Jubilant Pharmova Limited (530019) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jubilant Life Sciences Limited Q3 and 9-month FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Agrawal, Head of Investor Relations. Thank you, and over to you, sir.

Thank you. Good evening, everybody. I'm Ravi Agrawal, Head of Investor Relations at Jubilant Life Sciences. I thank you again for being with us today on our Q3 and 9 months FY '20 earnings conference call. I would like to remind you that some of the statements made on the call today could be forward-looking in nature, and a detailed disclaimer in this regard has been included in the press release that has been shared on our website. On the call today, we have Mr. Shyam Bhartia, Chairman; Mr. Hari Bhartia, Co-Chairman and Managing Director; Mr. R. Sankaraiah, Executive Director of Finance; Mr. Alok Vaish, CFO Designate; Mr. Pramod Yadav, CEO, Jubilant Pharma; and Mr. Rajesh Srivastava, CEO, Life Science Ingredients. I now invite Mr. Bhartia to share his comments.

Thank you, Ravi. Good evening, everyone. I'm sure you would have had a chance to go through our presentation and press release, which we have shared with you. We have reported a stable performance year-on-year and growth in EBITDA with better margins sequentially, and that was lower due to certain exceptional charges. I would like to highlight following crucial aspects of our business further. First, EBITDA margins in our Pharma business has improved 112 basis points year-on-year and 180 basis points quarter-on-quarter to 28% -- 28.4% during the quarter. 70% of our Pharma revenues comes from these business segments, like Specialty Pharma and also high-quality service businesses in CMO and Radiopharmacies. These have high entry barriers, strong demand conditions and enjoy leadership position in many of our key products. Second, in our LSI business, we have witnessed sequential improvement in business performance with revenues and EBITDA higher by 6% and 10%, respectively, which we have -- which [ have been ] led by market conditions in our Specialty Intermediates and Nutritional Product businesses. Third, our Drug Discovery and Development Solutions business has witnessed a strong growth of 26% year-on-year in revenues and robust increase in EBITDA during the quarter. In view of the strong demand, we are making investments in this business to double capacity in next 2, 3 years. Also in our Proprietary Drug Discovery business, we are working on more than 6 programs targeting small molecule therapies in the area of oncology and autoimmune disorders with potential fast-track promising assets from discovery to clinical stage. Fourth, we had -- we made partial redemption of [Audio Gap] [ we saw them ] $100 million of our high-yield bonds during the quarter from our cash reserves, also, the early redemption of NCDs of INR 745 crores by taking term loans with longer maturity. I would like to emphasize that the demand conditions across all Pharma businesses, Specialty Intermediates and Nutrition Products are strong. Overall, we are confident of delivering strong performance going forward. Before I conclude, I would like to provide an update on the reorganization proposal. We have filed the composite scheme of arrangement with stock exchanges. Once we receive a no objection certificate from stock exchanges, we'll file the scheme with the National Company Law Tribunal for approvals. With this, I would like to request Pramod to take the discussions forward.

Thank you, Mr. Bhartia. A very good evening to all of you. I would like to share insights of Pharmaceutical business during the quarter. We reported steady revenue growth during the quarter with revenue and EBITDA higher by 2% and 6% year-on-year, respectively. In Specialty Pharma, which accounts for 53% of our revenue and includes Radiopharma and Allergy businesses, reflects stable performance during the quarter. In the Radiopharma business, we reported higher volume in key products, including RUBY-FILL. We are pleased with the favorable ruling from the U.S. International Trade Commission for RUBY-FILL, finding no violation particularly. As we move forward, we are well-poised for continued growth in Radiopharmaceutical business. In Radiopharmacy business, we are witnessing certain challenges in ramping up of the revenues. However, the strategic alignment of our Radiopharmaceutical business with our Radiopharmacies helped us to improve our capacities to capitalize on current market demand as well as advance our unique pipeline of around 8 products that are currently on the [ top ] pipeline with an addressable market of over USD 300 million. In our Allergy business, we witnessed growth both on year-on-year and quarter-on-quarter basis led by higher volumes in venoms and allergenic extracts. We have become the #2 player in the U.S. allergy market and are the only supplier of venom in this market. CMO business performance has been steady during the quarter, and demand outlook continues to remain robust due to the strong order book and new opportunities. I am pleased to report that the shift on our Line 1 has been increased to 24x7 during the quarter. We have also installed new line equipment for Line 2 with commercialization readiness expected during the fourth quarter of financial year '20. These initiatives will enable us to increase our capacity by more than 30%, translating into additional growth opportunities going forward. API business reflects improved performance during the quarter due to better pricing and higher volumes in most key products. In valsartan, while our volumes were impacted due to additional quality checks on all input raw materials to meet enhanced regulatory requirements, we have been able to get better prices. As mentioned in our Q2 FY '20 phone call, we believe we have resolved the challenges pertaining to [ partner ] security and are confident of better performance in our business going forward. Our Generic business experienced a decrease in revenue for the quarter primarily due to lower volumes in some key products due to customer scheduling. Profitability was higher due to better pricing in certain products, a result of favorable market condition. Going forward, we have plans to ramp up production of our expanded capacity in Roorkee for both U.S. and non-U.S. markets. We are also pleased to report that we received an ANDA approval during the quarter for Clomipramine HCL capsules from our U.S. Salisbury facility. In regard to revenue key matters, the site remediation activities at Roorkee and Nanjangud, in consultation with third-party consultants to address U.S. FDA observations, are progressing well. During the quarter, we had a U.S. FDA inspection at our Roorkee facility and received 6 observations. We have responded to all of these observations. The U.S. FDA has not imposed any further action. With this, I would like to pass this discussion over to Rajesh.

