Laurus Labs Limited (LAURUSLABS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Laurus Labs Limited, hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Mathur from AMBIT Capital. Thank you, and over to you, sir.

Hi. Good morning, everyone. On behalf of AMBIT Capital, I thank the Laurus management for giving us the opportunity to host their Q3 FY '21 earnings call. Today on the call, we have Dr. Satyanarayana Chava, Founder and CEO; Mr. V.V. Ravi Kumar, EV and CFO; and Mr. Monish Shah, from Investor Relations. I now hand over the call to Dr. Satya for his opening remarks. Over to you, sir.

Thank you, Nikhil. Thank you, everyone, and a very warm welcome to our results conference call for Q3 and 9 months of FY '21. I hope and wish everyone and their family members and their colleagues are safe during this pandemic. During this pandemic, our manufacturing units, R&D center and corporate office are functioning normally during this quarter. At Laurus, we are committed to protecting the health of our employees and their families. We continue to implement rigorous safety and hygiene measures across all functions without any competencies. I'm very thankful to our colleagues for rising to this challenge and ensuring business continuity successfully. Our Q3 revenues stood at INR 1,288 crores, showcasing a robust growth of 76% year-on-year for the quarter and 71% for 9 months of FY '21 year-on-year. We are also glad to mention that our revenue growth was driven by robust demand for several key products and not driven by COVID-19 related stocking. EBITDA margin was robust at 34% despite the withdrawal of export incentives by the government and the high logistics cost during this crisis. To begin with, I would like to share the key updates on our growing formulations business. The formulation division achieved INR 430 crores sales in the quarter, showcasing a growth of almost 50% year-on-year. During the 9 months of FY '21, this division achieved a sale of INR 1,234 crores. The revenue contribution from formulations segment is about 36% for 9 months, as against 28% in FY '20. During the quarter, we got approval for a triple combination product containing tenofovir alafenamide. And we are in the process of obtaining in-country approvals, and we expect to launch this product in the first half of next financial year. Apart from the LMIC business, we have also seen growth in developed markets of North America and EU. To leverage our marketing front end in the U.S. business, we commenced the marketing of in-licensed products, products developed and manufactured by our business partners. Out of 5 in-licensed products, 2 are launched. And we will launch the remaining 3 products during the quarter 1 FY '22. We had a total of 9 final approvals and 9 tentative approvals out of 26 ANDAs filed so far. In Canada, we have 6 product approvals, of which 4 were launched, and we intend to launch the remaining 2 very soon. As far as the EU business is concerned, we have validated an additional 2 products as part of our contract manufacturing partnership. We expect the significant upsales from these products from FY '23 onwards. We also obtained approvals for 5 products in the EU region, of which we have launched 2 products, and we'll be launching the others very shortly. We continue to invest in our FDF infrastructure. Our debottlenecking exercise of existing capacities is on course, and this capacity will be available for commercial manufacturing by end of the Q4. Although, with a delay of few months. Our brownfield expansion project in FDF on the same site with similar capacities will be operational in a phased manner from August 2021 and will be fully operational by end of FY '22. On the R&D front, we continue to invest in our FDF business. Overall R&D expenditure across all divisions as a percentage of revenue stood at 4% for the 9 months of FY '21. So far, we have filed 26 ANDAs in U.S., 9 dossiers in Europe, 12 in Canada, 8 with WHO, 2 dossiers in South Africa and 2 in India. While we have filed several products across the rest of the world. Out of the 26 ANDAs filed in U.S., we believe 2 are PIV's and 7 are cost to file and PIV's. And we would like to reiterate that our approach remains product-specific rather than market-specific. When coming to our generic API business, our antiviral API business recorded a very healthy growth of more than 160% for the quarter-over-quarter 3 FY '20 with INR 568 crores sales. And in the first 9 months of this financial year, we almost had passed the total ARV sales of the entire financial year '20. The growth led by higher volumes of all key first line APIs. Second line ARV APIs continued to see healthy sales in Q3 FY '21. Due to the demand increases from third-party API sales, we are expanding capacities for key APIs in the coming 12 months' time. We expect to maintain sales at this level in the coming quarters. When it comes to oncology APIs, the segment recorded a growth of 36% quarter-over-quarter. Onco sales declined by 25% from Q2 to Q3 due to higher offtake of key APIs based on approvals by new customers. I would also like to mention that we have one of the largest high potent API capacities in the country and have plans to expand high potent API manufacturing capabilities in Unit 4 as well. We expect reasonable growth in Onco business in the coming quarters as well. In the other APIs, our sales remained flat from Q3 FY '20 to Q3 FY '21. But for 9 months, we achieved a sales growth of over 45%. The sluggishness in the segment in Q3 was due to changes in delivery schedule from some customers. We have initiated discussions with one of our key generic partners who are contract manufacturing opportunities of several APIs, and we expect to build a dedicated block to accommodate these generic API contract manufacturing. But we are also creating a lot of capacity for non-ARV APIs. When it comes to Synthesis business, we recorded a growth of 60% from Q3 FY '20 to Q3 FY '21. In the 9 months, we have achieved INR 343 crores sales. As you're aware, we have incorporated another step down only one subsidiary, Laurus Ingredients Private Limited during the Q3 FY'21. As we are expanding the manufacturing infrastructure for this division, this new subsidiary will focus on a few core areas under consideration. Construction activity initiated at the proposed dedicated Synthesis R&D at Genome Valley, close to our current R&D center. A new manufacturing site for this division will also be a greenfield project at Vizag, which will cater to the manufacture lease of the division for the next 2 -- 4 to 5 years. We are in the process of acquiring land for this division. And this site will have capabilities to handle steroids and hormones, high potent molecules apart from large volume commercial products. We are also happy to share that we acquired majority equity in Richcore, and the company will be renamed as Laurus Bio. Laurus Bio is on course to commission large-scale fermentation capability during the quarter 4 FY '21, and we are confident of achieving growth as outlined earlier during the acquisition. We're also acquiring additional land for further expanding manufacturing capacities and capabilities for Laurus Bio. With that, I would like to hand it over to Ravi to share financial highlights.

