Innova Captab Limited (INNOVACAP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '25 Earnings Conference Call of Innova Captab Limited. 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 Mr. Ayush Kumar Garg, Head IR, Innova Captab Limited. Thank you, and over to you, sir.

Thank you. Thank you. Good morning, everyone, and thank you for joining us on our earnings call today to discuss the operational and financial performance for Q3 and 9 months FY '25. Joining us today on the call, we have Mr. Vinay Lohariwala, Managing Director, Mr. Lokesh Bhasin, Chief Financial Officer, and SGA, our Investor Relations Advisor. I hope everyone has had a financial results and investor presentation, which has been uploaded on the stock exchanges and on the company's website. Now I would like to hand over the call to Mr. Vinay for his opening remarks. Thank you, and over to you, sir.

Thank you, Ayush. Good morning, and thank you all for joining us on today's earnings call. We will be discussing our business performance for the Q3 and 9 months of financial year '24-'25. Before I get into the specifics of our business performance, I am thrilled to share a major milestone in our growth journey, the commencement of commercial production at our Kathua, Jammu facility effective from Makar Sankranti, 14 January 2025. This is a significant development as it enhanced both our production capacity and our ability to meet the dynamic need of our customers. With this facility now operational, we expect it to further drive our growth trajectory in the years ahead.

I'm sorry to interrupt you, sir. We are not able to hear you right now. -- this is the operator. Sir, can you repeat your last line? We cannot hear you -- I couldn't hear you. Thank you.

While we already have a Cephalosporin block at our existing Baddi facility and the one in Jammu is an expansion owing to high demand. Penum, Penicillin and General blocks are new products and dosage form introduced by us. To elaborate with the new general block at Jammu, we are venturing into [indiscernible] category of products such as LVP and [indiscernible]. Internal block, we also have the dry powder injectable facility. Client feedback has been very good and positive for us, and we are already seeing a strong interest in these -- for these new products. With the Jammu facility now up and running, we are proud to have a robust manufacturing footprint of 5 facilities comprising of 9 independent production block. We are also set to benefit from the central government incentive scheme, which will further strengthen our financial position. Specifically, we are eligible for a GST-linked incentive of 300% of investment made in the eligible plant and machinery available for up to 10 years from the start of commercial production. Additionally, we are eligible to receive a capital interest convention on loan taken on investment in eligible plant and machinery, reducing our interest cost by approximately 600 basis points. Turning to our business performance. I am pleased to report healthy growth across key business areas. Our overall top line grew by 4.6% year-on-year to INR 316 crores in Q3. Our CDMO -- contract research -- Contract Development and Manufacturing Organization business continued its growth trajectory and recorded INR 172.2 crores of revenue in Q3 FY '25. For 9 months ended, the business generated cumulative revenue of INR 505 crores. We service our 190 pharmaceutical companies, including some of the larger -- largest players in the industry. With the introduction of new products and dosage forms, this business area is poised to continue its growth trajectory. Our domestic business continued to experience strong growth underpinned by our vast distribution network of 150,000 touch points including distributors, stockist and pharmacies. In Q3 FY '25, [Technical Difficulty] revenue of INR 58.6 crores, while for the first 9 months FY '25, the revenue from the segment reached INR 169 crore. With the portfolio of 600 products, we remain committed to expanding our presence in Tier 2 and town and cities, while leveraging our existing network to drive deeper market penetration. Our international business have been another key growth driver, registering an impressive 17% year-on-year growth reaching INR 41.2 crore in Q3, accumulating to INR 113 crores in 9 months FY '25. We export to our 25 countries, and we are recently expanded our footprint into regulated markets like Canada and the U.K., which we believe will drive future growth. Sharon Bio-Medicine. Sharon word has a well-established international formulation and API business, both of which strategically aligned with Innova Captab business value chain. Sharon clocked INR 44.5 crores of revenue, which was 6.5% below last year's revenue. This was largely because certain orders have been deferred to our fourth quarter. We are confident that the ongoing strategic initiative and leveraging on the benefits with Innova Captab. Sharon is well positioned to drive strong performance in the year to come. With the successful launch of our [indiscernible] facility and our [indiscernible] on enhancing existing capability, we are confident in our ability to sustain strong growth. We are excited about our future prospects and remain committed to drive long value and growth for shareholders. We look forward to continuing [Technical Difficulty] to execute on our strategic [indiscernible]. Thank you. And with that, I will now hand over to our CFO, Mr. Lokesh Bhasin to take you through the financial performance in more detail.