Thank you, Pramod. Very good evening to all of you. I would like to share based on Life Science Ingredients and Drug Discovery and Development Solutions segments' performance during the quarter. LSI business had shown mixed performance during the quarter. Revenue and EBITDA are lower, 11% and 20% year-on-year, but are higher by 6% and 10% quarter-on-quarter, respectively. Specialty Intermediates revenue have grown 16% year-on-year. This was led by strong demand and better price in most of our key products. We have also witnessed positive traction for new products launched in this business. Also, as announced, the Ministry of Commerce, MOFCOM, China has terminated the duty of 17.6% antidumping on imported trading from India during the quarter. Growth of 17% year-on-year in Nutritional Products revenue was driven by mix of higher volumes and better prices in Vitamin B3. We expect demand scenario to be strong in the near future, and we are especially in place to take advantage as we are backward integrated, thereby ensuring consistent supply and volume availability. Life Science Chemical business revenue was lower by 30% year-on-year with demand in acetyl affected by significantly lower input price of acetic acid and the [ demand ] business affected by substantially higher molasses prices. We expect LSI's performance to be led by Specialty Intermediates and Nutritional Product businesses. We also expect demand conditions to remain subdued in Life Science Chemical business during the year. Coming forward, Drug Discovery and Development Solutions segment. As mentioned by Chairman, our Drug Discovery and Development Solutions business has witnessed strong growth, up 26% year-on-year in revenues and robust increase in EBITDA during the quarter with margin of 25.4%. Drug Discovery Services, which includes Jubilant Biosys and Jubilant Chemsys, continue to witness a strong demand for integrated services and for chemistry and scale-up opportunities. In view of this strong demand, we are making investments in this business to double the capacity in next 2 to 3 years. Also in our innovative therapeutics business, we are working on more than 6 programs to deliver [ treatment ] medicines focused on both first-in-class and validated but difficult to get novel targets to address unmet medical needs in the area of oncology and autoimmune disorder with potential to fast-track promising assets from discovery to clinical stage. With that, I will pass this discussion to Mr. Sankaraiah.

Thank you, Rajesh. A very good evening, and I thank everyone for taking out time and joining us for our quarterly earning call. I would like to highlight the company's financial performance during Q3 FY 2020. On consolidated basis, revenue from operations at INR 2,315 crores was 3% lower year-on-year with Pharma revenue higher 2% year-on-year to INR 1,450 crores and LSI revenue lower by 11% year-on-year to INR 797 crores. Reported EBITDA was INR 513 crores, lower 2% year-on-year but higher 7% quarter-on-quarter, with the margins of 22% -- 22.2%,with the improvement in margins, both year-on-year and sequentially. Depreciation and amortization expenses during the quarter was at INR 113 crores, higher by 15% year-on-year, lower by 3% quarter-on-quarter. Year-on-year increase in depreciation cost was largely due to adoption of new lease accounting standards. Finance cost during the quarter was INR 72 crores, higher by 36% year-on-year. Factoring the IFC stock settlement charge of INR 15 crores in Q3 FY '19 and INR 2 crores of impact due to adoption of new lease accounting standard, the finance cost has been higher by 3%. Average blended interest rate for 9 months was at 6.08% with rupee loans were at 8.21% and foreign currency loans were at 5.34%. In Q3 FY '20, we booked an exceptional charge of 23 crores related to prepayment of high-yield bonds and NCDs and INR 11 crores related to write-off of fixed assets not in use. PAT during the quarter was INR 203 crores as compared to 261 crores in Q3 FY '19 with an EPS of INR 12.80 per share of rupee [ once paid up ]. For 9 months financials, I would request you to please refer to investor presentation and the press release shared with you. CapEx was at INR 428 crores in 9 months FY '20. The company's net debt on constant currency basis was INR 3,273 crores, a reduction of INR 217 crores as compared to March 2019. There was a quarter-on-quarter increase on net debt of INR 128 crores, which was on account of payment of dividends and increase in working capital that's in LSI business, mainly due to seasonal raw material purchases. Pharma and -- Drug Discovery and Development Solutions generated a positive cash flow of INR 68 crores in Q3 FY '20. We will continue our efforts to strengthen the balance sheet by reducing the debt and improving the financial ratios. With this, I would like to conclude our opening remarks. We will now be happy to address any questions that you may have, please. Thank you.

