Ipca Laboratories Limited (IPCALAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ipca Laboratories Limited Corporate Announcement Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Utsav Jaipuria from DAM Capital. Thank you, and over to you, sir.

Thanks, Dolan. Good afternoon, everyone, and thank you for joining us for the conference call with Ipca Laboratories on the acquisition of a 33% stake in Unichem hosted by DAM Capital Advisors. On the call today, we have the management team of Ipca led by Mr. A.K. Jain, Mr. Pranay Godha and Mr. Prashant Godha, Managing Director; and Mr. Harish Kamath, Corporate Counsel and Company Secretary. I will now hand over the call to the management to make their opening comments, following which we will open the floor for questions. Over to you, sir.

Thank you, everybody, for taking out time and joining us on this conference call. Thanks, Utsav and DAM Capital, for arranging this call at a very short notice. This con call and discussion may include some forward-looking statements based on our business expectations. Participants may use their own judgment before making any decision based on this call. All of you are now aware that company has entered into SPA to acquire 33.38% of shareholding of Unichem Laboratories for INR 1,034 crores. Additionally, this acquisition also triggered and also offer for additional 26% of company's equity capital aggregating to another INR 806 crores, presuming 100% response. This acquisition's cost -- this acquisition cost will be funded through the company's retained earnings. Needless to say that this acquisition is subject to approval of Competition Commission of India and among others. Unichem has developed an excellent proven track record of -- record on regulatory compliance. This acquisition is in line with our stated strategy to enhance our product offering in the chosen growth market. Briefly, the synergies are mutual benefit to both the companies out of these acquisitions are. Ipca has a very strong API franchises with backward integration stand that will be immense value to Unichem in scaling up their global generic portfolio and also increase their market share with cost efficiency and competitiveness. Unichem has 76 ANDA filing in U.S., out of which 54 ANDAs are registered. 44 products are marketed in the United States. A few of these products are having good market share with further growth potential. Unichem has also filed around 78 API [indiscernible] in U.S. market. Where Unichem is not meaningfully present, Ipca can increase its product offering on those markets through Unichem's develop generate through market extensions like markets like Europe, Australia and New Zealand where Ipca is very good present. Ipca will also look forward to market some of the Unichem's branded formulation registered in various ROW markets. Having given briefly the rationales and strategy of this acquisition, I now open the floor for question/answer.

[Operator Instructions] The first question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.

I have a few questions. The first on is on the capital allocation. When I look at the past for the last 5 years, you have done different smaller acquisitions, maybe like Bayshore, Ramdev, Nobel, [ Bifaca ], and about INR 600 crores, INR 650 crores have already been invested. When I look at the execution on those, those have not been inspiring, and we have diluted our return ratios from where it was. Can you help us understand that how as investors we should take that confidence with such a large amount being deployed? And any understanding on what the return ratios could be? Because on the headline basis, it looks that company has made losses last 3, 4 years, the company has not grown. So can you give us some kind of understanding and how should we gain confidence on the execution? That's my first question. And I'll follow up with one more question going forward.

So currently, a lot of companies are facing headwind in U.S., and Unichem has fantastic track record of regulatory compliances in the past. And looking at that and looking into the current business environment and [indiscernible], we should be able to comfortably achieve almost around 15% to 17% kind of growth in next 2 to 3 years very comfortably. They also have significant capacities which are available for [ educations ] and all. And Unichem has -- I do agree that Unichem has a higher [indiscernible]. We will have to look into and more critically on those and also critically see that how we can optimize the operations and cost optimization can be done. As far as their API facilities are concerned, I think as far as their foundation facilities are concerned they are excellent facilities are there. As far as API facilities are concerned, their scales are smaller today. And operating costs are higher because of lower scales and all. With some kind of -- some modifications and all, it is possible to achieve a significant amount of better output from there and reduce the overall operating cost and also efficiencies can be generated. We can work on that as the member of the API team on that account. Of course, it will require some kind of investment there, but that can be done on that. With that, the kind of growth which is expected because of the current handlings and also because of all these operational efficiencies which we can bring on table. And also, we have a lot of backward integrations and some of those kind of intermediates and all can be made available to Unichem at much lower cost and all, and which will also bring in the efficiencies and overall reduction in the cost of production. And that will help Unichem in terms of overall increasing overall their profitability.