Hi, are we audible?

Yes, sir, you're audible now. Please continue.

Thank you, sir, and good morning, everyone. I will now take you through the financial highlights for Q3 and 9 months FY '25. Q3 FY '25, our consolidated revenue stood at INR 316.5 crores, registering a year-on-year growth of almost 5%. Business mix was largely in line with the trend this year so far with CDMO business contributing 54% to the overall top line, clocking INR 172.2 crores. Domestic Generic business was at 19%, that is INR 58.6 crores, International Generic business stood at 13%, recording INR 41.2 crores, and Sharon contributing 14% overall revenue from operations with INR 44.5 crores revenue in absolute terms. We witnessed decent improvement in our profitability with the overall EBITDA margin improving by 8.5% to INR 50.9 crore. EBITDA margins improved by 60 basis points to 16.1%. Profit after tax witnessed year-on-year improvement of 36.3%, reaching to INR 34.2 crores. PAT margins also improved to 10.8% versus 8.3% in quarter 3 FY '24, mainly led by better EBITDA margins and reduction in interest cost. Coming to 9 months FY '25, overall revenue for 9 months FY '25 stood at INR 928.9 crores with year-on-year growth of 13.5%. Business mix was 55% from CDMO business, 18% from Domestic Branded Generics, 12% International Branded Generics and 15% from Sharon. In absolute terms, business area-wise revenue for 9 months FY '25 were as follows: CDMO INR 505.1 crores; Domestic Generic business, INR 169 crores, International Branded Generics at INR 113 crores and Sharon at INR 141.9 crores. With this, we would like to conclude the presentation and open the floor for question and answers. Thank you very much.

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from JM Financial PMS. Please go ahead.

Thank you for taking my question. My first question is a little bit more on the operational side. You talked about some spillage happening on Sharon. If you can quantify it and does it also explain a drop? I mean we've seen about 130, 120 bps drop in your gross margin. My understanding would be Sharon has higher margins. So that would also explain the Q-on-Q drop in margin.

Yes. So there are slightly reduced -- reduction of Sharon revenue in quarter 3, which was mainly due to certain orders spilling over to quarter 4. It was to the tune of around INR 46 crores [Technical Difficulty] in quarter 4. And talking about gross margin, the gross margin is slightly higher, mainly, yes, one of the reasons contributing factor was that Sharon, which is having a slightly better gross margin contributing to a lower revenue contribution. And at the same time, other business also, there was a certain product mix change, which contributed to the slightly higher gross margin. Price reduction in the play in this quarter CDMO is more of a pass-through pricing model, which has also slightly contributed to the higher gross margin in percentage terms.

Sure sir, my second question is a little bit more strategic in nature now that your Jammu capacity has come in. I mean just to understand from the demand perspective, ramp-up perspective and also given that the product is slightly more complicated and a little bit more differentiated from what we have been doing. So I mean, do we have the technology and the manufacturing and everything in place. So how do you see the ramp-up in the near term as well as the Jammu facility utilization, say, over the next 2 to 3 years?

Hi Padmanabhan, this side Vinay. So we have 4 block in the Jammu and 3 blocks in our [indiscernible]. We have already developed almost 30-plus products in our R&D and that will be rolled to the production floor. We have started doing the process validation and generation of the data. And from the cephalosporin, we have already established product and that has been transferred to the Jammu facility. So we are discussing with all our customers and clients, and we are getting a very positive feedback from there. And as the -- it is backed by the GST incentive, so we are very hopeful that the rent will be very high -- at a very high speed. And we already concluded that we will be able to [indiscernible] a revenue of INR 400 crores to INR 500 crore next year.

I'm sure, and we will start seeing some revenues in the fourth quarter as well, right?

Yes. So fourth quarter, there will be some revenue as we have already commenced production on 14th January.

I'm sorry to interrupt, sir, we are unable to hear you right now.

So is it now clear?

Yes, sir. Sir, can you repeat your last line?

Yes. So we are saying that as we have already commenced the production on 14th January, so we definitely will have some revenue in this quarter as well.

