have already launched about 2, if you consider Q1. But about -- I would say about 9 launches roughly, if you consider the last part of Q4.

Got it. Got it. And on the cash conversion cycle, you all mentioned that Red Sea issues have impacted the working capital days. So are we expecting to get normalized during the year and it should be similar to what we have seen in FY '24? Or it would remain at the elevated level?

We are looking at similar to FY '24 level during the year. So it as the Red Sea issue impact comes down.

Okay. And then last question. On the FD side, what is the current capacity utilization?

No. No. The Gagillapur facility, we are almost 100%. And we have just started validations in our new GMS side. The first stage has 2 billion capacity. I think by the end of this year, we should be doing at least 1.2 billion, 1.3 billion. And next year -- early next year, the new capacity is another 8 billion in start-up. So we expect to pick up another 2 billion or 3 billion of that capacity to the next year.

So basically, what I understand that the capacities pick up, you see that the second half to be much stronger than the first half?

It could be a little flattish, but the quarter on the second half year, right?

Second half will be stronger.

Right.

The next question is from the line of Ashish Soni of Family Office.

Sir, this future portfolio onco product, when do you think and other products, when do you think can be launched?

So as I told before, that we expect from FY '26, the launch of oncology products should happen. And they won't happen in all the geographies. I think it kicks off with a chosen geography where there is a possibility of early launch or early approval, and it keeps growing. And we expect this to go on from FY '26 onwards.

Okay. And this innovative platform for diabetes, product for diabetes, what exactly are you trying to do here? Can you give -- throw some color on that?

So we are trying to look at -- because we are very strong on that metformin. So we are trying to look at several derivatives of metformin as a part of our diabetic segment. So we are trying to look at the metformin and also other important areas of that. It is because we want to be a very serious player in this segment. And you keep hearing a lot more as we move forward on how we are going to look at this segment and this platform in a larger way.

And this future portfolio, how much revenue can it contribute like in terms of percentage in your overall revenue in next 2, 3 years?

I think we have been looking at this. We feel that it will contribute quite significantly to our entire portfolio. And maybe because all the launches are going to be -- most of them are going to be on day 1 and also, we are looking at the dominance of this as a part of our metformin we look to be a very significant player in the diabetes segment. And I think that is what is the guidance we want to give.

And any CapEx plans for this year and next year?

I have already told that we have been taking a lot of capacity expansion, both in finished dose as well as in the API and also in our technology platforms. Yes, there are CapEx plans, and we will be in line with all of our estimates and expectations on the capital expenditures.

Ladies and gentlemen, that was the last question for today due to time constraints. I now hand the conference over to Mr. Krishna Chigurupati for closing comments.

Ladies and gentlemen, thank you very much for attending this call today, and I wish you all a great rest of the day and a good night too. Thank you very much.

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