Sir, with all due regard, can you help us understand how the returns will be generated? What is the return expectation on this acquisition because almost you will be investing, if open offer goes through successfully, almost more than INR 2,000 crores. So on this kind of a number, the core business, which was running well and probably expectation was that this year could have been a strong year, gets diluted. So just wanted to understand that in INR 2,000 crores, what kind of return ratios and what kind of improvement in profitability can we expect?

Like overall investment is 100% of their acquisition [indiscernible] open offer shares are available. The overall investment will be around INR 1,839.5 crores overall on that. So it's lesser than around INR 2,000 crores. And overall, let's say, current expectations of business are good. Their order positions are also very good. The order has started increasing from the -- their fourth quarter of the current financial year. And looking at overall the capacities which are available and utilization and some of our products can be transferred there. And with that, we can have a better utilization of the capacities of Unichem. And of course, we'll help to go through the -- overall, the detailed operating cost and rationalization of operating cost and all that. That can definitely bring in the returns there. And hopefully, I think over the next maybe around a period of 2 years or so, I think it's possible to go to the kind of EBITDA margins of almost around INR 300 crores or so on Unichem overall market.

Okay. That's helpful. The second question is, when I look upon most of the pharma companies which are listed on the exchanges today, they have a significant U.S. generic piece, and that market is going through its own challenges for last 4, 5 years. Many of the companies are either exiting writing-off their assets, whatever may be the thing. And here we go and acquire a U.S.-based company, largely a U.S.-centric company with giving the premium. Can you help us understand the rationale of where the markets are ascribing either a negligible or a negative value, we are giving a premium over and above the listed price? What is that so special in Unichem apart from the product portfolio which is theirs that we are paying 2.5x sales on the acquisition cost? Just wanted to understand some thought process which is there behind it.

If we look at the overall assets of the company in the books itself, the assets are almost around INR 1,400 crores of Unichem. And if you look at net working capital, that is almost around INR 950 crores. All the net working capital is available. So almost around INR 2,500 crores, INR 2,600 crores kind of assets are available with Unichem currently. Of course, their sales are low, but the business expectations next 3 years are significantly higher because they have put the additional capacity which can be utilized. And currently, what we are seeing because of all those disturbances which are there in U.S. market, it's possible to achieve that -- a good turnover from those kind of businesses. And on the product side, they have almost around 10 to 12 products. They have a very significant market share in the U.S. and that can be further scaled up with the further cost efficiencies which we will help to build on Unichem's operations.

Okay. And follow-up, and quick. Just wanted to place on record that some of you have been negatively surprised by this large capital allocation for a U.S. asset. I hope we deliver and execute better on this.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on the product pipeline [indiscernible] you could share, it could be the good product for next 12 to 15 months? And secondly, what are the products we can do [indiscernible] to Unichem. So I am [indiscernible]?

I don't understand that question. I'm sorry, can you please repeat that question again?

Tushar. I think you voice is distorting.

Is it better now?

Slightly better, but not absolutely clear.

I'm trying to ask you if you could share so then any good product pipeline from Unichem's portfolio which can come up for approval over the next 12 to 15 months which can help grow the sales? Or is it more of a market share gain from the existing products? And secondly...

Existing products as well as they are going to launch few more products for which they already got registration. So they also have a future pipeline for U.S. business. Around [indiscernible] they have filed, 54 are approved, about 40, they are currently marketing. Another 10 to 12 products, they will market in due course of time.

Right. Any product under development which could be niche where you could have more than 5 players in the market?

Most of them are all me-too generic products. There are -- I don't think anything first to file and such other products. They are all me-too.

And secondly, any products which we can think of transferring from a site to Unichem?

That possibilities are always there and vice versa also. It's not Unichem [indiscernible] anything can happen. Those possibilities are always led in this accretion. And that is also one of the synergies we looked at.