Sir, one final question before I join back the queue is if my understanding is that Sharon has got better margins, so that you have a benefit from Jammu. So from the current margins, if I'm not looking at necessarily the fourth quarter or the first quarter of next year, say, FY '27, FY '28 when the capacity gets fully utilized, where do we see the return ratios and margins of the overall company?

Yes. So, Sharon margin profile is already factoring our balance sheet. From Jammu perspective, if you see, so the, like, not the first year, but down the line, say, FY '27 or FY '28, the overall margin should improve.

So, it should be probably mid-teens or high teens. I mean, is that the right understanding, sir?

Come again. I am not able to listen.

Somewhere between mid to high teens should be something that we should be looking at moving from say 13%, 14%.

[indiscernible] say 100 basis point or 200 basis point. It will be difficult for us to comment now. So, as we progress say down the line one year, then only we can -- the picture will be more clear.

Sure. Thanks a lot.

Thank you [Operator Instructions] We will take the next question from the line of Amey Chalke from JM Financial. Please go ahead.

Yes. Thank you so much for taking my question. I have 4 questions on the CDMO side. Is it possible to give some color how has been the pricing trend now? Are we seeing any revision in the prices in the [indiscernible] or is it still at the level that we are at now?

Amey, can you please repeat your question?

Amey, please use your handset to ask your question.

Yes. I was asking on the CDMO side, is it possible to give some color on the pricing trend? Are we seeing any uptake or revision in the prices this quarter or is it still at the similar level, what it was in the last quarter?

So, Amey , pricing of the API, if we see, is more or less in a stable region. But if we compare, say, year-on-year basis, so slightly we can say it is on a lower side.

Okay. So, on year-on-year basis, it is still negative and impacting our CDMO business.

Yes. On year-on-year basis. But if Q&Q basis we see more or less stable.

Okay. And second question I have is on the Jammu side. So, we said when 400 crore, 500 crore revenues would come in next year, how much would be from the -- by shifting our production from existing to Jammu and how much would be the new contract basis?

Yes. So, this 400-500 crore what we are discussing is the incremental revenue. So, we are already factoring the shifting of the product. So, that is the only one block and there we have a capacity constraint. So, say, if we are transferring our domestic business to the Jammu facility, so that will be fulfilled with the ROW business. So, we are counting that only the incremental turnover of 400 to 500 crores.

Okay. So, you mean to say the actual revenue generating from the Jammu would be higher than 400 crore during that year?

So, slightly higher. It will be like 50-60 crore business will be transferred.

Okay.

You can say like the value will be like 450 to 550.

Okay. And initially this 400-500 crore would coming from which formulation particularly? Like would it be only tablets and capsules or any other [indiscernible]?

No, no. The 4 block had all category of the products. There we have like dry products, dry powder injections, tablets, capsules, then respules, large volume parental, waterfall injection, general dry powder injections. So, in revenue, everyone need to contribute. Then only we can reach to the 500 crore mark.

Okay. But all these lines, do we need a validation and filing of these products? Will that take some bit of time or is it already factored in our numbers?

Yes. That is already factor in. We have doing that all these studies and all that from the last, say, August or September.

Got it.

Yes.

So, you would be having a fair bit of idea like who would be the customers and how the revenue will ramp up basically next year?

Yes, yes. So, our BD team is working hard to onboarding the customers and the number is worked upon all the commitment and internal workings.

Sure. And the third question I have on the trade-generic side, is there any seasonality which we should keep in mind while factoring numbers quarterly basis?

So, in trade-generic business, there are 2 factors. One is the seasonality. So, if we see the trend from the seasonal point of view, generally Q2 or Q3, sometimes Q2 top or sometimes Q3 top, means the September or October are the top months. So, sometimes it is like the consumer demand sector, like the Diwali is the top, like the pharma is do the, the worst season is like from the health point of view is the September or October. So, sometimes our Q3 top.

Okay. But as such, there is no issue as such in the segment. It is just the impact of, let us say, the quarter 2 was higher this year. So, that is why the quarter 2 saw some lower growth basically.

Yes. But the segment is well -- having the well growing at a very healthy pace rate. Overall sector is growing at a very healthy rate. So, if we see our 9 months, we have registered 18% growth and this quarter we have registered a 13% growth. So, as I explained, sometimes Q2 top, sometimes Q3 top.

Got it.

So, overall, if we see the 9 months performance, then we have grown by 18%.

Right. Sure, sir. Thank you so much, sir. Thank you.