Thank you, Dr. Satya, and very warm welcome, everyone, on our quarter 3 and 9 months FY '21 earnings call. Total income from operations for the quarter, INR 1,288 crores against INR 730 crores showing an 76% year-on-year growth. INR 3,402 crores agonist, INR 1,993 crores for 9 months with a growth of 71%. With a better product mix, gross margin improved from 51% to 55% on a quarter-on-quarter basis. Our EBITDA is 34%. Diluted EPS per quarter is at 5.1%, not an annualized basis. More than 250% growth over quarter 3 FY '20. Diluted EPS for 9 months is INR 12.8, not annualized. Our ROCE improved to 40% on an annualized basis due to operational leverage. On the CapEx front, we invested around INR 433 crores during 9 months of current fiscal. We have incorporated fully owned step-down subsidiary for our Laurus Synthesis Private Limited, named Laurus Ingredients to take care of certain special projects in the CDMO business. To strengthen our position as a cost-effective integrated player, we are invested in backward integration and for one of our ARV products, and which was operational in January '21. We acquired a land for FDF site in Hyderabad. We are in the process of acquiring an additional site for our API and Synthesis divisions. Based on the performance of the company, the Board of Directors declared a dividend of INR 40p per share of INR 2 base value that is around 20%. With this, I would request the moderator to open lines for the Q&A. Thank you.

[Operator Instructions] The first question is from the line of Tarang from Old Bridge Capital.

Very heartiest congratulations for such strong results and entering the third quarter in a row we're seeing this performance. 3 questions from my side. One, sir, as we just wanted to get your bets on how is the TLE to the TLD transition happening in the ARV market? And how are you hedging your business against this transition? That's one. And the second is we look at your ARV business revenues, the API business. And even in Q2, we saw a significant gain in market share, and we see a significant game in Q3 as well. The sense that we got in Q2 was because of you being a Tier 1 supplier, you would just -- customers preferred you over the others. So is that the same reason, which is driving your market share gains? Or is there something more to it? And the third, if you could give us a sense on the geographical split of your 9-month FY '21 FDF revenue between LMIC and non-LMIC?

Thank you. The shift to -- in therapy from Efavirenz to dolutegravir, we did very well, in fact, to our benefit. While we continue to increase, not only return, increase our market share in Efavirenz and its intermediate, we continue to sell significant volumes of dolutegravir as part of third-party API. And also, majority of our formulation sales are coming from TLD and some sales are coming from TLE. As you are aware, there are only 3 approvals for TLE whereas there are 9 approvals for TLD. So we continue to have advantage in TLE while we capture more market share. And we continue to retain the market share what we have achieved in TLD. And when it comes to the revenue split from LMIC, versus North America and EU. As we explained earlier, the split is 3/4 and 1/4. About 1/4 of revenue came from advanced markets and 3/4 came from LMIC.

