Jubilant Pharmova Limited (530019) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jubilant Pharmova Limited, earlier known as Jubilant Life Sciences Limited, Q3 and 9 Months FY '21 Earnings Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Hemant Bakhru, Head, Investor Relations. Thank you, and over to you, Mr. Bakhru.

Thank you. Good evening, everyone. Thank you for being with us on our Q3 FY '21 earnings conference call. Please note, effective 1st February 2021, the Life Sciences Ingredients business stands demerged into Jubilant Ingrevia Limited and has been classified as discontinued operations in Q3 results. Further, the name of Jubilant Life Sciences has been changed to Jubilant Pharmova Limited effective 1st February 2021. 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. Pramod Yadav, CEO of Jubilant Pharma; Mr. Rajesh Srivastava, CEO, Jubilant Ingrevia; Mr. Syed Kazmi, CEO, Jubilant Therapeutics; and Mr. Arun Sharma, CFO. I now invite Mr. Shyam Bhartia, to share the comments. Over to you, sir.

Thank you, Hemant. Good evening, everyone. I hope you all are in good health and keeping safe. We are pleased to report a strong quarter across all business segments. Despite enhanced restrictions and closures in several U.S. states due to COVID-19 pandemic over the last few months, Pharma business registered a strong EBITDA growth, especially led by new business sign-ups in CMO announced earlier in H1 FY '21. Generics and API segments did well, too. COVID-19, this continue -- COVID-19 continued it's -- to impact the Radiopharma business due to increased restrictions in U.S. Allergy business had also reached a pre-COVID level during Q2 FY '21. I also saw a bit of impact on volumes due to COVID-19. We continue to see new business opportunities in CDMO, Generics and Specialty Pharma segments. LSI segment's performance continued to be strong quarter-on-quarter as well as year-on-year EBITDA growth. Our Contract Research and Development Services witnessed strong growth led by healthy demand from customers during the quarter. We continue to expect strong performance in our businesses in Q4 FY '21. The company reduced its net debt on a constant currency basis by INR 570 crores in 9 months FY '21. This is in addition to INR 514 crores reduction in net debt during FY '20. We remain focused on further deleveraging by generating healthy cash flows. We received final NCLT order approving demerger of our LSI business. The demerger creates separate and focused entities for Pharmaceuticals and Life Science Ingredients businesses that will help in unlocking shareholder value. The Life Science Ingredients business will stand demerged into Jubilant Ingrevia, which should be listed in NSE and BSE with the major shareholding of Jubilant Pharmova, earlier known as Jubilant Life Sciences. I take this opportunity to thank all our employees who have worked tirelessly across all our plants and offices to ensure continuity in company's operations while continuing to serve our global customers. And with that, I hand over to Pramod to discuss the Pharma business.

Thank you, Mr. Bhartia. A very good evening to all of you. We had a very strong quarter for Pharma, with Q3 revenue growth at 17% year-on-year led by a strong performance in CDMO and Generics. CDMO revenues grew 66% year-on-year answer 28% quarter-on-quarter. We continue to see a strong outlook for the segment on back of 5 deals signed in H1 FY '21. As highlighted earlier, the 5 deals that we signed in H1 FY '21 could contribute up to INR 500 crores in revenue over the next 12 to 15 months, depending upon product approvals by the U.S. FDA. We have realized approximately half of this. We do see potential upside to this [ purpose ]. And we'll update you as we get better visibility. We have been manufacturing remdesivir for Gilead. We also started contract manufacturing of Eli Lilly’s bamlanivimab, a drug that has been granted emergency use authorization by the FDA for treatment of COVID-19; and COVID-19 vaccine candidate NVX-CoV2373 of Novavax, a biotechnology company developing next-generation vaccines for serious infectious diseases. As highlighted earlier, CMO capacity was expanded via debottlenecking initiatives, including new Lyo installations and 24/7 operations in all areas, including inspection and packaging. We are excited about the new business opportunities in the CMO business. Within CDMO, API business grew well on back of the volumes. We are pleased with our Generics business, which experienced a 57% year-on-year increase in revenue for the quarter driven by launch of remdesivir in India and other licensed countries and also limited competition in select products in the U.S. market. We remain confident of continued growth in this business. With increased closures and restrictions across numerous states and the recovery in Specialty Pharma, both Radiopharma and Allergy businesses has been impacted. In Specialty Pharma segment, revenue declined by 24% year-on-year. Hospitals continues to prioritize treatment of COVID-19 cases. Further, there is continued impact on [ launch ] procedures to avoid risk to medical staff. We have had first commercial launch of RUBY-FILL in Europe in Q3 FY '21. We are also focusing to expand the Specialty Pharma business in international markets. EBITDA for the quarter was at INR 499 crores as compared to INR 411 crore in Q3 FY '20. We continue to execute on our strategic initiatives across the businesses and expect a strong performance in Q4 FY '21 as well. Our Roorkee dosage form and the Nanjangud API manufacturing facilities have already completed remediations with respect to Warning Letter and Official Action indicated issued by the U.S. FDA. We are awaiting U.S. FDA correction. We are confident that our remediation or personal engagement with the U.S. FDA will soon lead to a Warning Letter status for our 2 manufacturing sites. We are pleased to report that our manufacturing facilities in North America and India have been fully operational through Q3, notwithstanding increase in COVID-19 cases and restrictions across numerous states in the U.S. With this, I hand over to Rajesh to provide insight into LSI and Contract Research and Development Services business.

