Laurus Labs Limited (LAURUSLABS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Laurus Labs Limited Q4 FY '21 Earnings Call, hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil. Thank you, and over to you, sir.

Yes. Thanks a lot. Good morning, everyone. On behalf of AMBIT Capital, I thank the Laurus management for giving us the opportunity to host their Q4 FY '21 earnings call. Today on the call, we have Dr. Satyanarayana Chava, Founder and CEO; and Mr. V.V. Ravi Kumar, ED and CFO. I now hand over the call to Dr. Satya for his opening remarks. Over to you, sir.

Thank you. Thank you, everyone, for joining us for Q4 and annual results of FY '21 Conference Call. We are pleased to have this opportunity to update our progress and answer your questions. We hope everyone and their family members, colleagues and friends are safe during this severe second wave of COVID pandemic. To begin with, we will share the status of our locations. Our manufacturing units, R&D center, corporate office, all function normally during the FY '21. At Laurus, we are committed to protecting the health and well-being of our employees and their families. We continue to implement rigorous safety and hygiene measures across all locations without any complacence. I'm extremely proud of the agility and resilience of our teams have shown in the face of this challenge since last year. I'm very thankful to all our colleagues for rising to this challenge and ensuring business continuity. Our performance focus is on growth, driven by excellent execution and creating a platform for our future growth with manufacturing capacity expansions, a combination of brownfield as well as greenfield in API, Formulation as well as our Custom Synthesis division. In FY '21, we have established a wholly owned subsidiary, Laurus Synthesis Private limited, to take care of contract manufacturing for big pharma, and also incorporated another step-down subsidiary, named Laurus Ingredients Private Limited. These initiatives will bring focus to our contract manufacturing division to allocate, create, offer increased capacity, to service customer needs. We believe by the end of FY '23, this division, Laurus Synthesis, will be self-reliant in all respects. We have forayed into biotechnology space by acquiring a majority stake in Richcore Lifesciences Private Limited, which was renamed as Laurus Bio. The current promoters will continue to run the operations. And this acquisition gives us entry into fermentation capabilities as well as foray into recombinant proteins. In the medium term, what we expect, this division to be vertically integrated into offering a contract development and manufacturing services in biotech space. We're happy to share that FY '21, Laurus Labs has done exceptionally level. Our Q4 revenues stood at INR 1,412 crores, showcasing a robust growth of 68% year-on-year. And for the whole year, we have achieved INR 4,813 crores revenue with a growth of 70%. To begin with, we would like to share the key updates on our various segments. In the Formulation division, we achieved INR 1,664 crores, and in the current quarter, we have done INR 430 crore revenue. The revenue contribution from Formulation division for the whole year is about 35%. Recently, we also got an approval for a triple-combination antiretroviral drug containing tenofovir alafenamide. We are in the process of obtaining in-country registrations. We already got orders for this triple-drug combination, and we expect to service those orders in the first half of FY '22. Apart from LMIC business, we have also seen growth in developed markets, in North America as well as in the Europe. To leverage our front-end U.S. business, we have commenced the marketing of in-license products. Out of 5 in-license products, 2 products were launched, and we are in the process of launching the rest of the products in the next 6 months. We have a total of 9 final approvals and 8 tentative approvals out of the 26 ANDAs filed so far. In Canada, we have 8 approvals and 4 launched and 2 more products will be launched soon. For EU, we have validated additional products as part of the contract manufacturing with our partner. And we expect significant upside from these products in FY '23. We also obtained the approvals and marketing authorizations for 5 products, 2 of those launched. And we are in the process of launching others shortly. As we informed, we continue to invest in strengthening and enhancing our Formulation infrastructure. Capacity expansion through debottlenecking was operational and already commercially used right now. Our brownfield expansion on the same-site with similar capacities will become operational in a phased manner from October 2021 and will be fully operational by end of FY '22. On the R&D front, we continue to invest about 4% of our revenue. And in the generic API division, this year was very good for our antiretroviral APIs. We have achieved INR 1,850 crore API sale in antiretroviral, which was highest to ARV API sale so far. And second-line ARV phase also continue to see healthy sales in Q4. Due to the increase in the demand for third-party API sales, we are still expanding the API capacity to serve the existing demand from the customers. We expect to maintain good sales for ARV APIs in FY '22 as well. In the oncology segment, we recorded a 5% growth in the current quarter over Q3. As you are aware, Laurus Labs has one of the largest high-potent API capacity in the country. And we are expanding high-potent API manufacturing capabilities in one of our unit, unit 4 at Atchutapuram. We expect oncology business to grow fairly well in the coming quarters as well. The most important is contract manufacturing of generic APIs and non-ARV, non-oncology, we have seen a healthy growth in Q4, and we have initiated validation of several APIs, non-ARV and non-oncology. And we are adding additional manufacturing capacities for these products. So our diversification efforts in generic APIs will be very visible in FY '23 as these capacities come commercially utilized. And in the Synthesis division, we recorded a growth of almost 20% from Q4 FY '20 to Q4 FY '21. We have achieved a sales growth of over 35% when compared to FY '20 to FY '21. We are pursuing several active projects in the late-stage clinical programs as well as the commercial supplies of 4 products, which are ongoing. Construction activity is in progress at the dedicated CRAMS R&D at Genome Valley, Hyderabad. We have also acquired land for new manufacturing site, a greenfield, at Vizag, which will cater to the manufacturing needs of this division for the next 25 years. We are also in the process of acquiring an additional land for this division to manufacture steroids and hormones, high-potent molecules. That land will be at Parawada, very close to our existing manufacturing facilities. When it comes to Laurus Bio, we have closed the transaction to acquire majority stake in Richcore in the month of January. And Laurus Bio is on the course of commissioning a large-scale fermentation capability, 180,000 liters in the next 2 weeks. We are also planning to acquire additional land for further expansion of our Laurus Bio by creating close to 1 million liter fermentation capacity. With that, I would like to hand it over to Ravi to share the financial highlights.