Okay. And the question on ARV APIs?

ARV APIs, we are adding more capacities to meet up demand. Surprisingly, our order book for ARV APIs was much bigger than at the beginning of Q2 to beginning of Q4. So we see a lot of uptick in the demand for APIs. That could be because of our scale, because of our quality complaints and sustainability. We are getting a lot of traction and high demand for our key first line APIs. So we expect to -- if you look at our Q3, we have done our INR 568 crores ARV API sales. We are confident to maintain that in the coming quarters.

The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Congrats on a great set of numbers. Sir, my question is to understand the correlation between mix and the gross margin. Again, despite of MEIS and despite of -- if you look at it on a Q-on-Q basis, the ARV is being higher this is the quarter. Our gross margins have kind of improved. I mean, is does -- I mean, does that mean the frontline combination in terms of ARV is coming with higher margins? And just unable to kind of reconcile this mix versus the gross margins, sir?

Yes. Our gross margin was a little less in Q3 because of withdrawal of export incentives and also higher logistics cost due to the COVID crisis. But we are confident that we'll be able to maintain the gross margin levels. That also clearly indicates the quality of revenue we are achieving. We are not compromising on the quality of business for growth in top line. And also, our operational leverage by increasing asset utilization is clearly visible by showcasing a consistent increase in our EBITDA margins as well.

Sir, specifically in this quarter, which is the business that has contributed to the top line, I mean, margins, sir? Because I would assume that Formulations and Synthesis would be higher margins as compared to API. But I think in this quarter, we have higher APIs versus Formulation and Synthesis business. So that is why I'm trying to understand.

We also had some high gross margin APIs. We supplied significant volumes of APIs, including ARV API, for launch in Europe and U.S. So that also contributed to higher margins in API division.

And we have enough contracts and visibility in terms of volume offtake that as you mentioned, that this INR 560 crores or INR 570 crores to sustain, at least in the next 2 to 3 quarters for the time being?

We do hope so, yes.

Sir, one final question is on the finished dosage side. I think with the triple combination for us almost coming through, I mean, do we have the capacities in place to kind of capitalize on the kind of launch to take up the market share?

Currently, we are using our capacities at the optimum level. And our debottlenecking exercise will also be finished during Q4. And the new capacities will be available from August onwards. So we are gearing up to meet higher demands. See, as I mentioned, we are looking at healthy top line, not just top line. So we are cautious to get market share while we maintain our third-party API sales. See if you look at our ARV, we have done more third party -- more API sale into third parties than ARVs rather than our Formulation division. So we would like to maintain that strategy not to cannibalize our business by going aggressively into Formulations as well.

The next question is from the line of Nitesh Rathod (sic) [ Ritesh Rathod ] from Nippon India Mutual Fund.

Can you help us understand Efavirenz versus dolutegravir? Is one other of the product high volume, low-value versus -- or low volume, high-value kind of API?

Yes, Efavirenz, and it's intermediates. We continue to have a leadership position, where we are making about 700, 800 tonnes of Efavirenz -- or it's intermediate in the year. Whereas dolutegravir, if you look at, Efavirenz is a 600 milligrams dose or 400 milligrams versus 50 milligrams of dolutegravir. So the dosage is significantly low, but pricing is high. If you look at the franchisee of Efavirenz plus dolutegravir in FY '20 and FY '21, we have done more sales in the franchisee than the last year.

Okay. So sir, you said 400, 600 grams versus 40-gram -- milligram. So on an optimum -- at a market level, the API consumption comes down very dramatically on a tonnage tone -- in a tonnage...

Yes.

And sir, on the -- in the API market or for ARV, even though there would be many players who would have got approval from the global tender in the global fund, how many players are active in terms of supplying APIs?

I think there are not many APIs which are prequalified by WHO. But when it comes to formulations, there are about 8 approvals right now for dolutegravir based combinations. And we believe we have a reasonable market share in the Formulations and largest market share in the APIs in dolutegravir.

So is the -- like in case of Formulations, assuming WHO has approved 8 players, are all 8 to 10 players active in the market or there are players who have withdrawn and they may come in coming years or so?

No one withdraw from the market. But the market share varies significantly from player to player. Let's say there's 8 player market, doesn't mean it is 12.5% everyone enjoying. We are probably #3 in the market share. I will not give you the percentage-wise. We are #3 when it comes to the overall market share in the Formulations.