[Operator Instructions] We will take the next question from the line of Karan Shah from GeeCee Holdings. Please go ahead.

Thank you for the opportunity. So, one question on Sharon. How do we see the growth going forward from this line of business? Because…

Sorry, you are not audible.

Am I audible now?

Yes.

Yes. Could you highlight how do we see the growth from the Sharon business in the coming years? Will it be at the company level or shall it be a tad bit lower than the company level growth for the Sharon business?

So, Sharon business is going at a decent pace and we had been working on multiple fronts at R&D, RA, International BD team and we expect it to grow in early teens in coming years.

And how do we see the margin profile from this business?

Margin profile would remain stable at where it is as of now.

Okay. And one question on Jammu. Sorry if I would have missed it earlier. For a sustainable, at a sustainable level, can we see a 17% to 18% margin level from the Jammu plant?

See, as we already shared earlier, so at a long-term perspective, yes, we are looking to accrue certain benefits coming out of the GST benefits which is going to add up our normal gross margin. So, we will still be working on it and in the coming years, we are very much positive that yes, our stabilized EBITDA margins is going to be slightly higher than our baseline margins.

Okay. And last question on qualitative front. How are we seeing the customer traction at the Jammu plant?

See, as we already shared earlier, so at a long term perspective, yes, we are looking to accrue certain benefits coming out of the GST benefit, which is going to add up our normal gross margins. So we will still working on it. In the coming years, we are very much positive that, yes, our stabilized EBITDA margins is going to be slightly higher than our baseline margins.

Okay. And last question on the qualitative front. How are we seeing the customer traction at the Jammu plant?

Yes. So customer audit and facility visit is already getting a very good attraction for the Jammu facility. It's a state-of-the-art facility, well designed and it is having all the, say, imported -- a lot of imported equipment. So that fulfill the current need or it is a -- well CGMP compliant facility.

The next question is from the line of Akul Broachwala from Avendus Investment Managers.

So sir, talking about the ramp-up at Jammu. So just wanted a qualitative sense as to the incremental revenues that you're envisaging. What's the profile? I mean is it that we are expecting a large part of this to come from existing customers? Or are there new customers as well who are looking into these new blocks?

So most of the revenue will come from the existing customer. So we cover a large percentage of the top Indian domestic players, right? So as the 80-20 rule, the 80% business lies with the top players. So we are hopeful that the customer is already on board. So for Jammu, we are trying to increase our wallet share.

Understood. And second, on the kind of delay that has happened because of Schedule M implementation for the lower basket of below INR 500 crores. So do you expect any sort of tailwind that you were envisaging this year? Or you were not kind of building anything from that implementation of policy?

Can you repeat the question?

So my question was on Schedule M implementation. So this year, the government has kind of postponed implementation of Schedule M for companies with the pharma companies below INR 500 crores. So just wanted your sense as to how you are looking at this move by the government. And were you sort of building any sort of business from that particular policy move this year, in the coming calendar year?

No, we are not built any data based on the Schedule M. Our facilities are well compliant to the domestic regulation as well as the international regulation. And this being a new facility, it is, say, when we do any new facility, we see the future, say, 20 to 30 years ahead. So the facility should last for the next 40, 50 years. So that is the reason behind doing any new project.

Understood. And last question is…

It is very well compliant and we have our own sense rather than speculating on the government implementation of the Schedule M and all that. We have our own sense. Our customers are generally the large domestic player, and we have a healthy relationship with them. And based on that, we attract the business.

Understood. And last question is on the CDMO revenue. So is there any element of service income or R&D income in the CDMO revenues that you have? Just wanted a clarity on that.

So yes, we have, but that is very less, only a few percentage points.

We'll take the next question from the line of Hiten Boricha from Sequent Investments.

So my question is on the Jammu facility. You mentioned we have recently started a facility. So assuming this facility will be operating at lower utilization in Q4, but operating costs will come in the Q4 itself. So will this lead to a margin decline in Q4? Is my understanding correct?

So, Hiten, we have just commercialized our facility this January '25. And we are working continuously with our BD team and operation team to mitigate any headwinds that may accrue. So we are still working to mitigate any EBITDA headwind on that part.

Yes. Okay, sir. Sir, but eventually, the cost should come in Q4, right? That's what I'm trying to understand. So just let me -- yes. So it will impact our margin, right, sir?