Thank you, Dr. Satya, and very warm welcome to everyone. I wish and pray god that everyone is safe at your home and your offices. Let me quickly take through some of the highlights. Income from operations for the quarter is at INR 1,413 crores. And it's a 68% growth. For the full year, we did about INR 4,814 crore, growth of 70%. With a better product mix, gross margin improved significantly. Now at a 55% gross margin. Our EBITDA is one of the best achieved so far is 34% for the quarter 4. Our diluted EPS for the quarter without annualization is INR 5.5, whereas our annual EPS for the full year is INR 18.30. Our ROCE is 40% on annualized basis due to operational leverage and higher asset utilization. On the CapEx spend, we have incurred around INR 700 crores, which includes the capital work in progress. Out of this CapEx, we have invested 50% into the APIs, around 30% into the FDF and 20% for a contract manufacturing and Bio. So the 20%, probably 10% each for bio and synthesis. And we are way forward. In the coming periods also, we will be spending in the similar ratios. And what we are expecting CapEx in the next 2 years will be $1,500 crore to INR 1,700 crore for 2 years. So why we are giving a 2-year guidance is there will be spillovers from 1 year to the other. We have incorporated a stand-alone subsidiary for our Laurus Synthesis. Probably in the next 2 years' time, we are targeting to have an independent synthesis company. So where we have its own production, R&D and business development. Of course, business development is separate already. So it will be a very independent business unit. We want to have an integrated player as we were. And that is the reason we are investing into the backward integration. We are investing into the intermediates and APIs. That's the reason, 50% of the CapEx is getting into the API side. So the -- we acquired a second site for our Formulation in Hyderabad already. We have not yet started the activities, but we will start in the coming year. So based on the performances of the company, we have declared an third interim dividend of INR 0.80 per share. So with this 1 in all 3 interim dividends together, it's coming to INR 2. So it's like 100% dividend of first time your company is being offer. With this, I would request the moderator to open the lines for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Dhaval Shah from Girik Capital.

Hello? Hello?

Yes.

Yes. Sir, couple of questions from my side. Sir, firstly, on the CapEx, just want to clarify, you mentioned 17 -- sorry, INR 1,500 crores to INR 1,700 crores over FY '22 and '23, am I correct?

You are right. That's the plan as of now to invest an additional INR 1,500 crores in FY '23 and FY '23 put together.

Yes, '22, '23 put together, correct. So is this -- so from the last 2 con calls, what we have mentioned, is there an increase in the amount?