And in the API, you would be #1?

Yes, yes.

So given you said it's a low volume API, is there any risk of competition coming in, given the strong profit or strong revenues we are making in ARV API in 2, 3 years on a medium-term basis?

See if you evaluate the history, in the last 5 years, there was -- there is no new API player came in, into ARV. And if I -- if competition comes, we will face it. So we are not worried about competition, yes. So we have largest capacities installed. And we have one of the cost-effective process. And we have regulatory approvals in place by WHO, by FDA. So we believe we will maintain our leadership position, yes.

Sir, one last question. In last time, you mentioned on the ground level, the dispensing for the ARV was increased from 1 month to 3 months because of the COVID pandemic. Is that a change or is that status quo? Anything over there, now things have stabilized in most of the geographies?

The orders for ARVs are in the multi-month dispensing only. So same question was asked by someone, is there any stocking happened because of the sales increase in Q1. Assuming Q1 stocking, Q2 stocking, Q3 stocking. So people will not stock for years. So people moved from 1-month dispensing to 3-month dispensing. And majority of our Formulations, not only ours most of the people are supplying in multi-month dispensing packs. So that became a quite normal nowadays for most of the ARV products.

So we don't see any risk of that reversing in the next 6 months. Is what my question was?

Even it reversed, the people will buy 3 packets instead of 1 packet.

The next question is from the line of Sandeep from East Lane Capital.

Dr. Satya, Ravi, 3 questions. First question is, if you could give a bit of a perspective on the HIV market. You would reach a turnover of about $350 million in HIV, API plus Formulation, approximately. How big is the opportunity you see over the medium term? Can you double this over 3 to 4, 5 years? The largest player is a billion-dollar player. So what is the potential for HIV market for Laurus with its lowest cost production, large capacities?

I think doubling is impossible. The reason is the number of patients who are eligible for the treatment is not increasing significantly. So there are more number of people being added into the treatment, that is 6%, 7% of patient additions we are seeing based on the data. So the growth could be 5%, 6% in uptake. We do believe that increase will be offset by price decline over a period of time. So our growth in ARV APIs will primarily come from demand moving from weak players to strong players.

Understood. Understood. And as the HIV market saturates for Laurus, which are the other therapies where you could have a similar dominant position over the next 3 to 5 years? Will it be diabetes? Does it offer that kind of an opportunity? Or which therapies could offer or it's going to be a combination of a lot of therapies?

There are 2 therapies which we have a very strong focus and also building pipeline. The one is diabetes, the second one is cardiovascular. And we have a very good basket of products in diabetes right now, and we are building our strong basket in cardiovascular products as well. So these 2 will drive our growth in the coming years. See, if you look at the evolution from 80% to ARV APIs, we -- in the 5 years, we moved to 38% of ARV API. Similarly, our revenue dependency on ARV Formulations currently is very high. But in the next 5 years, we will launch or diversify our revenues coming from non-ARV Formulations significantly. And the dependence on ARV will come down significantly. So because there are no new Formulations to develop in ARVs. We are almost done with most of the developments. So development focus is shifting from ARV to non-ARV and also, we are adding very large capacity in Vizag, and we have taken land for Formulation expansion in Hyderabad as well. So if you want to look at the -- where we will be in, say, 3, 4 years down the line. I'm sure, we'll be discussing on non-ARV in 5 years from now. See if you look at the calls 1 year, 1.5 years back, half of the time, people are asking questions on Efavirenz, now nobody asks questions on Efavirenz. 2 years from now, people will not ask questions on ARV APIs. And maybe another 2 years from then, people will not ask about having ARV Formulations. People may talk about what is we are doing in our Laurus Bio, what growth we have in Laurus Bio, what other therapy areas we will be focusing, what kind of delivery dosage forms we are doing. So company is in the transformation phase. So we need time. And we are very confident to expand our portfolio beyond just ARV.

Next question was on Laurus Bio. I know it's just been 1 month, 1.5 months since the acquisition has been done. Just 3 to 5 year, how do you see it? Lot is happening, whether it is therapies, whether it is food, nutraceuticals? What's your vision? How should we think about Laurus Bio over 3 to 5 years?

See Laurus Bio will be a CDMO for recombinant proteins, whether it could be food or for therapeutics. Currently, the expansion going on at Laurus Bio is to meet customer demand for recombinant protein-based foods. And we are looking at acquiring land, as I mentioned in my opening remarks to expand that recombinant protein manufacturing capabilities, not only for food, but also for therapeutic. We are also identifying a lot of areas where the synergies could be built between our chemistry and fermentation capabilities of Bio. So the synergies are also looking very attractive. So a lot will happen. And we will give you more details as and when we expand into new areas. That is very exciting for us.