Thank you, Pramod. A very good evening to all of you. I would like to start by highlighting that despite the challenging market scenario due to COVID-19 pandemic, Life Science Ingredients business segment reported EBITDA of INR 155 crore, which is higher on year-on-year as well as quarter-on-quarter basis. Our Q3 FY '21 EBITDA margin is at 17.4%, which is up 483 basis points year-on-year. I am pleased to inform that we continue to have normal operations at all our facilities without any disruption. In our Specialty Chemicals business, Pharmaceuticals segment witnessed significant improvement in demand though Agrochemical segment demand was lower due to inventory corrections by company. Our Nutrition and Health Solutions business has shown strong revenue growth, up 27% year-on-year during the quarter. Business performance was supported by price recovery in vitamin B3 and other products from low levels of FY '20. Vitamin B3 business demand picked up in Q3 after the destocking seen in Q2. We continue to see the strong demand going forward. Our Life Science Chemicals business delivered revenue growth of 14% year-on-year led by strong demand of all the products, including acetic anhydride in domestic and export markets, driven by higher demand in Pharma and Consumer segments. We continue to focus on optimizing product portfolio to improve margins in Life Science Chemicals business. Overall, LSI segment revenue was at INR 893 crore as compared to INR 797 crore in Q3 FY '20. As informed in the previous quarters, we expect LSI business to achieve close to double-digit growth in revenue and significant growth in EBITDA and higher margins and a very healthy cash generation in FY '21. Our Contract Research and Development Services business continued to deliver healthy performance during Q3 driven by strong demand from biotech companies for integrated services and functional chemistries. The business has a healthy pipeline of new contracts and customer acquisition. Q3 FY '21 revenue increased by 17% year-on-year to INR 79 crore. EBITDA stood at INR 29 crore, up 30% year-on-year. As we informed in the previous quarter, the business has committed investment to double the chemistry research capacity. Project is progressing very well. And we expect the facility to be ready by end of Q1 FY '22. With this, I now hand over to Syed to discuss the proprietary novel drugs pipeline.

Thank you, Rajesh. In our innovative Therapeutics business, we are working on more than 4 programs to deliver precision medicines focused on both first-in-class and validated but intractable targets to address unmet medical needs in the area of oncology and autoimmune disorders. Our first-in-class lead programs, LSD1/HDAC6 dual inhibitor and PAD4 inhibitor, which are the most advanced in the class today, address multibillion-dollar segments in hematological malignancies and solid tumors and autoimmune disorders such as rheumatoid arthritis. These 2 lead programs are undergoing investigational new drug studies, IND studies, with a goal to file INDs and initiate first-in-human clinical studies in second half of FY '22. We presented efficacy and biomarker data at the Annual Meeting of American Society of Hematology in December 2020 for the novel dual LSD1/HDAC6 inhibitor for the treatment of hematological cancers. The lead molecule JBI-802 showed a stronger and more potent antitumor effect than the stand-alone inhibitors in multiple AML preclinical models. We are also excited about the potential biomarkers we have identified specifically for the dual inhibitor, which will be highly valuable in identifying sensitive patient populations and the evaluation of treatment response in clinic. For our first-in-class PAD4 program, we recently announced the research collaboration with The Wistar Institute in Philadelphia to evaluate our inhibitors in reducing severity of COVID-19 pathologies due to cytokine storm. As we strive to transform Jubilant Therapeutics into a clinical-stage company, we are fortunate to have Dr. Robert Glassman join us as Independent Nonexecutive Board Member recently. Dr. Glassman has worked as senior investment banker at Merrill Lynch and as Vice Chairman, Health Care Group at Crédit Suisse. Dr. Glassman is now with OrbiMed Advisors as public equity venture partner. Dr. Glassman is a board-certified hematologist, oncologist, who remains on the faculty as a Clinical Assistant Professor of Medicine at Weill Cornell in New York. With this, I now hand over to Arun Sharma for discussing financials.