So see, it's a start of the project. We are in ramping up stage. Yes, there are certain variable -- semi-variable and fixed costs. So we are working to maximize our sales to mitigate that EBITDA, hit our EBITDA cost, which may come to our EBITDA. So by increasing our -- by trying to maximize our top line and gross margin within this quarter itself, we are working hard to mitigate any cost that may hit our EBITDA.

Understood, sir. And sir, my next question is on the Sharon. You mentioned there was some decline in revenue and order has been delayed to Q4. So what exactly is the reason for this, if you can elaborate more on this?

So like a few international customers have the December closing, and they have deferred the delivery to the Q4. So we are hopeful that the Q3 hit will be covered in the Q4.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

So first on the CDMO growth. So I understand in your opening remarks, you talked about some bit of a pressure on API pricing. But I would also want to know if the growth slowdown in this quarter. Was that also because you have already started getting some product from Baddi to Jammu?

No, no. Abul just to clarify, we started our Jammu facility in January itself. So these results was till 31st December. So there was no impact of any shifting and we have not shifted until 31st December itself, and the number does not represent any shifting of revenue from our Baddi to Jammu.

Okay. And secondly, on the deployment, some previous participant was asking. So would it be possible for you to quantify what was the quantum of order which has moved from Q3 to Q4?

You're talking about Sharon?

Yes, Sharon.

So the tentative number is somewhere around INR 4 crores to INR 5 crores.

And for next year, I understand there will be some cost which you are trying to mitigate from the Jammu. So what could be the sustainable margins -- EBITDA margins of your business if you have to look from a 2 to 3 years perspective. Where should settle? Would this be between 15% to 16% or it can be slightly higher than that?

Abdul, as our current -- the margins are -- our blended margin at consol level are in the range of 15.5% to 16%. So in the long run, we are very much positive that we are going to get a slightly more benefit out of it as Jammu is ramping up and other business also contributing to this. So yes, it is going to be slightly higher. And within next coming period, as and when this Jammu will get more mature and more established, we should be able to get a more quantifiable number around it.

We'll take the next question from the line of Karthi Keyan from Suyash Advisors.

Just one question on the Jammu facility. What would be the peak head count at the Jammu facility? And can you talk about the challenges you are facing in terms of hiring there?

So you're talking about the head count at Jammu facility?

Exactly.

So as of now, our existing Jammu facility head count is somewhere in the range of 500 to 600 plus certain apprentices also. And as and when it is going to ramp up, the head count is bound to increase. So the recruitment, we had already been working proactively on the recruitment of our manpower right from our starting at helper level till our senior management at plant level. So the crucial and the sensory position has already been filled up around 1 year or even 2 years back. If I talk about plant head, we are having plant head around 2 years back in our -- we have already hired them when the plant was in construction phase. The other sensitive positions like QA, QC, other regulatory affairs, that has already been filled up. And we had been doing this recruitment drive through each and every model, that word of mouth, my walk-ins across the country, my references and other portals also. Even we have went to as far as Sikkim to get a good workforce and an experienced force in pharma, we had done some walk-ins there also.

Interesting. And what would be the peak head count according to you?

Peak head count at the optimum level should be in the range of, say, 1,200 to 1,300 employees.

Right. And if you have it readily, what would be the current split of locals versus none locals?

That I have to check from HR. We can come back on that.

The next question is from the line of Rohan Vora from Envision Capital.

So sir, the first question was, as I understand, in 3 blocks for Jammu facility, we are going to manufacture new products. So are these products which our clients are manufacturing in-house and we'll win those orders? Or are we winning those from our competitors? So I mean, increasing market share. So which one would it be? That was my first question. Second question was with INR 400 crores additional revenue coming in from Jammu. So do we see ourselves growing at 25% plus in the next year? That was the second question. And third was on the CDMO business, Y-o-Y growth was in low single digits. So in addition to the API price erosion, was there any other reason to that?

So your first question was that whether the new 3 blocks that we are going to get, whether the revenue is coming from the in-house shift of our clients? Or is it going to be addition of new products? Was that the question?

Yes, sir. So is it in-house shift from our clients? Or are we winning from our competitors, those products?

So as the 3 new blocks are the new to our product basket, product portfolio, so definitely, the business will be new to us. So that will be the principal that the first line company that already be in the market and that will be transferred to us from the other side or maybe from their in-house.