[Operator Instructions] The first question is from the line of Ashi Anand from Allegro Capital Advisors.

I just wanted to understand, firstly, on the Radiopharma business how many products have been launched to date and how many products have -- you've been working on in pipeline? And if I'm looking at growth on this business, is growth likely to be driven more by new launches? Or is it a scale-up of products that we've done so far?

So we have close to 13 products in the market as of now. And as we mentioned, we have a very healthy R&D pipeline of about 8 products, which we plan to launch over next 2 to 3 years. So the growth will come from the ramp-up of the existing products, especially the RUBY-FILL and also for the new launches. From what -- and the fact, we expect quite a healthy growth in this business.

Okay. Excellent. And just secondly, on RUBY-FILL. Is there any pending kind of litigation? Or is there a chance of an appeal? Or have you now cleared through all the regulatory barriers?

So the competition has filed case in ITC. They're -- initially, administrative judge gave the decision in favor of Jubilant, but we have not [ warranting that decision ] because of ] Bracco's patents claims themselves are invalid. Bracco had appeal against the judge's decision, which was heard by full commission. And in the last quarter, the full commission also gave the decision and upturned the administrative judge verdict. With that, the case is since terminated in ITC. However, Bracco has taken a decision to file an appeal against that in -- I guess they're taking it to Washington. There, the case will go on for another about 1.5 years. However, we are very confident that we have a very strong position in terms of the IP on the RUBY-FILL. So we don't see any disturbance happening [ in that ] development. We are continuing to sell to all the customers, and we continue to get more and more traction from the customers.

Okay. And just to kind of understand, I think in the past, we had indicated that because of this kind of litigation that was ongoing, that was actually a bit of a barrier in terms of some customers are [ taking into reason ]. So would that now be kind of taken care of? Or would they kind of still wait for [ service ] of the court ruling? So as in -- is this still kind of a barrier in terms of adoption?

So this litigation was not a complete barrier because even -- since that time we have launched the product, we are continuing to do more and more installations at new sites that we are growing the business. However, the growth rate could have been better if this litigation was not there. Now since the ITC decision is there, all the customers understand that we -- that they don't have any risk. And we have already seen, since the time the administrative judge decision came and then the commission decision came, we are getting many more inquiries and we are signing up the contracts for the many more installs.

Okay. Excellent. And just if I can ask one last question. Sir, it would really help us on the Specialty drug business if you could kind of break up between the Radiopharma business, the Triad acquisition and the Allergy business, which will help in terms of how we model growth, et cetera, going forward.

So we have been reporting the revenue for the entire Specialty segment. And the way we are seeing the growth in the RUBY-FILL, the best would be to plan to ramp up existing products of the Radiopharma and the new launches and growth we are seeing in venom as well as other allergenic extracts. We feel that we'll continue to grow our Specialty business with a quite good growth rate.

Sure. Would it be possible to break up between these 3 businesses, as in how much of the Specialty revenues comes from Radiopharma, how much from Triad and how much from Allergy?

Yes. As of now, we are reporting only for all these 3 businesses, [ which includes ] Specialty and we plan to continue to do that.

The next question is from the line of Alankar Garude from Macquarie.

So just continuing from the previous question. This 1% growth in Specialty Pharma seems a bit low, given that we are seeing traction in RUBY-FILL as well as we are also seeing traction on the Allergy side. So any quality -- while you might not want to share any numbers, any qualitative comments on the growth rates, particularly seen in this quarter, across these segments within Specialty Pharma would be useful.

I think in my piece, since I mentioned that we have a bit of a challenge in ramping up of the Pharmacy revenue just now, so that has balanced a little bit to the additional growth that we have because of the RUBY-FILL and the Allergy business.

Okay. Okay. And the follow-up to that question would be, sir, in Triad, that has been a pain point for the last -- more than 2 years now, and we have guided for a breakeven next year. But are we seeing the losses coming down either on an annual year-on-year basis or perhaps even on a sequential basis?

So we have quite a robust strategy in place to fund this business for the group by opening up new pharmacies and acquiring more customers and growing the top line, and our own bold strategic action plans are progressing well.

And when do we expect to see some results from that, sir, both on top line as well as profitability of Triad?

So we will expect results to start flowing in quarter-on-quarter in the next financial year, but it will be difficult to put a firm timeline on to that. But we will continue to see this improvement quarter-over-quarter.

Understood, sir. Sir, my second question is on the CDMO growth, 5%. Can you comment on what benefit we have seen on the incremental capacity in the CMO business till now and what potentially the benefit could be in the coming quarters?