Thank you, Syed, for the brief. A very good evening, and thank you, everyone, for taking their time and joining us on our quarterly earnings conference call. I would like to highlight the company's financial performance during the quarter ended 31st December 2020. Revenue from operations during the quarter was at INR 2,664 crores as compared with INR 2,315 crores in Q3 last year. Pharma revenue was at INR 1,692 crores versus INR 1,450 crores in Q3 '20, while LSI reported revenue of INR 893 crores as compared with INR 797 crores during Q3 '20. Contract Research and Development Services revenue was higher by 17% year-on-year to INR 79 crores. Reported EBITDA during the quarter was at INR 653 crores as compared with INR 513 crores in Q3 FY '20, with the margin at 24.5% versus 22.2% in Q3 FY '20. Pharma EBITDA margin grew 26% quarter-on-quarter, and LSI EBITDA grew 12% quarter-on-quarter. Depreciation and amortization expense during the quarter was at INR 127 crores versus INR 113 crores in Q3 '20. The finance cost during the quarter was at INR 59 crores versus INR 72 crores in Q3 '20, a reduction of 17% year-on-year. Average blended interest rate for Q3 FY '21 was at 5.63%, comprising of INR loans at 7.27% and USD loans at 5.07%. Reported PAT during the quarter was at INR 310 crores, up by 52% year-on-year and 31% quarter-on-quarter. EPS for Q3 FY '21 is INR 19.5 per share versus INR 12.8 per share in Q3 FY '20. The company's net debt on a constant currency basis stood at INR 2,686 crores, a reduction of INR 570 crores as compared to March 31, 2020. We continue to have a strong cash position and expect to generate healthy operating cash flow during the year to further reduce our net debt levels. As of Q3 FY '21, the estimated net debt of Jubilant Pharmova is INR 2,044 crores, and Jubilant Ingrevia is at INR 529 crores. Further, we wish to inform you that Jubilant Pharma Limited as on January 29, 2021, redeemed the principal amount of $100 million on pro rata basis out of $300 million senior notes due 2021. We have also announced redemption of another $100 million on March 5, 2021, whereupon the notes will be paid in full, and no amount will remain outstanding under the notes, [ that $300 million ]. Out of the total redemption of $200 million between January and March 2021, we have refinanced $150 million, and remaining $50 million will be paid out of company's cash balance. Capital expenditure, excluding R&D calculation was at INR 104 crores for Q3 FY '21 and INR 285 crores for 9 months FY '21. For FY '21, we're trying to spendt around INR 400 crores in all. Before I conclude, I would like to provide an update on our reorganization proposal. We received the final NCLT order approving the composite scheme of our arrangement. Effective February 01, 2021, LSI business demerges from life science, which is now renamed as Jubilant Pharmova Limited. And LSI business merges into Jubilant Ingrevia Limited. We have already announced 5th February 2021 as the record date for shareholders who will be entitled for allotment of one equity share of Jubilant Ingrevia Limited for every one share bought for one equity share held in Jubilant Pharmova erstwhile Jubilant Life Science Limited. With this, I conclude my opening remarks, and we will now be happy to address any questions that you may have. Thank you so much.

[Operator Instructions] The first question is from the line of Rakesh Jhunjhunwala from Rare Enterprise.

Sir, congratulations on a very fine performance. I'd like to ask, why is the rate of tax so high at [ the rate of tax is maximum I don't understand the... [Audio Gap]

We are not able to hear you, fully.

Mr. Bhartia, why is the rate of tax 34%? I thought it should be much lower.

No, we are in the 32% bracket. So about the deferred tax, it is rate of applicable tax is this.

No. Sir, other schemes in India, the rate of tax is not more than 25.14%.

This is Arun Sharma. Last year, we had a lower rate of tax because of ]. But this year, it's a normal tax. So it's is a little higher this year, but we'll look into it.

[indiscernible] rate of tax in India is 25%, sir. The corporate rate of tax in India is 25%.

But for us, we have not opted for 25% because we have many projects...

But then why don't you opt for 25% rate of tax?

We have a carry forward deferred tax available with us. So that is why we don't want to opt at this stage. Its not beneficial for us.

Sir, out of [indiscernible].

The real tax -- yes, outgo is less.

Sir how much is actual outgo?

Arun, what is the actual outgo?

Sir, the real outgo will be around 24%.

And how much is the deferred tax? How much is deferred tax which you're carrying forward now after this quarter?

So, exact figures, we can get back to you and maybe after this call.

Okay. Anyways, congrats on the fine performance. And is the Specialty business, the sting business and Radiopharma doing in the current quarter?

So, sir, this is Pramod here. On Specialty business and Radiopharma, in U.S., as you are aware that the number of cases continue to increase after having drawn down in Q2. So the business still continues to operate at about close to 90% of the pre-COVID levels, plus some additional impact in...

Because this is 90%, how much was it in the first quarter?