Okay. So it is possible that we might be winning market share? Or it is possible that it is in-house products that are getting transferred?

Yes, yes, both, mix of both.

Got it.

And your second question was around Jammu revenue over coming years?

Yes. So we said that we'll be doing around INR 400 crores. So are we on track to do 25% plus growth in the next year?

Yes, of course.

And just a ballpark number on consolidated revenue growth, if you can, for FY '26?

So we will still -- we will try to refrain from giving guidance on the overall numbers as of now. But in the coming periods, we will surely be able to comment on that.

Okay. And the third one was, is there anything in addition to price erosion to the single-digit growth in CDMO business?

So if you talk about CDMO business, see, the CDMO is just a business segment, whereas our main core strength is our manufacturing capabilities. So our manufacturing capabilities basically drives and pushes our -- all our business segments, whether it's our CDMO Domestic Generic Business and International Generic Business. So if you see an overall perspective, our each and every segment is growing at a healthy pace. And even from a manufacturing capability point of view, our volumes has also increased from year-on-year basis. And if I talk about a very ballpark figure, it should be in the early teen itself. So yes, after considering the pricing impact, it is showing a year-on-year increase of around 7% to 8% at a stand-alone revenue level, but volumes have been better on that part also.

So you said mid-teens?

Yes, early teens, I would say early teens.

We'll take the next question from the line of Naman Bhansali from Nine Rivers Capital.

First question is more on the industry side, wherein last quarter, the largest player in our segment alluded to some sort of slowdown in the industry led by slower ordering from the pharma companies as well as a slowdown in the volume growth for the IPM in India. So what are your views on this? And how are the trends shaping up in terms of growth for the CDMO side?

So if you see, sir, there are 2 sort of. One is that the overall market increase from the IPM point of view. And the other one is that from the CDMO perspective, right? From the overall IPM perspective, yes, you are correct that volume growth is like 4%, 3%, right? And there are the generic also that is not counted in the IPM. So that business is not covered by the IPM. And then we -- from our perspective, you see -- so we are largely working in the area of CDMO. So there the growth come not only from the IPM growth, but from the product shift also. The product shift may be from site to site or from in-house to site. So that's why if you see that from the past also, so we have delivered like the CAGR of 20% plus. So mostly because of the expansion, additional facility, additional product line. So if you see that in Jammu also, we have expanded ourselves in the 3 new category of the product. So there currently, our business is 0. So most of the business will be come from the -- not from the IPM growth, but from the existing sites.

Got it. And second question, as you talked about generics. So there was a news article wherein it was talked that generics is being accepted by certain other countries globally, more of a nonregulated side. So does that open up a next level growth opportunity for us going forward?

So let's be clear that other than innovator, everything is generics, right? So from that perspective, the business in the ROW and the other market is already is being covered by the generics of the.

Sir, I'm talking about the trade generic side, wherein a lot of unregulated countries are talking about adopting the Jan Aushadhi model, which is in India. So in those sense, are we catering to those opportunities?

No. Currently, it will be difficult for us to comment on this point because as and when the opportunity comes, then only we can envisage on this front.

The next question is from the line of Neha Kharodia from Abakkus .

My question was regarding the Jammu facility. So we are talking about INR 400 crores to INR 500 crores revenue for FY '26 from the same. So just wanted to ask regarding the margins for the facility, whether with the mitigation efforts, it can be in the early double digit or high single digit? Or will it only be breakeven for us?

So Neha, if you see that our margins are in the range of, say, 15% to 16%. So once we will do the full year at a level of INR 400 crores to INR 500 crores. So the margin profile should be in line with our existing base business.

Understood. And for the facility, do we expect peak utilization in FY '28?

'28. Till we have the headroom for growth in FY '29 and FY '30 also. So most of the growth will be covered up to FY '28, say, 80%, 70% and then it will grow like 10%, 12% type of growth further to FY '29, FY '30. How we see from the manufacturing facility perspective, whenever we put a new facility, so say initial year, we have a large leap of 30%, 35% capacity utilization. Then in the year 2, year 3, we reach to, say, 50%, 55%. And after that [Technical Difficulty] 70%. So that is the peak utilization.

Yes. I'm sorry, I missed your last line because of some disturbance in the line. Can you please repeat the last line?

Yes. So the first year is like 35%, 30%, 35%, then it increased to 45%, 50%, 55%, right? And after that 3, 4 years, then the growth rate will be like 10%.