And sir, just secondly, if you can also share any update on cost sides from U.S. FDA?

Nothing, very status quo. So let us hope inspection will happen soon and we are through. But as we speak, that is status quo, no development.

If let's say the inspection happens also that is successful into those, the capacity of Unichem to fill as well as Ipca facility to fill up, so...

Ipca has its product range and Unichem has their own product range.

Okay. And just lastly, out of this current Unichem business to U.S. that 3 or top 5 products business would be how much of the U.S. sales?

With the top 10 products may be contributing nearly 70%, 75% of their business, in which products, they have a very good market share, and they say it can be further scaled.

We have the next question from the line of Chirag Dagli from DSP Mutual Fund.

Sir, I understand the rationale of -- or the intent behind trying to scale up in the U.S. What I don't get is that is this -- was this absolutely the best deal possible? Given that the market has been in such a big distress over the last couple of years, could we not have had any other asset to increase our presence in the U.S.? The structure of the deal as well, as in we are providing exit to the promoters, that also -- and what is the end game eventually? That structure itself is also slightly inferior versus a clean merger. So just your thoughts on both these aspects, was it the absolute best deal? Could we not have waited for a better deal? Because it seems like while the business will scale up, but maybe there could have been better assets available in the market? And why not just wait until the good deal comes across?

This is Pranay here. So let me answer that in one simple sentence that it was better than most of the deals that has come on our table in the last 5 years. And there are reasons that synergies was much more than what we had seen in the past. Then in addition to that, what we were looking for was obviously a good compliance and credible track record with available spare capacities and an integrated business place, which is very core to Ipca's own business philosophy in the generic creed. When you look at these 3 matters, there are very few candidates out there that are on the same table.

Understood. So sir, these synergies, could these not have been also struck without putting capital in as business deals rather than a more shareholder kind of a deal?

No. Again, it's something that we have tried, but we generally, let's say, have not been -- it's not -- we've not got encouraging results. The simple thing is, again, in the U.S. market space, there is cutthroat competition. There is very little space for [ margin players ], in a way. So everybody, there will be multiple layers through the whole value chain. One cannot remain competitive on a year-on-year basis. And for the kind of products that Ipca will eventually have when it reenters into the U.S. space and what Unichem has today, we will always have to remain on our toes and continue to work on -- focus on margin improvement every time.

Understood. And like Mr. Jain said, you talked about INR 300 crores EBITDA in 2 years from now. On that, we've paid about 10x EBITDA today [ tonight ]. It seems a bit steep. Is there a much larger game plan beyond that INR 300 crores that we achieve in 2 years? Do you see this entity being like $400 million or $500 million in the U.S.? Because beyond that 300 -- beyond that $40 million, $50 million EBITDA, this entity will have to be much larger in the U.S. for your payouts to happen.

The aim and the efforts will be put in exactly that direction itself. There is a game plan in place. Without getting too much specific onto the exact number or so, we have set ourselves an immediate challenge of achieving the INR 300 crores. And once we do that, we will have to continue to work upwards from there on.

Understood. This INR 300 crore EBITDA number that you talked about 2 years out, does that include synergy benefits as well? Or is this just the way business -- I mean is it a large synergy here?

It does include synergy benefits. Without that, that number would otherwise be a bit of a challenge.

Understood. And just the last question. Was there a number to -- I mean I am imagining that this will be -- would have been a well bid kind of asset as in a process would have been done. And you guys won the process, but what was the number to it, if you can share, sir?

I'm not aware of it. I am so sorry.

The next question is from the line of Prakash Agarwal from Axis Capital.

Couple of clarifications. So I mean the first one is on the rationale of the business is to gain the portfolio and the facilities for the exports. If you could just help us understand the Ipca capacity utilization in current facilities as well as the Unichem?

See, as far as the facility [indiscernible] U.S. currently, their capacity utilizations are very low. Our Pithampur plant utilized around [ 30% ], [indiscernible] plant maybe around 25% to 30%. So both the plant utilizations are low. But once we have U.S. clearance, these capacities will be there smaller, and we will have to expand for that at existing places. And capacities of Unichem will also be helpful.