We have increased the CapEx foray based on visibility what we have in the API division as well as Formulation division based on the estimated approvals. And also, we are investing significantly into Custom Synthesis based on certain projects we need to execute at new manufacturing site, depending on the volumes. So we have increased CapEx by around INR 500 crores than what we have indicated earlier. That increase is based on the visibility what we have right now from the customers and projects that we are handling.

Yes, yes. It was around INR 1,100 crores before.

Yes. Yes. Yes.

Partly added from the Bio also.

Okay. Bio, how much you'll be allocating?

Bio, this year around, INR 60 crores.

Okay. '22 will be INR 60 crores. Okay. Okay. But majority is coming from APIs, and you...

Majority -- I would say, if we want to put a order of investment, the majority will go to API. And then next to our CRAMS division and then Formulation.

Got it. Got it. Sir, the question on the segmental numbers. Formulation, we did around INR 430 crore. I believe there was some debottlenecking done. So is the impact yet to be seen in the number because we are flat quarter-on-quarter?

The debottlenecking operation was completed in the month of March and the qualifications were done. That came into commercial use only in the current month, April. So that will be used in the first 2 quarters. And from quarter 3 onwards, we do expect a significant increase in our Formulation capacity because we will be using the very large-scale new building by October.

Okay. Okay. And sir, under the API and the others category, you've seen a big traction, like INR 166 crore quarterly run rate now. So any one-off in this? Or how should we look at this number?

Well, it comes to the other APIs, it consist of contract manufacturing of generic APIs to other generic customers. So this segment, you have to see as a whole year rather than quarter-to-quarter. This year, FY '22 and FY '23, most of our CapEx in API division is for non-ARV, non-oncology. So non-ARV APIs will see significant sales increase in -- partly in FY '22, but big jump will come in FY '23.

Okay. So you mean like we did around INR 500 crores in the other category for FY '21, now this number should significantly increase in '22 and like more in '23?

Absolutely, yes.

Okay. Okay. And sir, there's a recent article in newspaper that China has reduced or stopped the cargo planes to India. Now how is the impact you read for the pharmaceutical company in the current time and you have to meet demand, a lot of like pandemic-related demand also plus exports, our exports demand? So is there a big impact on us? Still we depend a lot on China for KSM, couple of intermediaries, APIs?

We do depend on China for our starting materials, which generally we get through sea shipments. If it is an intermediary, people do get by air, but most of our shipments come by sea. We haven't seen any impact of the logistics challenges. The one thing is logistic costs have gone up in the recent past. Other than that, we haven't seen any disruption, which is going to affect our manufacturing in the near future.

[Operator Instructions] 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 this investment that you are doing in non-ARV, both with the FDF and the non-FDF coming together, you have given fair amount of threadbare discussion on the CDMO/CRAMS business. And I understand that we are looking at almost 50 active projects and 4 projects almost at commercial level. We're also developing fair amount of strength in hypo as well as viral chemistry. Sir, from the current level of, say, INR 500 crores to INR 600 crores, say in the next 2 to 3 years, where do we see this business? And also from a longer-term perspective, how do we see this business spanning out for us as well as the industry?

This Custom Synthesis project, unless the project goes into commercial phase, it is very difficult to project. That is the reason we have to do as many number of projects as possible to see success here. But we are doing a good number of projects in the late-stage clinical phase right now. For which, we are building capacities, especially in high potent, we are building large-scale capacity for NDA batches. And we also in the process of building large capacity for steroids and hormones as well. We cannot give a guidance on where this division will be in the next 2 years, but we are very, very bullish on this division. That is the reason we have initiated construction of the dedicated CRAMS R&D with an investment of close to INR 150 crores with 2 lakh SFT R&D. And we have acquired land for this division, and we're in the process of acquiring another piece of land for this business. That shows our confidence and conviction that this division will grow significantly in the near future.

Sure. And sir, with respect to the FDF, given that the debottlenecking is going to come this quarter and also the large capacity is coming in the second half, how do we see the traction to happen, sir? I mean, last time, we were continuously surprised with the numbers that came in on the Formulation side. So should we assume a quick, say, for the next 2 years, we should be able to completely utilize the capacity?

We -- as and when the capacity is qualified and ready to go commercial, we have products to may be made there. So the increased capacity, we have visibility that we will use pretty well significantly. Yes.

And this triple combination, where do we see, sir, I mean, this market from the FDF side?