In the third quarter, also, it's about 90% of the pre-COVID levels, unless there is some additional impact on one specific product DTPA, which is used for the lung perfusion imaging, where patient has to breathe in and breathe out. So that product is impacted a bit more.

So you expect recovery once the COVID is recovered, there in America?

Yes. So when the COVID recovery happens and hospitals start giving priority to the diagnostic procedures also, then we expect business to come back to normal.

Rakesh jee, with the vaccinations, we hope that in next 3 to 4 months, 3 months' time, the COVID should come down. Hospitalization breaks should come down, if the vaccination rate increases in U.S.

Right. And what -- the CDMO business is now at full capacity or there is still scope to increase this?

In -- as of now, because of this extra demand of the vaccines, the plant is running at full capacity.

Right. And you are debottlenecking and increasing the capacity?

So we have done those initiatives, as I mentioned in the call, by running all the lines on 24/7 and installing additional lines. By this, we had debottlenecked capacity more than 30%. So that's coming very useful and handy as of now. And it's running on full load.

And when you expect the listing of the LSI business?

I think by 19th March, 18th, 19th March.

It will be started within this financial year?

Yes, yes. Sure.

And from next quarter, you will be giving different results?

Yes.

Both the companies report differently?

That's right.

Yes. And you retained the same Board of Directors in both the companies?

No. They will have -- there is changes in the directorship. We'll keep you informed.

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

Sir, congrats on completion of the demerger and a strong performance. So firstly, can you give some broad indication as far as the revenue contribution from these 3 COVID-19 products or a bit 2 COVID-19 products, as far as the vaccine is concerned? And any color on the margins of this portfolio?

So as we mentioned that we increased capacity by about 30%, and as of now, the CapEx is running on full load. It will not be appropriate to talk about the product-specific revenue because of confidentialities with the customers. But that additional capacity is leading to the good growth in the CDMO business segment.

And any comment on the margins so far, sir?

Yes. So the margins are also higher. We had mentioned earlier that this vaccine business is at a higher margin than the normal margins. Plus, the contracts have been guarded with some additional -- the impact in the revenues with the capacity charge, et cetera. So the margins are better.

Understood. My second question, sir, is if we look at our Capex, it's actually lower than -- trending lower than what we had guided earlier. We were at INR 500 crores of guidance earlier for this fiscal. Now you -- I think you said INR 400 crores in your opening remarks, and this is significantly lower than, say, what it was a couple of years back, INR 700-odd crores. So does this mean -- and we be operating at full utilization, full capacities at -- for our CDMO facility is better demand for Generics as well as API? Should we expect some increase or some meaningful increase in our CapEx intensity over the next couple of years?

So you are right. You are right on this, but what we did, we conserved the CapEx because of the pandemic uncertainty of the businesses. Now going forward, we are taking steps to increase capacity in our CMO business and also in other businesses.

Sir, any ballpark number you can share for FY '22? What is the CapEx you're looking at?

I think by March end, we'll be able to share some exact figures. We are continuously evaluating it now. .

Fair enough. And sir, my final question is on MAA. What is the latest there as far as the pricing after the new competitor has come in as well as the market shares? Any color on that? And how do you see the molecule progressing for us going forward?

Pramod?

I presume you are asking for MAA.

Yes.

Yes. So you had covered this in the last call. And we mentioned that the price drop had not been much. There has been marginal price drop. And the market share also, what we gave is much lower than our earlier expectations. So that is not of material.

Okay. And do you expect more or less that to continue going forward?

Yes because this business runs on the multiyear contracts. So those contracts are already in place.

The next question is from the line of Rahul from Abakkus.

Congratulations for the good set of numbers. Pramod, sir, this question is specifically just to understand ex of the COVID portfolio, what will be the key triggers for our EBITDA to move from the current rate of INR 2,000 crores to INR 2,500 or possibly INR 3,000 crores?

Can you please repeat the question? I couldn't follow it.

Sir, ex of our COVID portfolio, if you keep our COVID portfolio aside, what will be the key triggers or the catalysts which will help to move our EBITDA -- pharma EBITDA of INR 2,000 crores to INR 2,500?

So without going specific into the numbers, it's not only CMO. Even our other businesses have also run very well, which is including API and the Generic business. And both the businesses, we have seen higher volume growth and we have seen the better pricing. And in CMO business, even other than the COVID products, the other products also continue to see higher demand. So it's not that after the COVID product, again, the capacity utilization will come down. We expect the good demand to prevail and the plant to run on the capacities. And with regard to Specialty Pharma business, as earlier mentioned by Mr. Bhartia, once this vaccination in the U.S. picks up and the COVID cases continues to go down, we expect all the diagnostic procedures to come back to the normal to the pre-COVID level, both in Radiopharma as well as into Allergy. And the COVID portfolio also is not going to go away. The vaccines are required every -- daily required every year. So it -- only, it's going to go up going forward.