And Unichem currently would be at what capacity, sir?

Unichem, they have set up recently and commercialized the new facility at Goa, which is Unichem Goa 2. Their capacity utilization may be around 20%, 30% right now. So significant capacities are available. And it is much more automated plants. It's much very less human intervention practically. Everything all is recipe-based and very good plant.

Okay. Understood. And secondly, if you are saying INR 300 crores in the next 2 years, we are talking about fiscal '26, right?

We have management in hand and we start operating things from that time.

Okay. But what is the top line versus we are looking at INR 300 crores, I mean?

Overall, we should be able to, let's say, go to almost around INR 1,700 crores, INR 1,800 crores kind of turnover maybe in 2 years' time.

Okay. So but sir, our margin historically, I mean pre-COVID, has between 18% to 20%. With COVID, we went to all the way to 25%. And now this year has been an average [ one ], but we aspire to be again a 20% margin company, correct me if I'm wrong. This, after 2, 3 years, we are still talking about 18% margin. So a lot of work to be done at margin dilution in the next 3 years.

Prakash, you are talking about Unichem, not Ipca.

No, I'm combining the 2 for now. I'm just combining the 2 that in the past, you were 20% plus margin and then COVID it went all the way to 25%. Now it's about 16%, 17% and maybe next year, you'll be back to 18%, 20%. What I'm saying is, 2 years out, Unichem, you are still talking about 18% margin, so there's a long addition that you play out in the next 2, 3 years. Is that correct understanding?

See, Ipca is also into branded formulation business in India. So that margin, you can't take to it with only international business. So Unichem is a purely company which is into generic and API business.

Yes. No, sir, that's why the rationale of doing such a large deal in the export market, especially when the margin and return ratios are so low, is what I'm trying to understand. Is that's for capacities?

There are surplus capacity level that are there, yes, and very good plant, very good assets.

Prakash, we are also talking we are into Australia and New Zealand, we are into Europe. Unichem is not present in those markets. So technically, whatever products they are today launching, they are registered in U.S., we can practically bring most of them also into Australia, New Zealand, Europe. So that way, we can also increase our product basket, product offering. That will definitely add value to our business. Plus, we are also into branded formulation business in 41 countries. There are 1,000 of people are marketing our branded formulation. Unichem also has a lot of registration. They sold their only brands for India and Nepal. So all brand names, all rights for rest of the market, they are with them only. So that opportunity is also available for our ROW branded team. Whatever other synergies we spoke about U.S. and other things, this is also add on to that.

Okay. Perfect. And lastly, on the structure. So of the promoter stake of 50% currently, only 33.38% has been done as of [indiscernible].

Around 14-odd percent, Dr. Mody certainly will retain. And they will -- it is at their will when they want to sell, they want to keep, it is up to them. But management control post the takeover [ metal ] completes will be in the hands of Ipca.

Okay. To start with, it would be part of [indiscernible] and once open off a conclude it will be console, right?

Is both open offer and this equation is subject to Competition Commission approval. Once the commission approval comes, we can acquire actuation shares from Dr. Mody. And the balance, it is up to the public how much they will offer. So that is altogether a different thing.

You can acquire the remaining from Dr. Mody? Is that what you said?

In the current agreement, there is nothing on that.

It might be a possibility of merger, sir?

There is nothing stated in the agreement, not discussed.

There's no offer, nothing like that?

No. But in the agreement, we are providing we can increase our stake through differential [ share due ] tenders, that is always open. We don't get offer share in the public offer, we can increase our holding through any other means.

[indiscernible] the majority as the management control is what you're doing, sir?

That is already stated in the SPA. That will come irrespective of our holding. On 33% also, we will get there.

The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.