And last question, if I may, is on the Synthesis business, the fourth pillar for Laurus. In the new emerging scenario where small molecules are sort of not that many would may come out of the pipeline -- of the big pharma pipeline, how do you see the Synthesis business? What is the opportunity you see over the next, again, medium to long term?

In our CDMO business, we have evolved very significantly in the last decade. In 2010, we need to explain about company first 15 minutes in the meeting. Now we don't need to explain our capabilities. And we need not explain about our scale. We need not explain our sustainability. So we are recognized now as a strong player in CDMO for high potent molecules and very large value molecules. So people look at us on the 2 extremes, like in our API also, we are being high potent oncology molecules and we are being very large volume diabetic and ARV molecules. Our CDMO efforts are also culminating in the same trend. People are looking at us for high potent molecules, which we have several molecules in pipeline. And we're also doing several tons of opportunity commercial molecules. So although the number of small molecules in the development by Big pharma is constant, I don't want to say going down, constant. And we have great opportunities there.

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Congrats for the good set of numbers. Just taking forward from the previous participants. So maybe 2 years down the line, you would be talking more about non-ARVs and Laurus Bio. Will we be talking about ANDAs as well?

Yes, absolutely. We will be talking about ANDAs in diabetes, the ANDAs in cardiovascular and PIV launches and maybe new dosage forms, not only -- currently, we are doing only solid orals, maybe situation will change. We may enter into other delivery forms as well. So a lot of things are at the drawing board stage. And we are very comfortable to derisk our dependence in ARV while without compromising our growth in ARV. If you look at 80% ARV APIs company to 38% ARV companies. But our ARV API sales went up by INR 500 crores from when we were 80% dependent to when we were 38% dependent. So you could understand how much of diversification is happening in the organization.

Sure, sir. Just on the Laurus Bio side, with this acquisition of additional line, how much do we plan to invest over next few years in this venture?

It's not that significant investment. We do believe our subsidiary, Laurus Bio, will be able to generate its own cash to invest or raise its own debt to invest. So because their margins are very attractive, sustainable. So we don't see any challenges to invest there. We do believe they're capable of raising money. And if necessary, we can assist them.

And just secondly, on the API side -- so particularly on the API side, what is the capacity utilization? And given that is -- is it that this brownfield expansion is getting bit delayed because of COVID that will be operating from August '21?

Only Formulation expansion was delayed by a month during the crisis, but our API expansions are on track. Earlier, we used to say, we are one of the top 5 API companies with respect to react volume. Now we can say we are the top 4. We are #4 with respect to the react volume. Currently, we have 4.5 million meters react volume. And we are adding close to 1 million liters in the next expansion phase. So that will take us to 5.5 million liters react volume. So that -- we have significant addition, almost 20% of what we have, we're adding in the next 12 months.

Interesting. And sir, just lastly on, sir, overall CapEx guidance, reiterating the CapEx guidance for the next few years?

So we -- as we mentioned in the last quarter conference call, we envisage about INR 1,200 crores investment over the next 24 months. We believe that is enough for our growth. Yes, we don't see any additional CapEx required to meet our growth.

Congrats again.

Thank you.

The next question is from the line of Krish Mehta from Enam Holdings.

Yes. Congratulations on the good numbers. I wanted to ask, what is the percentage of revenue this quarter which is non-ARV?

We are talking about all divisions put together.

Yes, all put together.

Non-ARV, all divisions put together.

All put together. [indiscernible]

It's about 40 -- more -- a little over 40%, yes.

Okay, 40%.

Yes. Maybe closer to 45%.

45%, okay. And another question I wanted to ask is about capital allocation going forward after the Richcore acquisition. So we could get a sense of the split between how much CapEx you might be thinking of allocating between Richcore versus like our core ARV business.

In the capital allocation, what number we just gave, INR 1,200 crores is not inclusive of CapEx any sales to Laurus Bio. I think that is not going to be very significant, and they will be able to raise or invest from their own cash.

The next question is from the line of Sameer Shah from Valuequest.

Yes, sir. Congrats for a good set of numbers. Sir, first question is on -- in the opening remarks, you said that significant upside is expected from some EU partnership from FY '23. You can just elaborate on that?