Sure, Sir. So are contracts, are they like annual contracts for these vaccines, or how will it work?

So as you know, there has been a lot of uncertainties related to COVID when these contracts were done. So they had been done, as of now, for 12 months to 2 years. But, the COVID situation will continue to evolve. If there is going to the demand of the extra shots every 1 year, every 2 years and the demand will be gaining the market, then we are confident that these contracts will be rolled over.

Okay, okay. And another quick question. In the presentation, we've given INR 4 crores revenue from a new product, from a novel product. Can you throw some light there? What is the potential of the product? What is the total market size?

Arun, this is in which business? Is it Gilead novel?

Novel Product. Yes, novel product portfolio.

Focus of revenues be novel drugs. Those are not revenues. Those are just cost adjustments. There is no revenue there now.

Okay. So from our Jubilant Therapeutics, there are no molecules that are commercialized as of yet?

No.

The next question is from the line of Rakesh Jhunjhunwala from Rare Enterprises.

I have two questions. How significant is the long-term RUBI-FILL in America, Europe and every other area pharma products also, because Europe must be a large market?

So unlike U.S., Europe market is not fully developed yet. But we -- you are right that there is a high potential. And that's why, from the last 2 years, we have been making the efforts to get the RUBI-FILL registered over there in the Europe. Now that has been done, and we are focusing on developing the Europe market also as strongly as U.S.

And what is the net debt of the pharma business on the date of the -- on January 31?

Arun?

So we have declared that debt as of December 2044, but I think we should be in the same range as of January end. But the audit is going on. And I think in the March quarter, we'll be to ready to formally tell you what we have debt. But it has been the core .

What is the [indiscernible] December 31?

It's around INR 2,000 crores.

INR 2,000 crores of the Pharma business. And of the Life Science?

Life Science, as of now, it is INR 529 crores. And we expect [indiscernible] margin because LSI business is doing well to generate cash flows, and we should end at around INR 500 crores.

INR 2,500 crores is the debt as of December 31, the net debt?

Yes. Net debt, yes.

One more question, how [indiscernible] can be the growth in [indiscernible] this contract ? We did INR 80 crores turnover in [indiscernible]?

INR 80 crores. Yes, INR 79 crores.

a year continues?

Yes. So contract research, growth is continuing. And our current capacity utilization is more than 90%, 92%. And that's why we have also -- we are also planning to add capacity because we have currently more business than what we can deliver. So our new capacity, which is coming up and running sometime in Q1 next year, will give us opportunity to take more business. But most of the same -- sorry?

Sir, how big is the expansion?

So on capacity side, we are increasing to almost 100%, so double the capacity today.

So then, we can be a big business of INR 80 crores [indiscernible] to double the capacity.

Yes, exactly.

And margins are very good.

Yes.

Is your business similar to ?

This business is the integrated Drug Discovery business. So this is definitely much different than the normal contract research business. So this is valuable business, and most of the contract goes for longer term.

This can be a significant contributor.

The next question is from the line of Mr. Thavkar from Motilal Oswal.

Regarding this INR 500 crore worth orders, which you mentioned in the CMO business, I just wanted to confirm, how much of this has already been realized during this quarter?

Since the time we entered into the contract, after the last quarter, we have realized about half of that. And I said that...

[indiscernible] is 50% of that.

Yes. And I said that we still see upward potential into those estimates, and we will continue to update you as we get a better visibility.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

My questions have been mostly answered. Just one question on the proprietary novel drugs business now. There are many companies which do such drug development, and that adds up being a very high gestation period as well as highly cash negative part of the business. So what's the thinking around it? What kind of cash burn do we envisage in the coming years in this business? And do we have any immediate triggers to realize the potential of any of these that we are developing?

Yes. This is Hari Bhartia. And to your question, our business model, this is not to take it too commercial. So that is why when Syed explained that we are at an early stage of discovery and we are presently taking it to Phase I, that is to the clinic. And normally, we start looking at opportunities of out-licensing it end of Phase I or beginning of Phase II. That's the stage we look at. And as you also know that we also have the opportunity when we have a portfolio of products to also raise funds at the Jubilant Therapeutic level, as biotechs have done at -- on early-stage compounds. But normally, the late-stage work, it will be licensed to mostly large pharmaceutical companies.

Understood. So we would not have any significant cash burn in this business because we will try to license it out?

That's right. These are not going to the market.

We are not going to commercialize these products. That is a long-term -- it takes much more time, and that's not our objective. We -- what we are good at is early-stage science and translating it to the clinic stage. And that's where the major value creation happens, and we would look at out-licensing it. And the idea is to build a portfolio. There will be successes and there will be failures.