I just wanted to understand a bit more on the valuation paid for this acquisition. Can you explain a bit in detail what kind of valuation benchmarks has the company used to evaluate this particular asset? Obviously, on headline numbers, this valuation isn't making -- I mean it's difficult to justify the rationale about this acquisition. Maybe on price to book, there is some rationale for this particular acquisition. But if you are really looking at earnings to justify this particular acquisition, what kind of earnings are you looking at? Is it 2 years out, 3 years or 5 years out? I think some color on this will kind of give us some confidence what kind of profit you are regarding from this business in 2 years, 3 years, 5 years out?

Yes, that Mr. Jain has already explained. Now on a business of around INR 1,800 crore or so in second year after we took management control, the EBITDA to be around INR 300 crores. I'm talking only Unichem business.

So just to understand this INR 300 crore number a bit better. If I look at the past history of Unichem, let's say, in FY '19, '20, '21, the gross margins for this business were pretty robust at 58%, and 62% also in one particular year. But still, the company wasn't able to generate positive core EBITDA. So is it entirely overheads which have to be normalized in the 2 years to achieve with this INR 300 crore EBITDA? Or sales growth has to come in to achieve this pretty good number? So if you can bridge the INR 300 crore number expected to how much of this would be sales and how much of this can be pulled out from cost escalation?

It is 3 things. One is sales growth. Second thing is operational efficiency improvement through whatever contribution we can do in increasing their efficiency of API facilities. Also synergies. All these 3 things should play for this number, what we are talking.

Sir, the first, sales itself, why are these inefficient in this particular business? I mean if you can, at a broad level, kind of help us understand a bit what is plaguing the broader business that...

The question is obvious, capacity utilization. Second thing is [ ACA, whatever brass sizes ] and yield and other thing. These are the 2 basic things.

Okay. Sir, to go from INR 1,250 worth crore of revenue to INR 1,700 crores, INR 1,800 crores over the course of 2 years, this growth stream seems pretty steep for a business which has only 40 products in the U.S. Any color on how many launches will be done in this 2-year period to drive this growth?

I told they already have 50-plus [indiscernible] for pre-launches. Another 10 products, they will launch over the course of time. Plus, we are also seeing their order received and order book position, and we are confident whatever guidance they have given for at least next financial year, they will achieve.

Okay. Okay. And finally, sir, Mr. Jain, you have talked about these assets being pretty good. I think Unichem has had a decent U.S. upgrade track record in the past. But what we are seeing over the past 5, 6 years is that the goal post of FDA have been changing. Certain companies which seem to have had very good compliance have found themselves in some troubled waters at some point in time. So what kind of diligence have you done from your end to kind of establish that these assets won't suffer from any U.S. FDA compliance issues in the coming future? Because as far as I remember, I think most of the companies have gone through a cycle of mis -- noncompliance, then come out of it. So I just wanted to understand what kind of diligence, what kind of engagement we have done with the promoters of the target to kind of establish that these assets are pretty good?

So nobody can ever guarantee what will happen in the future. There is no guarantee of what FDA can do in the future for anyone or for any site on this world. So other than that, I think we've learned a lot in the last 7 years, 8 years, and we've used all of those, including some of our -- obviously, our internal and external resources to go through the due diligence, especially on the quality culture and the quality practices on the ongoing practices of their sites. And I think they're generally satisfied, and we believe that things will remain very much in control.

Okay. So the quality system that will onboard, there will be no change then to that quality system or you need to do some...

Quality systems always have to be updated for the current requirement. That's why it's called CGMP. So whenever there is a need, wherever we see a scope of improvement, we will obviously -- every company that has to remain in the space will have to be proactively, at least to the best of its intent and expertise.

But you're happy with what will come on board. We're not looking to make much changes to upgrade it as of now? I mean maybe 1 year, 2 year out, things might change, but...

As of now, as we speak, no, we don't expect to see much changes.

The next question is from the line of [ D.R. Rao from ADIA ].

Yes. Am I audible?

Yes, sir, you are audible.

Yes. Yes. Yes.

This is Prashant [indiscernible] from ADIA, Prashant and Rao. Sir, first question is, were there other bidders for this asset as well? Was this a market on the deal? Or this is a private transaction?

No, we are not aware of any other deals which they may be talking.