So we had mentioned that when we -- our order to the initiatives of assets working will be implemented, that is to run both the lines 24x7 instead of 24x5 and to put a new Lyo. These all will get completed in the next quarter. In fact, our 2 lines have already started running 24x7, and the Lyo will get commissioned in the next quarter. So in next financial year, we will see full impact. With all these 3 initiatives, the same plant will be able to produce close to 30% additional capacity.

So broadly, from a growth perspective, CDMO should ideally grow in double digits in FY '21. I'm not assuming that 30% growth and there's also API, but at least double-digit growth in CDMO would be possible next year.

Yes. So I am not putting a number, but yes. We have already started signing contracts for these additional capacity and since one line is started running 24x7 in Q3 FY '19 itself. So some impact of that has already started going into and the balance will be coming into next financial year.

[Operator Instructions] The next question is from the line of Saion Mukherjee from Nomura.

Sir, on the Pharmacy business, you mentioned some challenges. So is the business still declining? Or is it stable? And from an EBITDA perspective, is that a big loss because of the issues that you have in the Pharmacy business?

So I am not saying that business -- something like big challenge. In the Q3, we had the revenue little bit lower than the last year, but that was compensated by higher revenue in the Radiopharmaceuticals, especially from RUBY-FILL and from the Allergy business. Yes. In terms of EBITDA, as of now, it's in that. But we expect that with the sound strategy plans we have in place, the losses will continue to go down and then eventually it will stabilize.

Sir, on RUBY-FILL ramp up, so how should we think about the ramp-up? Is there an inflection point that you see that is likely or the number of additions that you have would be a constant number, which will keep getting added every year, it will be more of a linear trajectory? How should we think about growth there?

So since we launched this product 2 years ago, so we started, of course, with a small base. But quarter-on-quarter, we are growing this business. So year-on-year, we are growing this business almost in the range of 2 to 3x. And even that [ sale ] was a [ gain ] in the last quarter also. And this is in spite of the issues going around in the market because of litigation. And now as the litigation is behind us, we expect this growth rate to expedite further.

Okay. Okay. And sir, one last question. On the Discovery Solutions, there was a comment said that you want to make some significant investment over the next 2 to 3 years. If you can just let us know what exactly are you planning here and what is the quantum of investment that we should be looking at.

So in Discovery ,on this segment, to be looking at making investment in both biologics as well as chemistry. And in terms of [ future ] investment, I think next year, probably, we will be adding up somewhere around INR 100 crores of investment. And then in next 2 to 3 years, it can be further more.

I see. So your total capital employed is around INR 200-odd crores, right, for this business. So that's a very significant scale-up.

Yes, it is a significant scale-up.

Okay. So this would be largely the outsourcing business, right, with the [ M&C ] or the big pharma that you would be able to...

Yes. So it is Discovery Services for big pharma.

So sir, I mean, just one question, if I can. I mean what is the rationale to step it up now? I mean what are you seeing in the horizon which is leading to this decision?

So the customers who have been sourcing the services from us, they are willing to increase the business in number of FTEs. And also, we are adding up new customers because of our integrated solutions, which is little bit of unique services. So with this demand of customers, we project that this business growth can happen if we have the extra capacity. So we are, right now, running our FTEs full. So we need the capacity immediately.

The next question is from the line of Chirag Dagli from HDFC Asset Management.

Sir, how many -- you talked about innovation. How many of these molecules are currently in the clinic? Or potentially can go to clinic in the next, say, 12 months?

Yes. This is Hari Bhartia. Definitely, none of our molecules are in the clinic. We are planning to take the first one next year. So we are getting ready to file the IND [ sometime ] next year and then take it to Phase I. That is -- and the second one, we are preparing the IND strategies next year. So probably the following year, we will take it to clinic. That is the PAD4, which is the autoimmune. And the first one to go clinic will be the LSD1/HDAC, which is a dual inhibitor, which is an epigenetic target.

Okay, sir. How much are we spending, sir, annually on this? And is this being capitalized or passed through at the end?

It's approximately $5 million to $7 million, but it is written off in the book as of today.

Annually, $5 million to $7 million, sir.

That's right.

And in terms of the -- what is our current CMO utilization, sir?

So since we had mentioned that there's a good demand and we are trying our best [ to get those and meet them ], we can safely assume [ there will be additional ] capacity.

We are optimal -- we are running it optimally, sir.

Yes, definitely. And in fact, we've done quite a lot of improvements to see that -- how we reduce that change over time, how will we -- the shutdown planning so that we are able to increase overall plant utilization.

Fair point, sir. And the last question, sorry, if I may. These exceptionals on the buying out, et cetera, of the bonds as well as the IFC deal, is there more to this? Or are we broadly done?

No.

This is high-yield bonds, so high-yield bonds.