We have done validations for 2 products in the diabetic space, and we expect significant volume uptake in FY '23. And also, as we wanted to expand and diversify into non-ARV, that is the year where we expect significant diversification happens out of non-ARV.

Right. Understood. And sir, secondly, on the custom Synthesis business, if you can give some idea of the funnel or -- in the last con call, you mentioned that it will be -- that business will be on its own from next year onward. So are there any significant orders under discussion? Or if you can give some idea of that or funnel?

We have a lot of opportunities there, as we are not giving any guidance. We do expect to create dedicated R&D, as I mentioned. We are creating dedicated sites to -- sites for the division. They will grow from FY '23 onwards significantly. And we are very excited about that growth in that division.

The next question is from the line of Jeevan Patwa from Candy Floss Advisors.

Congratulations, sir. I have 2 questions. One is about our FDF opportunity. If you can explain which therapeutic area those opportunities are? And what are the time lines for those launches?

In which division you are asking that question?

The first-to-file opportunity is the Formulation, the Paragraph IV blocking?

Okay, yes. Out of 7 first-to-file, we have -- the earliest opportunities will be in 2025.

The next question is from the line of Tushar Bohra from MK Ventures.

Congratulations to the management for delivering a very strong set of numbers again. Sir, just quickly to start with ticking forward from Jeevan's question and linking back to your earlier answer, we mentioned that 2025 is when we see the first of FDF. And 2023, we expect significant diversification in the business on the non-ARV side, as well as presumably, a lot of this diversification will be from regulated markets. So should we look at this as that we have a very clear growth visibility for the next 2, 3 years on -- even before the FDF start kicking in?

Yes. See, the non-ARV growth coming from first time generic launches, which are not PIV related and also launching very large volume, fully integrated Formulations, which some of them are filed. Some of them are under development. Our growth in Formulation division is not dependent on launching our first-to-file products.

Got it, sir. And we had plans for injectables, I believe it was highlighted in one of the earlier con calls, any updates on that front?

We'll update you probably in the next couple of quarters, as and when we have a concrete time lines and ideas.

Right. Sir, on the capacity expansion side, so we did almost INR 1,300 crores revenue this quarter. And is it fair to assume that this can be annualized -- the current capacity is able to support this on an annualized basis? And so the INR 1,200 crores expansion that you're saying, none of it is in the numbers right now? So that is a further growth possibility for us?

If you're only satisfied with annualizing INR 1,300 crores into 4 for next year, please go ahead. So we are not that aggressive then.

No, no, sir, I am not trying to reveal my hand here. I'm just trying to understand that first, a, it is fair to assume that this INR 1,300 crores into 4 is a base -- bare minimum, right? And then I would like to understand how much of the CapEx is already done? And exactly from this point forward, how much CapEx still needs to be that which will start -- which will fuel the growth for the next 2 years. And if you can help segregate that by divisions.

No. We don't want to reveal division-wise CapEx. But we can tell you, beginning this quarter, every quarter, we have capacity additions either in the form of backward integration of intermediates, additional API capacities for existing products, additional API capacity for new products, Formulation, debottlenecking, our lines to coming commercialization for Formulation. So coming at a regular pace. So these are not coming in bunch. Every quarter, we have something coming handy for our growth.

But sir, in Q2, we mentioned that we will have capacity constraints that will obviously affect some of the profitability in Q3. And Q4, we should see the full effect of new capacity coming in. Now that we've said that there's a slight delay on the Formulation side, we should expect that maybe Q1 we'll probably see the ramp-up far better than Q4?

So we do expect Q4 also will be good. So...

Okay. And sir, one last one, if I may quickly squeeze in. If you can help understand the long-term vision for your nutraceuticals, cosmeceuticals business. Is there a potential to scale that part of the business into a much larger, more meaningful segment for us?

See, our nutraceutical, cosmeceutical business were added into our CDMO business because we are not in -- doing commodity products. We are doing 1 product to 1 customer kind of business. So we are doing a lot of business with very big companies. We don't want to name those because of confidentiality. We are working with who's and who's in nutraceuticals and cosmeceuticals, yes.

And sir, just a clarification on the number you mentioned. So this INR 1,200 crores CapEx does not include the Richcore acquisition and possibly anything on the sterile side. It's a fair assumption to make?

Yes.

The next question is from the line of [ Dahida Trivedi ] from AMBIT Capital. The line of Mr. [ Dahida Trivedi ] got disconnected. We will move to the next question, which is from the line of Sangeeta Purushottam from Cogito.