Understood, sir. And on the Generic side, we have seen a fairly strong sort of traction in this quarter as well as the 9M. So if you can give some commentary, is there some one-offs in this particular growth?

Its Pramod here. So not a specific one-off, as such that we had launched the Remdesivir. So that becomes added product in the portfolio, which brought the revenue from India and also the other licensed countries. That has some impact. But even other than that, our normal other products also had a higher demand during the quarter, and some of them also had quite good margins. So -- and we see that the demand on those products continued to remain stable.

Understood. Sir, our Life Science Chemicals business has seen a lot of volatility in the margin profile. What should be the -- given where the product mix stands right now and the opportunities that lay ahead of us, where should we see the sort of a cross cycle steady state EBITDA margin number for that particular business?

So if you can see, the Life Science Ingredients performance for last 3, 4 quarters, it's more or less static or growing. Now the volatility, as you see in Life Science Ingredients business comes mostly from the acetic acid prices and some of the commodity prices. But more or less now all these commodities are at a very high level. So you will see that going forward, this volatility will be reduced and our performance will be more or less consistent.

And instead of looking at margin in the Life Science business, you should look at the overall EBITDA growing.

EBITDA value.

Yes, EBITDA value because that's very important because of Life Science engaging this Life Science Chemicals business within the business, where margin keeps on varying, but the total EBITDA growth is there.

Okay. So in a different way, what kind of incremental ROICs that -- or the IRRs that you are looking at when you are spending cash on this particular business to expand it?

So our ROI has increased significantly from last year. And this is really improving because if you see, we have not spent a lot of money in last one year, and our EBITDA has been growing. So our ROI is standing in a very good level. It is close to around 20%.

And that should be the steady state sort of a number for like 20% ROIC on this particular business?

I would say, more or less same. Of course, it will depend on the future investment on the growth. But I think it will be on the same range of 18% to 20%, or it will be better depending on the product portfolio and business prices.

The next question is from the line of Pratik Kothari from Unique AMC.

Congratulations on good set of numbers despite subdued contribution from Specialty Pharma. A couple of questions. First, if you can bifurcate the depreciation numbers between LSI and Pharma?

Arun here. If you see overall depreciation, Pharma depreciation fluctuates 70% and LSI depreciation constitutes 24%.

Sir, LSI is 24%?

Yes, and 2% goes to the DDDS business. That is the big hub of depreciation among the businesses.

Okay. Fair enough, sir. Sir, on the Jubilant Therapeutic side, what would be your R&D spend annually? How much do we spend there currently?

On the therapeutic side, in FY '21, we -- as we have given the number, it's in the $9 million range. And now that the programs are going forward and moving to clinic, assuming success in some of these milestones, the expenses are going to -- expected to be higher than FY '21.

Okay, sure. Sir, my last question is, given the asset base that we have built, can you just briefly talk about what kind of potential do we -- what kind of revenue potential that we have? So on the Drug Discovery side, you did mention that we are doubling the capacity. On the CDMO Pharma side, we talked about increasing capacity by 30%, but it's completely utilized now. Specialty Pharma, I believe, will come back in a few quarters down the line. Sir, given the aspect of negative effects from next year, what kind of growth -- can I say, what sort of potential do we have?

So we are -- as we said, we are looking to expanding our CMO business, both at Montréal and in Spokane, the 2 sites. In both the sides, we are finalizing our plans to expand that CMO business. So that is a very good traction in future. And at the same time, we are also looking at debottlenecking some of the capacities at the different clients.

We have expanded Roorkee dosage formulation plant a year ago. That has a capacity to fill up the additional demand. And as of now, we are also expanding the capacity doing the debottlenecking into the Maryland plant and the Salisbury plant on the dosage formulation, and that will start generating additional volumes from the mid of next year -- next financial year.

Okay. And on the LSI, sir?

Sorry, can you come back with the question, please?

On the LSI side, any capacity debottlenecking or expenses?

Yes. So some of the product debottlenecking is happening. So that will give us additional revenue from the existing asset, but also, we have extensive plans for future.

In which we'll be declaring in the next quarter call, right?

Yes, please.

[Operator Instructions] The next question is from the line of Vishal Manchanda from Nirmal Bang.

I joined the call a bit late. So I'm not sure whether you have commented on RUBY-FILL. So I wanted to understand, if there is an update there in terms of market share, how are we progressing?

About RUBY-FILL, we mentioned that we -- that after we got the approval in Europe, we have launched our first commercial site in the Europe in last quarter. And we will be investing our time and effort to develop the Europe market because there's quite a lot of potential, so we'll be doing that. As regard to RUBY-FILL in the U.S., we continue to do installations at the new site, but yes, not as per our earlier estimations. All due to COVID. There are the restrictions in the hospitals and the imaging centers or the travel-related issue and doing these with additional installations. Though we continue to generate a very high number of inquiries, and the customers' interest is there. We have quite a good funnel where the launches or the installation should happen as soon as the COVID situation improves.