No. No. This exceptional item, like I mentioned in my speech also, it is mainly on account of the $100 million and the redemption of high-yield bonds by Jubilant Pharma in the fourth. It is a onetime and that we had to pay prepayment premium of 2.45% as for the document. It is actually 3 [ non-call ] file. So at the end of the third year, immediately, we utilized the excess cash, which has been generated by the business, to redeem our bonds. So that is the main reason why there is an exceptional item, which is there. It is not recurring.

And how much will be saved, sir, in terms of interest going forward?

See, other [ way we had to come to ] $100 million in deposits would have got about 1.5%. And as we redeem this by 4.875%, the fact is about 3.3% we have saved the interest.

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

Sir, just on the LSI segment for the prior question...

Could you just speak a bit louder? Your voice is a bit feeble.

Is it better now?

Yes, better. Please continue.

Just on the LSI segment EBITDA, given the way headwinds you're seeing on Life Science chemicals segment, so if you can elaborate on the demand for acetic anhydride and further outlook on it.

So acetic anhydride, demand in last quarter has not been good. So -- which because of the end-use industry demand which has been slower -- and we expect now the demand which we see in the market it is showing a positive sign. So we find that the demand is definitely going to get better in coming quarters.

So can that take the number back to like 1 25, [ 1 30 ] this year kind of an EBITDA per quarter?

So EBITDA is not only coming because of the volume. EBITDA is also the factor of other raw material prices, et cetera. But yes, the raw material prices had been in the very low levels, so now that is just the lowest. And even at the price level, we are seeing the positive track channel. So yes, we would like to see that time when we can achieve that kind of EBITDA, definitely. Or even better because now we have added capacity available, and nowhere else in the world the capacity has been added.

Okay. But do you see the molasses prices moderating? Or that remains still at a high level?

No. So molasses side, the key has just peaked in last quarter. So it has already moderated, but we don't see that it is going down as low as it was last year. It has moderated and to be here, this moderate level which we see today, so we have already factored in our projections for the year.

The next question is from the line of Dipan Mehta from Elixir Equities.

So my question is regarding the pharmaceutical business. If you can please explain that why we have got such a flattish type of revenues and profits, and this has been there for the last, I think 2, 3 quarters or so. So what exactly are the challenges that you are facing because of it, you're unable to grow the business double digit or even higher?

So they have had a little bit lower growth, lower revenue in this business -- in our generic business, and that was mainly because some of the key products' sales were lower because customer had a different scheduling. So that is helping us in next quarter. That's normal. Other than that, in other key products, Valsartan, there was lower volumes in the quarter, and that was mainly because of regulatory issue. We have put extra checks into the process to ensure that the product is free of nitrosamine impurities. There were some checks put in the quality system and some extra validation, et cetera, were to be done before the product could have been released. All those issues have been taken care of. So from the next quarter, that issue will also be behind us. These 2 are the major hurdles, but a small one, which we discussed, around the various pharmacies as the other businesses are growing. And on the CMO side, the -- where -- which we take a bit of a larger shutdown for the maintenance as for the plant. So the quarter in which the shutdown comes, you have a little bit lower production, and it impacts on that quarter's revenue. So that's also had a little impact in the last quarter. But also...

Any guidance you are giving as regards to long term what kind of growth rates can be generated from the pharmaceutical business?

Yes. So the guidance we are giving you, definitely, we'll continue to grow this business. For what -- in all the businesses, we have quite a good strategy in place. And if you actually see for the 9 months, that the revenue have already grown by 7% in spite of a few of the challenges I mentioned to you. And more than that, if you look at our margins, the margins also had a very positive growth of [ 150 ] basis points. So the business is in a good shape. And we feel that for the next year, our growth rate will be even better and the margins will remain at positive levels.

The next question is from the line of Hari Belawat from Techfin Consultants.

This is regarding USFDA inspections. For Nanjangud, it was done in the month of December '18, almost a year past. And for Roorkee, also it was done in August '18. And in both the cases, this OAI was issued. We understand that still you are in contact with the USFDA. What is the status of this? When do we expect clearance for both these units?

So as far as Nanjangud is concerned, this was a concurrent inspection by USFDA as well as Health Canada. And they issued an OAI. We immediately got engaged with them with our -- all the corrective and preventive actions. It seems that also they're clearly both satisfied with that. And with all of that, they did not accelerate OAI status. So we still remain engaged with the authorities. In the last quarter, TGA Australia inspected this plant to have a future accommodation with Health Canada. And TGA Australia went back very satisfied in that they issued us the GMP rating. So with that, we feel that the plant is out of the trouble. We are now expecting Health Canada and USFDA to give updates about, either to reject their decision or maybe USFDA can come for the inspection. And we are hopeful that we will be able to convert OAI into a voluntary action post that inspection. So that's still where we are as far as Nanjangud is concerned. For the Roorkee, it's not under, too, right? It's on the volume letter. So USFDA has inspected the plant last quarter. And to -- that was a regular -- as per scheduled inspection, and they have looked at our application plans. They have reviewed that. They issued 6 observations. However, we don't see that they are the critical ones. We have already given very detailed corrective preventive action plans on the 6 of the observations, and we are awaiting to hear from FDA as of now. But the kind of remediation plans we have put in place, we feel as and when FDA will come for the inspection again anytime, this plant should also be out of the water.