This is Andrey, Sangeeta's partner. Congratulations for a great set of numbers, sir. I just had 1 or 2 quick questions. One is that as far as the EBITDA margins are concerned, is it fair for us to expect these to increase with time and with the effect of operating leverage? And my second question was that in the FDF business, it is a marginal Q-on-Q wise? Should we read anything into this? Or is there just a minor variation?

I think the slight decline in FDF revenues from Q2 to Q3 is only order execution, and nothing significant there. And when it comes to EBITDA margins, as we mentioned, we can't give you a specific number, but you keep on mentioning, we are confident to maintain 30% or more EBITDA despite our continued growth in our top line.

Sir, this is Sangeeta Purushottam. I had a follow-up question, that when we're looking at the composition of the business, in FDF, it's been sort of flattish, like you mentioned, same in Synthesis. And a bulk of our growth has really comes from the antiviral line. Even within the generic API division, we've seen Onco fall and other APIs slight decline. Now what is the outlook on Onco and other API and Synthesis and Generics? These are the divisions which are really going to lead to a mix for you going forward?

The Onco API?

Yes.

We'll have revenues around INR 300 crores. Because we are not adding the oncology sales related to our CDMO in to this. So that segment, high potent manufacturing in CDMO is growing. We are not adding that revenue to this. This is a Generic Oncology APIs. And in other APIs, because significant revenue in other APIs is coming from contract manufacturing, so the sales will be bulky. So you might have seen, in Q1, we have done INR 135 crores. In Q3, we have done INR 100 crores. But in Q4, the sales will be bigger than Q3. So it's the timing of deliveries in other APIs. Products what we are validating in other APIs, we'll see commercial sale in FY '22, and there are good number of APIs in commercial supplies in FY '23. But growth in our APIs is also a very good attractive rate right now.

Right. Okay. And in the Generic and Synthesis, we don't see any returns in terms of growth. This is something where we expect numbers start picking up forward?

In Synthesis, yes. Synthesis because of some delivery commitments to be done in Q4, our Q4 was bulky last year, and we expect Q4 will be bulky this year as well in our Synthesis division. Yes, but if you look at our last 3 quarters, we have done INR 100 crores in Q1, INR 116 crores in Q2, INR 127 crores in Q3. So it is growing. Yes, and we're very happy with that growth.

Okay. And some comments from you on the Generics...

Ms. Purushottam, may I request you to please rejoin the queue, we have participants waiting for their turn. The next question is from the line of Dipan Mehta from Elixir Equities.

Can you hear me? Am I audible, sir?

Yes, you are.

Now you are.

Okay. Sir, congratulations on a very good set of numbers. Can you give us an overview on the pricing scenario for tenders as well as the open market sales? Are you witnessing any pricing pressure from year-on-year ago quarter to now and even quarter-on-quarter?

I think we indirectly answered this question. As we mentioned, despite of our growth in top line, we're able to maintain the EBITDA margin. That clearly gives an indication that quality of business is very good, and we are not compromising the profitability for just to top line growth. So we are comfortable right now, and we expect to -- we're able to manage the slight decline in prices by effective cost to control measures by the way of procurement or operations improvement. We do expect the numbers will be good.

Yes. Sir, I understand, but the margins can be maintained also because of change of product mix. So my specific question is that for the same product quarter-on-quarter or year-on-year, can you give us some idea as to what the price declines have been, are they in the range of 3% to 5%, are they in the range of 8% to 10%? Something to give us an idea that what is the kind of pricing impact, which may be there on the top line, which has, of course, been covered by better cost management and improving on the product mix?

We can't give you the product-specific details.

No, sir. I wasn't asking product specific. My question is around -- for the same type of products, molecules, on an average basis, what would be the price decline? I'm not asking product-wise. Overall, for the company on an aggregate basis, something to give us an idea as to what you are dealing with in terms of price erosions.

See, our sales in U.S. and Europe in Formulation is 1/4 of our Formulation sales. And we are not seeing any price decline significantly there. And when it comes to the LMIC ARV segment, because of these tenders are not weekly tender or monthly tender, pricing are reasonably stable over a period of few quarters. So there's no pricing is declined for every tender. So I hope I answered your question.

The next question is from the line of Ranvir Singh from Sunidhi Securities.

Sir, can you give a breakup of finished dosage between ARV and non-ARV?