Yes. Okay. Yes. Mr. Jain, Mr. Godha, sir, I think most of the questions have equaled the same sentiment. That is that it cause own experience and many other Indian companies' experience in the U.S. market has been bad in the last -- because in the last decade actually and many other Indian companies in the last 3, 4 years. And now that we are seeing some cyclical improvement, there is some talk about cyclical improvement, we have to yet see the fruits of those. But -- I mean a market which is so dominantly, I would say, positioned for distributors. So two concerns there. One is regulatory. I mean we understand you've learned a lot, but could that be a risk? And then how do you calculate that when you were putting such a large capital allocation in the same market, which has hurt your asset returns in the past? And the second one is your own expectation, this INR 300 crore EBITDA on INR 1,800 crores or lower. Does this include the U.S. recovery that we are seeing right now, which could be cyclical for all you know?

The way we look at it, where there's adversity, there's a bit of an opportunity. Yes, undoubtedly due to the obvious market pressures from the buying side and/or from the supplier side from India, there has been quite a few disruptions and challenges. And as we see today, prices are getting kind of more rational and stabilized. We believe there is a scope for companies like Unichem and hopefully soon Ipca to make use of this opportunity. And as long as we remain both compliant and competitive, I think we can achieve these kind of numbers.

The other question is around this INR 1,800 crore kind of turnover. Just the 60 products, assuming what Mr. Kamath said, the 60 products, we assume all of them come through. Even then the INR 30 crores, INR 40 crores per product kind of -- is quite high. I'm not saying it's bad. I mean we'll take it with both hand. But these numbers are higher than what we have generally observed in me-too portfolios.

Sorry, sorry, we are just confused. We have not only in U.S., they are also in other markets. They do a lot of formulation business in Brazil. They have some business in the U.K. So this INR 1,800 crores includes all those businesses. They also have API business. All of them are included in this, it's not only U.S.

Should we assume half of this is U.S.?

About 60%, 65%, you can assume. 60% you can assume.

So even then around $2.5 million is clearly on the higher side. Would you also believe that it is on the higher side, that the product portfolio is generally producing higher value per product as such?

Today, also 8 to 10 of their formulations are giving much, much higher than the amount what you are talking. And it is only U.S.

Okay. And these are not early stages of competition. These are...

No, old -- older generics. And still, there is hope for them to grow their market share.

Okay. Okay. So just quickly understanding this, as Pranay was explaining that there's an opportunity you can use. Is it -- I mean what kind of recovery you're expecting in this INR 300 crore EBITDA performance? Could it be better if -- I mean is it -- if the market gets really rational, could it be better than the INR 300 crores?

I would not extend myself that far. Let's hope that it gets better. There's a target we have set for ourselves. We want to hit for it. And we are, at this moment, make -- doing everything or thinking through this matter as intensively as possible to achieve it. So I would not, let's say, bet on it right at this [ particular moment ].

Sir, can you split this into the 3 businesses, API formulations and the other countries' formulations. But if you can give us some -- because all the discussion has been around the U.S., if you can especially explain the strength in the other markets that unit can raise to the table? Other than just the registrations, are there sales team, branded sales teams, which you can boast about in this transaction? And one more last question there. In terms of profitability, if you look at INR 1700 crores, INR 1800 crores, and INR 300 crores, it is 13% -- sorry, 16%, 17% kind of margins. U.S. and these other formulations, which one would be the leader of -- the margin leader in this calculation of yours? So both these questions, please. That's all from my side.

Other than U.S., the other biggest segment is their contract manufacturing, which is primarily for European customers. And then there are other markets like Brazil, another emerging market. The API business is, again, dominant more in the European space and other, let's call it, emerging markets. So profitability wise, obviously, after, I would say, strictly as a percentage number, the emerging markets always are, from a percentage basis, more profitable. But from a core number point of view, CMO business and the deal business is now becoming more profitable than before.

Okay. And the CMO has strategic potential to be growing much larger, is it? Or is it again on 2 kind of business?