Okay, sir. These are the good developments, I think, the company has taken. Have these observations affected exports to U.S., particularly?

Yes. So I will give a reply to that. Just before that, I wish to mention that even TGA Australia also had inspected the Roorkee plant as well. And on that plant also they have given the GMP rating. So all that's in place. So they were satisfied with all the remediation work we have done. Now with regard to supplies to the U.S. market, for all of our already approved products, we haven't seen any impact. We are continuing to expose our products. And in fact, for some of the products, our volumes are expected to grow. And also our prices have been very good, so our margins are good. Only issue is that our new approvals are on hold. So as and when this volume that has issue will get resolved, then we -- then our approvals will start coming in. However, we also have a manufacturing plant in Salisbury in the U.S. And from that plant, also we continue to supply to the U.S. market, and that plant has a GMP rating on that plant.

Okay, good. So milestones are on the sticks. Just a related question. In China, there are some problems. Are we more dependent on imports from China now? Or how much is the dependence on China for your imports?

So we are not much dependent on China for the APIs. Our -- most of our APIs are either in-house or from elsewhere. But like any API manufacturing in India for the key tracking...

Sorry to interrupt, sir. Sorry to interrupt. I'm really sorry. Mr. Belawat, could you please mute your line because of the disturbance it's causing?

Okay. Thank you.

Okay. So for a few of the APIs, we are also buying some of the key tracking refill from China. And we -- though we already had the strategy in place to derisk our API business from all the procurements from China, and those action plans are already ongoing. However, we continue to monitor the situation very closely. The asset -- as for our restocking policy, we had the stocks of that. So it's not an immediate point of worry, but we are monitoring the situation very cautiously.

The next question is from the line of Alankar Garude from Macquarie.

Sir, one question on Radiopharma margins. So from the current 28-odd percent, once we see higher traction in RUBY-FILL and possibly lower losses and breakeven in Triad from next year onwards, and even further, we will see more launches happening on the Radiopharma side. What do you think will be the peak margins in this business going forward?

Yes. So it will be difficult to put a number, but yes, the way we are ramping up this business, we expect quite a healthy top line growth and the margins. And as such in the call earlier, when we had this lot of discussions on the margins, we need to see the margins plus for both Radiopharmacy and the pharmaceutical products because it has been a very strategic acquisition by us to ensure that while we have a very strong R&D pipeline and we'll be launching many products in the near future, we also had a distribution set up in place through which we can place those products in the market and reach out to the customer. So we -- it's important to see the margins at a consolidated level than to actually see at the business segment level because there is more to see where we need to improve upon efficiencies.

Okay, sir. And one small clarification on Roorkee. Out of these 6 observations, are there any repeat observations?

So out of 6, there is 1 repeat observation from previous audits of the December '19 on which remediation what -- were already going on. And we have been submitting the status on the remediation. And even on the last status that we had submitted, we had mentioned that this remediation will get completed in the coming quarter. So FDA is aware that we are already working on that.

Okay. And do you expect further reinspection to happen before we get any EIR for this facility? Or there is a possibility that no further inspection will be required and still will get any EIR?

We would love for this EIR results, the inspection, but it all depends upon the FDA. So we can't comment on that.

Next question is from the line of Runjhun Jain from Nirmal Bang Securities.

Sir, I just need one clarification. We have already discussed too much about it, but still the season for the pharma business you said there, it seems that it is temporary. You're confident that it should come back from next quarter? And can you -- and your start-off points, which you have discussed about the -- of the decline or the muted growth. Can you quantify any of that, sir?

So in the last call also we mentioned that our H2, we expect to be better than H1. So we have factored in -- these 3 other issues we are taking on the Valsartan, et cetera. And since we feel that all those issues have been resolved. So we are confident that with a better quarter 4 performance, H2 is going to be much better than H1.

Yes. But -- so you're saying that for beyond Q3, from the H2 that's gone, sir, which we have not able to recover. So do you think that from Q4 onwards, it would come? Or that -- so we will start revenue growth from the Q1 onwards? I mean my idea is have you started seeing a benefit in January month or not?

So I am saying that H2 is going to be better than H1 and Q4 is going to be better than Q1. So yes, you can assume that even from January onwards, we are seeing that improvement.

Next question is from the line of Aditya Podar from Fortune Financial.

My questions are on the Nutritional Product segment. You mentioned that a mix of higher volume and better prices drove Vitamin B3 sales to be better. Can you give a breakup of this higher volume and better prices, please?

So the higher volume is contributing to about 5% to 6% vis-a-vis same quarter last year. And price is about 12% to 14%.

We've taken a 12% to 14% price hike with all clients?