This triple combination, we do expect this year could be a $10 million opportunity for us in Formulation, but next year could be big. Also $10 million, we have order for almost half of that. So we will service before September. And we do anticipate some additional orders for that. Whereas the big revenues coming from the most popular triple combination drug, DLT, which we are servicing and our supply commitment is very, very good. And our OTIF score, on-time, in-full score is also close to 100.

Sure. One final question from my side is with the INR 1,700 crores of CapEx that you are seeing, I think in various forums, we have talked about somewhat aspiration of $1 billion sales, say, in the next couple of years. I mean would this CapEx more or less suffice for us to take us to that $1 billion sales in the next couple of years? Or should we do additional CapEx for this, sir?

Actually, the part of the CapEx, which we will do in FY '23 will not be used in FY '23. So I think to achieve that aspirational number, we don't need more CapEx. We don't need. I want to make it clear.

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

So just on the Richcore side, now that acquisition is done and we have a visibility -- clarity in terms of the new facility ramping up. So any color you would like to give like how the revenue may shape up from this facility?

The Richcore is Laurus Bio, new facility will go commercial in the next 2 weeks, actually by 15th of May. And by September, entire facility will go commercial. We are putting 4 fermenters of 45,000 liters each. 2 fermenters will go commercial in May and 2 more fermenters will go commercial in the month of August, September. And we have order book for all those capacity. And we are also in discussion with current partners. And we are in the process of acquiring additional land. And we will create probably 1 million-liter fermentation capacity in the next growth.

Right. So for this existing 4 reactors, now that order book is in place, so the revenue visibility would also be there I think. So any number you would want to put to that in terms of sales potential?

We're not giving a number. But see, we hope we will double the revenue in the division, at least, in FY '22 itself.

Got it. And just lastly on this. So to create this 1 million capacity -- 1 million-liter capacity, incremental investment that INR 60 crore would be good enough or likely need more?

INR 60 crore is for the current 180,000 liter fermentation capacity. For 1 million liter, we are in the -- just drawing board stage, what could be the size of the fermenters and all. So maybe we will be able to provide you with a number in the next 6 months.

Got it. Sir, so this INR 1,500 crores CapEx for 2 years kind of building the investment for this 1 million liter?

Partly considered. That is the reason we're giving a range between INR 1,500 crore to INR 1,700 crore.

Understood. And just lastly on Formulation, just for clarity as well, how have been the volume growth compared to the -- volume growth and the price growth for its last 3 quarters where the revenue has been more or less stable?

Tushar, your question was not audible. Can you repeat your question, please?

Sir, on the Formulation side, for the past 3 quarters, just would like to understand how has been the volume growth and the price growth in the FDF segment?

It's volume growth. So our revenues is coming from volume. But we are not -- we haven't increased any price for any of our APIs or Formulation in FY '21. It is the only -- only coming from volume growth and -- product expansion and volume growth.

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

Congratulations on this better numbers. I have 2 questions. The first one is, what is the percentage of non-ARV revenues for Q4 FY '21 and for the entire year-end '21?

Non-ARV revenues are -- out of INR 1,413 crores of total company's revenue, INR 570 crores came from ARV.

40%.

About 40%. 60% is non-ARV revenue in Q4, Krish.

Okay. And what is the expectation for non-ARV revenues going forward for FY '22?

FY '22, we are not expecting major diversification of revenues. The FY '22 revenue base will be very, very similar to FY '21. But we do believe FY '23, good diversification will happen. And we are working towards completely diversification of revenues by FY '25. So that will be visible from FY '23 onwards.

The next question is from the line of [ Bharat Kumar from Quest for Value ].

Congratulations to Dr. Chava on good set of numbers. My question is regarding Custom Synthesis. The current share of Custom Synthesis is around 10%. In an interview with media a couple of months back, you said that 4 to 5 years down the line, the share of Custom Synthesis, which is very, very high-margin business, would be around 20%. So it's almost double the share. So it means the growth in Custom Synthesis would outpace the growth in API and Formulation. And already API and Formulation for Laurus is growing at very, very high rate. So what I'm not clear is like what makes you to be so bullish in Custom Synthesis segment to grow faster than API and Formulation? Yes. I understand that you already answered this question saying like you have some late-stage molecules and all. But I mean, how many molecules and all, can you give some visibility on that?