Could you give a sense on what would be your market share now, say, low teens, or some color there?

So market share continues to increase. And what I can share with you is that in spite of the COVID issues, we will be doing the additional installations, more or less same as we did last year. So what I was hinting earlier is that in the past, we have been growing 2x to 3x. So instead of 2x to 3x, it's only growing 1x. So that is the impact of COVID in this year. So we continue to increase our market share as we may.

But for now, these -- so as I understand, there were long contracts -- long duration contracts that the competitor has. So this is no longer a major hurdle for you to ramp-up to a decent market share?

It depends from customer to customers, but quite a lot of those contracts have expired. And that's how I mentioned that we have a very healthy funnel of the additional inquiries or the new business call it development opportunities. Some customers also earlier had the hesitations because of the patents, the litigation which was going on into the ITC court. On this, the decision has already come in as a very much favorable to Jubilant. And though the Bracco has made an appeal, but we have a very strong case, and the customers also understand that. So that issue is more or less behind us.

Okay. And sir, on Exametazime, the other Radiopharma product you have launched sometime back, maybe close to when you launched RUBY-FILL, is there -- is that a materially important product for you now or that has been ramped up?

So for that product cost, we were growing the market share. But as of now, during this COVID when as such the demand is low, then the customers also do not have that much of the incentive to make a switch. So it's not that of much material, but the product is performing as per our expectations.

Okay. And finally, on the Allergy Immunotherapy side, is that kind of market saturated now and difficult to build growth on the current base?

No. The market is not at all saturated. In fact, that's the market, which still has a huge potential, and that's what we are exploring, we are looking at. Within U.S., there is a huge potential. To share with you, like the venom where we are the sole supplier in the market. So the number of the venom is still what you have and the number of patients who are on this -- the venom immunotherapy. So the market potential is almost 4x of the current number of customer base we have. Plus, it has huge potential outside U.S. So far, in the past, we were limited with the capacity. And we have done the investments. We have -- we had the other lines, which were available, for which we have taken the U.S. FDA approvals. And now those capacity issues had been resolved, and we are in the process of developing the market internationally into many other geographies other than the U.S. And same thing even in...

I'm sorry, sir, go ahead.

Yes. Even in non-venom aspects also, there is quite a good potential for the growth within U.S., but also a huge potential outside the U.S., which we are addressing now.

Okay. And sir, on CDMO side, how long will you take to implement additional capacities? And with the order book you have in hand on vaccines and other, can existing capacities help you serve that demand or you would need to implement new capacities before you can meet the demand?

We are loss taking additional orders which we cannot serve. So that's why I said that plant is almost on capacity. In this business, to put up your capacity and then do the validation, take the customers' approval and FDA approval takes little time, and the period could be somewhere around 3 years.

How much time?

3 years.

So sir, the run rate that you have achieved in this quarter on the CDMO side, will that peak out at current levels or is there a scope for that to go up in the near term? Maybe because of the mix on pricing now or...

Yes. So you are absolutely right. And that's what I mentioned in the call that the vaccine contracts, what we have done are at much higher margins than the other products, what we had in the portfolio earlier. So as the market continues to remain short on the capacity and when our other contracts comes up for the renewal, we have opportunity to roll over them at much higher margins. So the margin for this business has the potential to continue to improve.

Okay, okay. And just one more on the LSI side. On Vitamin B3, there has been an approval for your pharma grade Vitamin B3. So has that pharma grade component ramped up in the Vitamin B3 sales or it is entirely animal feed as of now?

So in vitamin, we have pharma grade we are still working on. That should be ready sometime in next 4 to 6 months. But yes, we have got the new business from good business from food segment. We have got good business from cosmetic segment. So our expanding the volume of Vitamin to other segments other than feed has been having very good traction, which is going to continue in future also. And in addition to that, now we are working to introduce our Vitamin into Pharma business in next 4 to 6 months' time.

Okay. Correct me, the feed business would be, say, 80%, 90% of the revenues?

Yes, it should be close to 80% or little less than 80%.

The next question is from the line of Rahul from Abakkus.

Yes. Sir, on the LSI segment, for the past 10 years we've been moving, our EBITDA has been moving around INR 400 crores to INR 600 crores. It's been also letting in that range. So sir, just trying to understand, what will be the key catalyst to move it from like INR 600 crores to INR 1,000 crores kind of EBITDA over the next 2, 3 years?