Yes.

What price trends are you seeing in niacin from the decadent lows of 3.62? What's the average selling price for the quarter been?

It's very difficult to quantify.

Ballpark is fine.

Yes.

Yes, a ballpark figure is fine.

Yes. So current pricing, which is going on, on average is around $4, $4 to $4.4.

Okay, $4 to $4.4. Okay. What are the raw material trends you're seeing in Beta and 3CP now for the last quarter?

We have mentioned in our presentation that the raw material is really becoming tight, and therefore, we can see a positive traction of pricing further.

Okay. So the pricing going down or going up?

Going up. And since these are all internal backward integrations, so we see this as a very positive thing for us for future.

Okay. Okay. Any inorganic opportunities in the B3 space being explored? Or you guys don't want to build any capacity in the B3 space anymore?

B3 has a global production. It is already more than the demand. So I don't think there is any new capacity required. And as such, I think capacity may not make sense because the ultimate backward integration raw material is not available.

So that's why I asked inorganic?

Yes. So inorganic, yes, there are not many players, and we don't see any synergistic inorganic company which we can think of.

Next question is a follow-up from the line of Chirag Dagli from HDFC Asset Management.

So this China calling off antidumping duty, what has this meant for us in the past? And now that this is off, what does it mean for the future?

China calling off antidumping, it means that we are -- we have the China market open for us for Pyridine. But we will go very, very judiciously because prices in China are very low. So we don't see a huge impact on our Pyridine space. And as such, more than pricing, the overall volume of Pyridine has gone down overall, globally. So we don't see a great opportunity of a huge volume growth. But having said so, there is an opportunity for us to sell some volume in China. So that's just an opportunity for us in the open China market.

Currently, the China market, the volume is 0 for us?

No, it is not 0. We are selling some volume there. Our customers are -- have approved us, and we get a book pricing. Even though they pay duty, they have been buying from us. They will continue buying from us. And probably, we might increase our share in those customers because now that they don't have to pay duty. So those things, we will definitely have positive advantage.

But even with the 17% disadvantage, you were selling in China, profitably?

Yes, yes, we have been selling to some Chinese customers, who have been -- who have approved us as a source because of our quality and reliability. So that, we will continue. Not very big volume, but we have been selling products.

Fair point, sir. And sir, so there are many pieces to this, LSI. What part of the business has fixed sort of spreads on a per tonne basis or on a percentage margin basis? If you can give us some sense.

No, I didn't get your question. Sorry.

So there will be a part of the business where your spreads will be fixed, right, on a per tonne basis or a per kilo basis. Is there any part of the business, which is -- which falls in that kind of a bucket? Or is the entire business sort of open?

In China?

No. Overall, for LSI.

Okay. Overall, for LSI, I think our Specialty Intermediate business is, of course, not so volatile as our Life Science Chemical business is. Same with Nutritional Products. So as you can see, Specialty Intermediate as well as Nutrition Products is quite a stable business. But LSC, yes, it gets affected because of the commodity, raw material prices, et cetera.

Even the margins on these businesses are as stable as the sales, sir?

Yes, they are much more stable than LSC business, yes.

So the margin volatility is essentially largely because of the LSC business?

Yes. Margin volatility mostly because -- and in the past, we also have seen some volatility into the Nutritional Products business, as we just said because of Chinese entry, which is now stabilizing because of the raw material position.

The next question is from the line of Ashi Anand from Allegro Capital Advisors.

I just wanted to understand a bit more the -- can you hear me now? Yes, I just want to understand a bit more about the 17 products that we have in the market. Just -- so the questions were, one, are all of these going basically into the same kind of marketing channel? Secondly, what kind of market shares would we have and -- in these products? And any kind of concentration, as in the top 3 or top 5 products, how much would that account for the Radiopharma part of the business?

So we have -- we are the third largest in the North America, in that business. That's what we mentioned. A few of the products, we have a -- we have had up to single -- the sole supplier position. So we have an entire market with us. In a few of the products, we have competition. But since this business has a high entry barrier, so even for the rest of the product, there's only either 1 completion or 2, but not many. So these are the products which, even if they are the generic, you don't see that kind of the price competition what you see in the rest of the generic business like orders from Salisbury.

Okay, that's very helpful. And just secondly, in terms of -- if you could help in terms of the product concentration as we receive the top 3 or top 2 subproducts? Or do they account for a very substantial part of the business? So is it kind of equally spread across the 17?

It will be difficult to mention product with specific details because of the competition in regions. But overall, we mentioned that we have a very good leadership position in that business. We have a -- so we have a good spread of the products, and we have a healthy pipeline. And we have a good market position. We have our own distribution center. So we have the integration advantage as well. So we are the most strategic player in the North America market share.

Okay. Excellent. And just lastly, could you share -- is it possible to share how much of our products go through our own distribution?

So all the products are going through our own distribution as well as we are also supplying them through other distribution channels.