We can't give you these details of what molecules, what phase and all. But we are very hopeful FY '23 onwards our Custom Synthesis growth will definitely outpace rest of the divisions.

So this will be from the Vizag manufacturing plant, is it?

Yes. That is the reason we're investing in capacity to -- in this division. Once the capacity is commercial, I'm sure the growth in this division will be very good.

Yes. Got it. So once Vizag plant is commercial, then you have more growth in these Custom Synthesis, right?

That's the -- you're right, Bharat.

Yes. And also, you have a new R&D for Custom Synthesis in Hyderabad. So that is mainly for the CRO services?

We are not doing any FTE service. This is to do CDMO. We don't do any FTE business. This is a dedicated site for CRAMS business.

Okay. Okay. Got it. And my second question is regarding Laurus Bio. Where do you see Laurus Bio in 3 to 4 years from now? Like how much Laurus Bio would be contributing in terms of percentage to the top line 3 to 4 years from now?

It's a difficult question. Maybe right now, the Laurus Bio by FY '21 is about INR 50 crore revenue. That is about 1% -- 1.2% of revenue. Will it be 10% of revenue in 3 years? I doubt. But will INR 50 crores become INR 200 crores, INR 300 crores? Probably, yes. But that division's growth we need to attract big customers. And we do expect -- we need another 4, 5 years to make that division also very sizable. So if you look at our CRAMS division, was size -- moderate right now, but it will become sizable in the next couple of years. But it took 7, 8 years for us to nurture the division. So we will start putting our resources, our parts, our strategy, execution into the division, will become sizable in the next 5 to 6 years.

[Operator Instructions] The next question is from the line of [ Foram Parekh ] from Choice Broking.

Congratulations on a very good set of numbers. I just wanted to know, like, we have achieved the highest EBITDA margins ever. So I just wanted to know, like, can we sustain these kind of margins? Or should we assume that we have peaked out or going forward, the margins would be continue to come in from the producements or from the cost rationalization, how should we assume, if you can throw some color on that?

As we are mentioning in the previous con calls, we are confident to maintain 30% EBITDA numbers for FY '22. And by -- from FY '23 onwards, we do expect to maintain the same profit ratios.

Okay. And on the pricing side, we have not taken any price hike in FY '21. So do we want to take any price hike in FY '22?

See, our growth, it's not driven the price hikes. And I don't know why we even think of growing business by hiking prices. We want to grow business, make more money by increasing our product basket, increasing our market share. Our growth will be primarily driven by market share gain and portfolio enhancement, not by price hikes. We haven't done that in FY '21, I do believe we will never do that in FY '22 also. Yes.

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

My question is around ARV API. So this time, the growth has been led by volume. What has been the growth in volume and price, if you could give some ballpark number?

This year, the significant revenue increase in ARV APIs came only because of volume gain. Earlier, we used to supply 1 or 2 APIs of the fixed-dose combination, 3-drug combination. In the most recent year, for the triple-drug combination, we got approvals for all the 3 APIs in the triple-drug combination. That's the reason our volume in ARV APIs went up significantly, which led to growth. And we do anticipate continue to have the same momentum in FY '22 also. So we don't see that there is one-off in our ARV APIs.

Yes, sir, so just wanted to understand that macro scene. In ARV API, why this volume growth has suddenly been so high in this year? Is there any supplier from China or anybody had stopped supplying in API segment? Because I think the ARV market itself has not grown, especially during this COVID-related impact. So in this scenario, what actually has led this volume growth and whether this will sustain?

The one reason for volume growth, earlier, the most preferred treatment was efavirenz based, where we don't have many approvals for lamivudine or tenofovir from many customers. When the therapy moved from efavirenz based to dolutegravir based, we got approval for lamivudine and tenofovir with most of the customers. So people started buying 3 APIs, dolutegravir, lamivudine, tenofovir from us, where earlier, people used to buy majority efavirenz and some tenofovir. So that's the primary reason for our volume growth last year.

Okay. So it's a preference of product for consumers, that is...

Yes, yes.

Okay. And you said that in '23, diversification in API will see. So despite the diversification, our EBITDA margin would be the same? Or we see some negative or positive impact due to this diversification?