So if you are talking about last 10 years, then probably, we have increased from a level of, let's say, INR 300 crores to today in the range of about INR 550 crore or so. So it is not stable, it is growing. And the major growth has come from our new product, which we are now continuing further and the utilization of capacity. So -- and so that's why the -- if you see last 10 years, there has been growth in EBITDA. And we will now continue to see the growth going forward as well.

Sure. Sir, what will be the key catalyst or the like capacity increases or number of products coming up? What will be the key catalyst sir?

So what -- for last 2, 3 years, we have been improving our product mix. So that is why, you see that EBITDA value had been growing. We have been focusing on improving our product mix to improve EBITDA. Now going forward, some of the debottlenecking, which is on way, will give us the additional EBITDA. And also the expansion of capacity of those products where the demand is growing, that will also give us additional EBITDA.

Sure. So sir, in terms of percentage capacity, what is the total percentage capacity going to increase over the next 1, 2 years?

So as Mr. Bhartia had mentioned, we are still evaluating on our expansion plan. And sometime by end of March, probably we'll be ready to share something in specific.

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

Sir, can you update us on the progress of the ongoing improvements that are tied in terms of increasing the network of winning more contracts, adding headcount, or anything on the cost efficiency front, but largely on the growth front, if you could highlight on that?

On the growth side, the expansions, given the time of the COVID, as Mr. Bhartia mentioned earlier, we had curtailed our Capex. So we wanted to wait and see how this COVID situation evolves. As of now, that business remains impacted due to COVID, and I mentioned, is operating at about 90% of the pre-COVID level. But now since the vaccines are getting rolled out and we are seeing that coming in a quarter or two, the COVID should settle down. Now we are again in the process of evaluating those expansions, which we have kind of put on hold and we plan to roll them out.

Then, in terms of winning new contracts or regaining some of the lost contracts, which we had, say, 3, 4 years back, what is the progress on that? Maybe COVID, you might have hit a speed bump because of COVID. But maybe once things normalize, are we on track on winning those contracts and executing them?

So we have a lot of ongoing discussions with the customers. But especially during the time of COVID, the customers are also not interested to make a switch. It takes a little bit effort for them to make changes when they switch from one source to other source. But we have a healthy funnel over there, but the customers are also waiting for this COVID situation to get settled out. So in terms of the top line, I'll say that we are more or less stable as of now.

Understood, sir. And my other question was on the Generics business. So we have 36 pending NDAs. And I assume all of these are from Roorkee. And on the other hand, we are also doing a capacity expansion for Salisbury. So have we site transferred any of these NDAs from Roorkee to Salisbury, at least the important one?

We are evaluating that option. You are very right in doing that assumption, and that's what we are also evaluating. But as you may know that the NDA is not approved. And in between, if you do the site transfer, then it requires additional investment for the BA/BE studies, et cetera. So that strategy will depend upon product to product. Some of the products, which requires -- so the immediate priority will be a good candidate for that. But having said that, we don't expect the routine volume latter situations to last so long. As we mentioned that we have done all the remediation efforts, and we are just waiting for U.S. FDA inspection to happen. As of now, those inspectors are not traveling because of COVID. Sometime soon, they will either start traveling or they will adopt the alternate mechanisms for the exceptions. Are we doing it through documents or virtual? so we expect the Roorkee site access to . And then, that situation will not be there. But we may still be doing that for some of the products to have 2 sites instead of having one result side.

So there, there is the economic advantage in producing in each of the site, then we decide. It is basically because of economic advantage.

Understood, sir. And in terms of new filings in Salisbury site, are you looking to the incremental filings more from Salisbury more of a longer-term perspective? Any thoughts on that, or Roorkee will continue to be the most important facility for us going forward?

See, we decide on the basis of, as I said, economic advantage. There is a best economic advantage, looking at the transportation cost, looking at the conversion costs, et cetera. We decide on the basis of that. We don't decide on the basis that we will not file on Roorkee. We will file for Cadista or we file from Roorkee. So it is not like this. We decide on the -- what is the best economics for that site, and this gives the best value.

Okay, sir. And one final question. On the API business, we continue to see a strong order book. Any thoughts, sir, as far as any expansion for API, specifically?

In API plant, as such, we have a lot of scope for doing the debottlenecking and increasing the capacity. We have already evaluated various schemes through which we are confident that within the same plant, we can debottleneck it to more than 35%. Plus, other than that, we are also evaluating options for doing expansions of the additional plant, either over there or at some other site, and that's under evaluation currently.

And this 35%, sir, is from current levels? And when do you expect that to be completed?

That we have already made the plant depending on the various product streams and their demand, what we see in the market. And we hope to implement that in another 1- or 2-years' timeframe.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you, everybody, for joining this call. In case you have any further clarifications, Hemant is available for you as a point of contact. He shall be happy to answer all the questions going forward. Thank you.

Thank you. On behalf of Jubilant Pharmova Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.