So what I meant is what percentage of our fees will be going through our own distribution?

No. No. That will be a little difficult to specify because it's a market where there are only 2 or 3 of the major distribution channels. So they are the concrete areas.

Next question is from the line of Aditya Podar from Fortune Financial.

Yes. I was going to tell you what the message just now. So what is the message, like, that you want to do, the future thing... [Technical Difficulty]

Mr. Podar, we are unable to hear you.

[Foreign Language]

It seems that there's no response from the line of the participant. We'll move to the next question from the line of [ Viraj Mahadevia ], an individual investor.

My question is regarding the net debt on the business. Mr. Bhartia, Mr. Sankaraiah, while we have made all endeavors and statements regarding strengthening the balance sheet, the reality is net debt hasn't produced meaningfully over the last year to 1.5 years. One is the CapEx continues to remain fairly high at roughly INR 428 crores in 9 months, averaging INR 500 crores to INR 600 crores in the financial year. Do you see the CapEx moderating in the years ahead? And consequently, a meaningful paydown in the net debt?

So Capex, we basically have both the 2 businesses, the LSI and the Pharma. So in Pharma business, we have continued investing further for our growth plans. As far as LSI is concerned, like Rajesh has mentioned, it is more -- mostly [ sell ] assets, generate cash and reduce the debt. So -- but overall, you will see in the last 3 years, we have almost reduced [ over 800 ] crores of the total debt. So that way -- because last 3, last 2, 2.5 years, there was a very strict control on capital expenditure. But now this year because of the essential CapEx which are required for either debottlenecking or growth plans, so the CapEx has been invested. So that will really augment our growth going forward. That is the reason this year, the CapEx is higher than last year and last before-year. But going forward the next year, the next year, you know that this CapEx will start settling down. Next year, LSI may not be that much, but pharma will be continuing a little more further growth.

Understood, Mr. Sankaraiah. So clearly, pharma...

And as of now also you see the total debt to EBITDA, we are almost like just less than, less than 2x, about 1.8x. So where we are and where we came in last 2, 2.5 years is a remarkable improvement we made compared to the debt-to-EBITDA level from 4.5x to less than 1.8x.

Yes. So Mr. Sankaraiah, not taking away from the fact that the company has made huge progress in the last 3 years, particularly net debt-to-EBITDA, but that has largely been achieved by a step-up in EBITDA as opposed to reducing the absolute debt in comparison.

No. Debt was INR 4,200 crores, INR 4,400 crores, which has come down to INR 3,200 crores now.

Understood. So it's reduced by about INR 1,000 crores, INR 1,200 crores. EBITDA has more than doubled since the difficult period 3, 4 years ago. What I'm seeing is now...

That is because previously, those investments, which have been done, those things have grown the EBITDA. Rather, the EBITDA has more than doubled now in the last 3 years.

Exactly my point, and that has driven the reduction in net debt to EBITDA.

That is because of all the investments. Without the investments, the whole EBITDA will double. So that's why. See, last 2 years, we have not invested big time. But this year, we have invested almost like -- since the beginning of the year, it will be [ fair assets ], and it will be about INR 500 crores. So that's what -- we'll be in the range of about 500 to 550 crores, that kind of thing this year. So that is, like I mentioned, mainly it is the investment in pharmaceutical business, further expansion plan like in Radiopharmaceutical that expanding the capacity of RUBY-FILL and also in CMO business, again, the lyophilization capacity and also the additional capacity but debottlenecking the lines and also its generic business in [ EP ] and in dosage form business, expanding the capacity from 2 [ billion ] to 3.2 [ billion ]. So like this, these are expansion capacities which we have done and also in LSI business, acetic anhydrite capacity has been increased, there we have invested. So these are all mainly going for investment in further growth plan.

Understood, Mr. Sankaraiah. My only simple question is granted these expansion investments have happened in financial year FY '20, for the next financial year, given that now you have debottlenecked LSI, you bought your lyophilizers, you've increased your scope of operation, you've invested in LSI. What -- how much CapEx do you see yourself spending over the next year or 2? You did mention Drug Discovery, you will probably invest about INR 100 crores. What, over and above that, can we expect the CapEx to be? Because at some point, CapEx also needs to moderate, right? That's only -- only then will the net debt...

So if I -- I will say that the debt level will definitely come down. If you see first 9 months, the debt level has come down by INR 217 crores. And as the fourth quarter comes in, some debt levels will come down. Next year, the cash generation should be better than this year.

And is that because CapEx will moderate to...

So when this CapEx is moderated, not only the EBITDA also, that will be a growth, both.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing remarks. Over to you.

Thank you, everybody, for joining the call. And for further clarifications, Mr. Sankaraiah and Ravi will be here to answer all your questions. Thank you so much.

Thank you.

Thank you very much, members of management. Ladies and gentlemen, on behalf of Jubilant Life Sciences Limited, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.