Understood. So peak utilization would be somewhere around 80% to 90% and .I assume…

No, 70%.

70%.

Because throughout the year, there may be some months where we get the utilization at 85%, 90% or there may be some few months where the utilization will be like 50%, 55%. So that's why we factor in that all seasonality to our numbers, then the peak utilization we estimate at 70%, 75%.

Understood. And at that level, the revenue that we can do would be probably about INR 1,200 crores to INR 1,300 crores? Or do we have a potential to have higher revenue maybe with the product mix or …

So our estimate is that the peak utilization is like INR 2,000 crores somewhere. So 70% is like INR 1,500 crores, INR 1,600 crores. In 2,3 -- 2 or 3 years time that starts with the INR 400 crores, INR 500 crores, we can reach to the INR 100 crores mark in the Jammu facility.

The next question is from the line of Aniket Nikumb from ABN Capital.

Sir, I have 2 questions. The first question was a little bit covered by an earlier participant. Just on this schedule and delayed implementation for MSMEs, can you comment a little bit on what are you seeing on the ground? Do you think a lot of the industry can transition to compliance? Or will they lose share? What's the feeling you get when you are chatting to customers?

Yes. So if you see from the regulatory perspective, so in India also, if you see all the segments, everywhere there is a tightening of the regulatory framework. And as we proceed with the time line, it happens in all the segments. So similarly, in our pharmaceutical also, there is a continuous tightening of the norms and that is at par with the international norms. So our revised also, it is at par with all international regulation. And I want to comment that our facility like Jammu, or Baddi and Sharon's Dehradun facilities, we are having the, say, in Dehradun, we are having the EU-GMP. Baddi also, we have the EU-GMP. So our facilities are well designed and complying to the international certification also. So from the market perspective, yes, there are some headwind with Schedule M. So let's see that how it proceeds. The government has relaxed 1 year. From MSME point of view, that is good that they have relaxed for the 1 year.

Got it, sir. But do you think it's practical for some of these sort of smaller units to get to the right manufacturing standard? Or will it be too expensive for them? Just trying to get an industry perspective and is it even possible for them to do that transition?

Yes So from our side, it is difficult to comment on this question.

Okay, sir. That's fair. My second question was a little bit on the bookkeeping side, sir. Just wanted to get a little bit of guidance or just some pointer on how do we expect the depreciation to move now that obviously, we've done a fair bit of CapEx. So what do you think will be the depreciation for next year?

So yes, we are still working on the final definition working. But we estimate that our annual depreciation from Jammu plant should be in the range of INR 22 crores to INR 25 crores per annum.

The next question is from the line of Raghav from JM Financial.

So just one clarification. Did I hear correctly that for CDMO segment this quarter, the volume growth was in early teens?

So the early teens growth has been for 9 months year-on-year.

Okay. So could we assume that even for 4Q and FY '25, it would sort of be similar sort of volume growth?

Sorry, can you please repeat your question?

I was asking in 4Q, do we assume that volume growth would be at a similar level? Or can it be higher? Because I think the base quarter in FY '24, you were impacted by the pricing decline for APIs. So I just want to get a sense of how 4Q will pan out?

So as I already covered that if you see Q-on-Q, then the prices are stable from our perspective. And year-on-year, there is a bit decline in the prices. So from here onwards, we see a stable price revision. So there may be a few price decrease and a few price increases. So overall, now there is a stable price. Basically from the 2 cost factors that one is the existing volume growth, other is from the Jammu angle.

Okay. Understood. And just one quick question on Jammu. How do we see the 4Q revenue panning out for this year?

Raghav, We are still working with our -- on the order book and the BD team, but at a high level, we estimate that quarter 4 Jammu revenue should be in the range of INR 20 crores to INR 40 crores.

Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, everyone, for joining us on the earning call. We are pleased with our progress this quarter and 9 months FY '25. The successful commencement of our Jammu facility marks a significant milestone in our growth journey, complementing our growth ongoing business performance. With growth drivers already in place across our existing business areas, we remain confident in our ability to deliver continued growth over the years to come. We look forward to build on the success as we move into the final quarter of FY '25 and beyond. Thank you for your continued support.

Thank you very much.

Thank you very much, sir. Thank you, members of the management. Ladies and gentlemen, on behalf of Innova Captab Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.