It is from a product point of view, yes, it is a me-too kind of a business from a potential to grow, obviously, because everybody needs a competent and a reliable supplier. And in that risk, in that market, again, Unichem has proved itself. It has great credibility. We know in the past from a competitor, how much it was difficult to compete with them on certain projects. So they have a very good relationship with some of their key clients, and they have a very good track record in terms of supply chain.

We have the next participant, Mr. Dheeresh Pathak from White Oak Capital, with the next question. Please go ahead.

So apart from the operating assets, the plants and the filings, is there noncore assets which you can monetize?

There is a property in Deveshwari, which is probably around 10 of acres land and all. Over a period of time, I think that's one possibility exists to monetize. And apart from that, they have almost around close to almost around INR 275 crores locked up in GST because we were following certain matter of, let's say, GST refund instead of GST going for rebate. And GST refunds take much longer time compared to GST going for rebate system. So it's possible to unlock that kind of cash maybe over a period of 1 year time. So that's basically cash available in the balance sheet of almost around INR 275 crores. So it's possible to take out that entire cash.

That has to be checked [ income ] from the government, right?

That's basically -- normally, all exporter goes for rebate system that reduce when you export something you prepare in say, GST invoice and pay the GST out of your credit. And hence -- and once your exports are done, within a period of 2 months time -- 1.5, 2 months time, you get the refund. But the rebates of the GST refund systems take a very long time because different applications, then process and all those kind of -- it takes sometime more than a year. So they have a huge amount of money which is lying in GST refund amount. So on which applications are doing or some applications has already gone. But when we change the method from the refunds to rebate, the cash will start coming out and with existing money which is locked up in refunds, is that coming in over a period of 1 year time, almost around close to INR 450 crores cash can be generated in the within from that change itself. And Deveshwari property would be almost around INR 300 crores broadly. We have not done any kind of verification right now. But looking at the market and 3.5 acres [ topline ], that should be sufficient currently here. That's the kind of cash could be available which can be utilized for the business.

And sir, this INR 1,800 crores revenue, this assumes optimal utilization of the current plants plus the plants which are in CWIP, right? And the current filings, right?

Yes, because they have already capitalized the Goa plant, which is the latest capacity they have put up on foundation side. On CWIP, there is some more assets which is there at Sitapur API plant, which is what, all around INR 100 crores are there. But that plant will have to be reworked out because they have not installed any kind of reactors or some. It's basically building and other assets are ready, but we will have to use all these kind of chemical hindering methods to understand that kind of re-work on the other processing areas to have a much better [indiscernible].

So to achieve that INR 1,800 crore, like another INR 500 crores from the extra revenue from the current end rate, you need to invest in working capital plus some CapEx. So what is that estimate of extra investment that needs to go in to generate the full INR 1,800 crore number?

[indiscernible] from Unichem's operation itself because GST refund itself will be a significant amount which will come out. We don't need any kind of additional cash. Rather cash will -- we like to look into the supply chain to see what kind of rationalization can be done on -- more particularly on the entire cash to cash cycle in terms of inventory holdings and in terms of all operations, synchronizing everything. So that part can also bring out some kind of cash from the system here.

So would you also step up your R&D investments for U.S. now?

Basically, on strategic policy, very, very clear that we don't want to do a lot of work based on somebody else's API. So it's all the kind of work is needed to be done is only based on our own API. And therefore, that work is not like say that currently Unichem is spending large amount of money on R&D. That also will need to be rationalized properly. So good amount of savings can also be generated from there because there's an integrated company, it's only the product development which will happen also only based on our own internal API and then forward. So it's not that [ tough, not only for pride ]. Yes, [ ANDA ] need to be filed and generated and all that. How much competitive you could remain on the outsourced API? And today, when the margins are under pressure, your operational efficiencies and all that can come only through your own API. So that's the business philosophy will not change here.

The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund.

Yes. Can you share what's your future plan on the pending stake post open offer? Would you acquire that stake? Or would you have any plans in the next 3 to 5 years of acquiring, or would the entity be kept as a listed entity?

It will be kept a listed entity. Our SPAs for acquiring 33.38% shareholding plus we are making open offer for 20%. If everything comes in the open offer, my holding will be around 60%.