We don't see any dilution of margins because of diversification. So diversification is, we have to look at -- there is a limited growth in ARV APIs right now. So we are already having a lion's share of market. So it is not easy to grow beyond. So we are adding diabetic segment, cardiovascular segment, which will be commercialized beginning last quarter, FY '22 onwards. So that's the reason we're investing more into non-ARV API infrastructure. Even our Formulation also we have most of the brownfield expansion what we are doing right now will be used for non-ARV.

Okay. And the last one, can you give just a broad breakup of CapEx INR 1,500 crores to INR 1,700 crore you mentioned. So how much would be on FD, on API and synthesis?

It is -- 50% is going into API intermediates. And then maybe 25% in FDF and 25% in Custom Synthesis. That's the broad breakup.

The next question is from the line of Nimish Mehta from Research Delta Advisors.

Congrats on a great set of numbers. Just to continue from the previous participant. You mentioned that the growth in Formulation has been driven by the shift in the product base, from efavirenz base to dolutegravir base, [ liquid ] base. So how do you -- like what is the scope of further growth in terms of this shift happening? And what is the competition outlook there? I mean are we likely to continue higher market share in the [indiscernible] market, that would be great for me to understand?

So Nimish, we will see some growth both in ARV APIs as well as Formulation in FY '22. But FY '23 onwards, the growth will be driven by non-ARVs, both in APIs as well as in Formulation. And from FY '20 to FY '21, the majority growth came from therapy shift from efavirenz based to dolutegravir based. Once that is done, and we do have the product basket, even there is a shift from one therapy to another therapy in ARVs. We are fully prepared to take that opportunity to our favor.

Correct. No. So what I'm trying to understand is the shift towards dolutegravir-based therapy. As it kind of peaked in the sense like there is no more increase in DTG-based therapy over efavirenz-based, have we reached that point or you still see that, that is just some far away. And there is further scope for growth in that category, the DTG category. Not just for Laurus, but in general, is the DTG category likely to grow?

Based on the reports, the DTG penetration will continue to increase in this year as well as next year.

Okay. So. Okay. That is. Okay. The other thing I just wanted to know, in the API segment, I mean, we are a leader of, I mean, exporting antiviral medication drug. So are we not seeing any opportunity related to COVID drugs where the API as right from remdesivir to many of these protein inhibitors are now being touted as the potential drug for COVID, like no drug has [indiscernible] and all of those. Do we not see an opportunity there, at least may be older drugs or new drugs, the COVID-related opportunity? And finally, if you can also let us know the opportunity related to regular manufacturing of API?

So at the beginning of the COVID crisis, we produced the hydroxychloroquine sulfate. But it never became popular. So we never had any significant sales coming out of that. Other than that, we haven't made any COVID-related APIs or formulations. And we are not trying to do that also.

Sir, any particular reason? Because that looks like to be one of the fastest, or you can correct me if my understanding is wrong. And I see Laurus as an expert in antiviral medications or drug. So like why not?

So we are operating our capacities fully. And for us to divert these capacities for any opportunities, we have to meet our commitments to existing suppliers on ARV. ARVs is equally important for 20 million patients. So our commitment to supply ARVs on time were honored in the COVID crisis. So we looked at, but we were -- I would say we were -- we didn't get an opportunity to sell, I'll put it that way. Yes.

Okay. And finally, a word on the Revlimid API opportunity now that Revlimid is likely to make the U.S. generic market next year. So your thoughts on that for us, for Laurus [indiscernible]?

Nimish, we didn't get the name of the API you are talking about.

I'm talking about lenalidomide.

Molnupiravir?

Can you say clearly?

Lenalidomide.

Lenalidomide. Okay, we are talking about that. No, no, that -- we don't have any DMF in U.S. So we only -- we can't comment on that right now.

The next question is from the line of P. Srihari from PCS Securities. [Operator Instructions] There is no response from the line of the current participant. [Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.

Satya, on the Formulation business, in FY '21, what would be the typical composition of this business? How much would be LMIC business of this segment?

Nitin, the broad split is 3/4 in LMIC and 1/4 in Europe and North America. We do anticipate similar -- actually 70/30 in FY '22. And FY '23 onwards, we do expect it will go to 2/3, 1/3. As we mentioned, the Formulation diversification benefits will start showing in FY '20 onwards. So FY '23, we do expect 70/30 -- from 75/25, it will be 70/30. In FY '23, that will be even bigger. So we will have maybe 60-40 in FY '23.