It's -- as I mentioned, it is 75% and 25%.

No, this is for advanced countries and LMIC?

Yes. Our LMIC sales are predominantly ARVs and then Europe and North America are non-ARVs.

Okay. But clearly 600, we had rollout in U.S. as well, right?

That is not very significant sale, yes.

Okay. Okay. And I think previous participant has already asked this, but just in general, because the selling price of TLD is $75 and people were selling it at a discount. So this discount has increasingly being higher, people are -- although that's -- that tender price is much, much lower than what the selling price is versus last year? Or how is the trend there? In general for the industry, for all players, I wanted to understand.

See, you have to look at how much of backward integration people are doing. If somebody buys APIs and participate in tenders, somebody buys intermediates and make APIs and participate in tenders. Somebody makes party materials to make intermediates and APIs and participate in tender. So the profitability margins depends on where they start. So for integrated players like us, we have the biggest advantage of maintaining profitability versus people are nonintegrated by API and do Formulations. Some people even don't do Formulations. Some people outsource Formulations manufacturing by buying APIs and giving it to somebody else for Formulations. For those companies, the profits will be even less. So you have to look at how integrated the offering in ARV is more important to maintain profitability just to not the top line.

Okay. Okay. Fine. And just a clarity, on the Richcore revenue is built in this quarter, any amount or it's not at all?

No, no, no revenue or profitability included in Q3. Probably will do it from Q4 onwards.

The next question is from the line of C. Srihari from PCS Securities.

Congrats on a good set of numbers. Talking on the ARV front, which you have indicated them, this is a new quarterly run rate. Can you share some outlook for indicated growth? And secondly, there has been recently there has 1 month injectable has been approved by the U.S. FDA. I would like to know what is the kind of impact that could have on the ARV portfolio? And on the FDF fund, if you could give some kind of a growth outlook that would be great?

Thank you. Maybe I'll answer your long acting injectables business. So we are in ARV business since the last 2 decades, and we are watching the developments very carefully. And if there is a disruption, we want to be part of the disruption as an followed it. As you could see, the transition from Efavirenz to dolutegravir, we took benefit out of that disruption. And even if tenofovir will move to another low dose tenofovir alafenamide, we have approvals in place. And we have another combination products under development, which we are filing probably next week. And if there is a long acting injectable, we'll enter market. When and how will be depending on the WHO guidelines, which are not yet released. And even if it is as part of the treatment guidelines, it will be not before 2025. And we now -- the API is developed already. And depending on the guidelines, we will develop Formulations. And if there is a disruption because of this, I'm sure we'll be part of that. So you can be rest assured on that.

Okay. Treatment guidance for FY '22?

Your first question was not very audible. So can you repeat?

Yes. You mentioned that the quarterly run rate is sustainable. So what is the kind of growth guidance in Q4 FY '22 for the ARV business?

We are not giving specific growth, but we will -- we are comfortable to say, we will continue to grow in API business, not only FY '21, but also in FY '22.

Okay. On the FDF front, what would be the possibility to give the volume share? I mean you said 25% of the revenue comes from the developed markets. So what would be the share in volume terms?

Volume term, I can't give you this detail, yes.

Okay. How do you see this 25% moving...

If you would like to ask, and we're happy to share you with detail. Yes.

Yes. And 25%, how do you see moving over the long term, next 2 to 3 years?

We will increase that share of revenue coming from Europe and North America than what we have today significantly because of products launch planned, which are non-ARV. So that revenue share will go up.

Ladies and gentlemen, this will be the last question, which is from the line of Charulata Gaidhani from Dalal & Broacha.

Congrats on the good set of numbers. I -- if you could give by product, the traction in ARV API?

If you -- the majority growth in ARV sales, API came from our 3 core products, tenofovir, lamivudine, Efavirenz and dolutegravir. Our all 3 products sales were increasing significantly also, yes.

Okay. And second question pertains to the Europe partnership. Have you filed for marketing authorization?

It's a very interesting question. Our partner had marketing authorizations. We are becoming their contract manufacturer as an additional site. So the approvals will be much easier. So our growth in those products in FY '23 has nothing to do with approvals. So our facility was approved by European Authorities. And products are approved by authorities, and we are becoming a contract manufacturer to them where we make API and also Formulations for them.

Okay. So can you name the partner?

No, no.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Dr. Satya for closing comments.

Thank you, everyone, for your very valuable questions. And we always learn a lot from very interesting questions from the community. Thank you and take care.

Thank you.

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