So on the LMIC business offer, do we see opportunities for further growth and where we are? See how much further can we grow on from here?

So when we're saying the percentage is coming down, that doesn't mean the number is going down, Nitin. So we are increasing the other revenue significantly, that is the reason coming down. We do anticipate growth in LMIC market when compared to FY '21, '22. We see good growth in FY '22. We'll do some growth in FY '23 also. But the other non-ARV, non-LMIC business will grow significantly in FY '23 based on the product what we file -- what we are going to file.

And also on that point, on the non-LMIC business, what proportion of this -- this is what, largely will it be developed market business, U.S. and Canada, European -- European business that will drive it? Or what will drive the non-LMIC business for us FY '23 onwards?

Non-LMIC business is predominantly -- not predominantly, only from Europe and North America, nothing else for us.

So that is based on the visibility of the ANDA -- these are all products that will be in our own -- under our own ANDAs or our own filing?

Yes, fully integrated offerings, Nitin.

And sir, where do we capture the contract manufacturing for Formulation? Or is there a business like that?

Contracts, see, there are 3 types of contract manufacturing we're doing. contract manufacturing generic APIs will come in generic APIs itself. We do contract manufacturing of formulations -- generic formulations that comes in Formulation division. The contract manufacturing clinical programs, it comes in Synthesis division.

And sir, how big is this contract manufacturing for formulations in the Formulation business?

Most of our European sale is -- as of now, is contract manufacturing.

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

Congratulations to management for a very good set of numbers. Sir, I wanted to understand when we discuss Custom Synthesis, are we including the specific opportunities on cosmeceuticals and nutraceuticals within that? If you can just help understand if there are any significant triggers in this part of the business? That's one. And second, I wanted to understand, are there any vaccine-related opportunities like as an adjuvant or any such opportunities for Laurus going forward that we are exploring?

I'll answer the first question. Whatever the nutraceuticals dietary supplement we sell to multiple customers is not part of the Synthesis business. Any product we make exclusively to one customer will be part of the Synthesis business. We are putting those one customer exclusive products will be in Synthesis business. When we sell to multiple customers, that is not part of that. The second question, are you making anything for vaccine business? Our Bio division makes cell-cultured ingredients, which are used in the vaccine manufacturing. We are not making agents right now.

Okay. So -- but is there a COVID-related vaccine play also then for our Bio division? If not now, in the future, are you exploring?

I don't think we will be catching the COVID vaccine wave by supplying ingredients from Bio division. I don't think that will be an opportunity for us.

Sure. Sir, second, we mentioned steroid facility -- we're setting up a plant specifically for steroids and hormones. In previous calls, we had mentioned a possibility of an M&A in this space. So does this investment preclude that M&A activity? Or is that something we are also looking at entirely?

I don't remember, we mentioned M&A activity in steroids and hormones. Our investments into steroids and hormones is based on the -- our discussions with the potential customer and the volumes what we are talking. So we need a specific exclusive capacity for steroids and hormones. So we're investing based on our discussions what we are doing with a potential customer.

Okay. Sure, sir. And just one last one, the overall capacity constraints that we've been facing and the continuous upward revision in CapEx, have we also looked at -- or why haven't we looked at, say, acquiring plants, U.S. FDA-designated plants. I'm sure that there would be a few available. Have we explored that routes to augment capacity faster?

We looked at earlier, but we believe building our own capacity is much more cost effective. See, no capacity will come at 1x of sales. So whereas we -- our asset turnover ratio is 1.5 right now. So we believe putting CapEx, greenfield or brownfield to enhance capacities much more cost effective than acquisition.

Sure, sir. And a clarification on one of the points you've mentioned in the call. So this INR 1,500 crore to INR 1,700 crore CapEx over FY '22 to '23 is not likely to be contributing or at least FY '23 portion is not going to contribute to your $1 billion revenue target. That's the point you mentioned, right?

Part of it will not be required to go to the target. What we do in FY '23 will not be fully utilized in FY '23 itself.

The next question is from the line of [ Ankush Agarwal ], an individual Investor.

Just one question. We have been [indiscernible] ARV as a business will not grow much for us given that we are already a big player in the market. So for Laurus to grow at a high rate, our other business of non-ARV and other businesses are very fast paced because non-ARV business is still relatively small product, like around 25%, 30%. So what are the initiatives and objectives that you're targeting over the next couple of years for this business to grow that fast, if you can highlight those?

There are 2 things. Non-ARV, API and formulation growth, we already developed products. We have filed DMF. We have filed dossier for marketing authorizations. That is already, I would say, midway in that diversification. When it comes to the Custom Synthesis investments what we are doing, half of it based on some kind of a commitment what we are having from our customers with respect to capacity, and rest is to increase the product portfolio in Custom Synthesis. See, not every product will go to commercial when we do Phase I. So we wanted to increase our Phase I pipeline. Right now, we are constrained to take more Phase I projects. That is the reason we are creating a dedicated capacity. Right now, when there is a project, allocation of resources is becoming a challenge, both in R&D or in manufacturing. We wanted to take away that constraint and bring some abundancy. We're creating 2 lakh SFT R&D for CRAMS, and we are creating 2 new sites for CRAMS division. So by FY '23, CRAMS division will have 3 manufacturing sites, hopefully, 4 and in R&D center. So that will be a fairly big organization itself.

Okay. Got it. And secondly, on the FDF business, the entire growth you are targeting for next couple of years is on the contract manufacturing opportunity with the European customers, wherein you are adding more products, right?

No. Majority growth will come from noncontract manufacturing.

Okay. So this is apart from the opportunity that we will have based on the European customer with the added capacity that we're adding?

We'll grow contract manufacturing, but the noncontract manufacturing revenues in Formulation also will be significant.

The next question is from the line of [indiscernible].

Yes. Based on the CapEx number you talked about for the next 2 years, what kind of asset turnover you're expecting on that?

We can give a broad number, [indiscernible]. It is about 1.5, what we have achieved right now. You can expect that.

Okay. And what would be the maximum revenue potential in that expecting 100% capacity utilization?

Do your math. See, INR 1,500 crore x 1.4, 1.5, that would be the opportunity. But see, we continue to invest. See, if we stop investing, how we will grow? So see, for these investments, we are not raising debt, probably everything will be done through internal accruals. And we also need to be careful in whenever ROCE and return equity numbers are so high, and our cost of debt is so low, so the question and our challenge for us is to go for CapEx, which is giving very high good returns versus retiring our debt. See our debt by EBITDA is less than 1.9 -- a little over 0.9. So we are doing that constant to debate internally whether to retire debt or to put more CapEx. See, we are very cautious in putting CapEx. See, why we will do recklessly CapEx. We are doing CapEx because we have seen visibility and then customers are asking for it. We know what to make. We know whom to sell. And because of those comforts, we are investing in CapEx.

Okay. So the second question is, you have been selling stake in the open market to reduce the hedge, which you have done. So what would be the plan on that front?

There is no pledge of shares from my side. Everything was removed.

The next question is from the line of Gagan Thareja from Kotak.

[indiscernible] hello?

Sir, your voice is not audible, sir.

Am I audible now?

Yes, Gagan. Yes, Gagan.

Sir, just wanted to clarify -- there will not be any additional debt for the CapEx that you are undertaking next to this?

Gagan, it is not very audible.

There may not be any significant debt increase.

Okay. Yes. And also, there will be probably a fixed cost increase as the CapEx ramps in. If you could give some idea of the OpEx specification, which will come in because of the additional capacity.

Can you repeat your question? Your question is not very clear. Your voice is not very clear.

So my question is that with the additional CapEx, there will be additional OpEx and depreciation also coming in. So what could be the magnitude of OpEx and depreciation related to the additional capacities?

Most of it is a brownfield, it is proportionate to the CapEx and the operations utilization.

I'll answer, Gagan, to your question. In FY '18, '19, we have created so many greenfield facilities and had an impact on our OpEx, a depreciation in the -- our PAT numbers. But this time, most of the expansion is happening in the brownfield. And we don't see the investment impacting our numbers from now onwards.

Okay. And for your LMIC formulation sales, I think this year, all the sales would have been from the TLD combination. You also have the approval for TLE400, where you probably be -- from a competitor standpoint, it's probably a better market, although probably at the lower side. If you could give some idea of what would be the size for the TLE400 market going into next year?

We can give you the TLE400 usage, in general. We will not give you what market share we have. It is between $120 million to $150 million TLE400 opportunity.

Okay. And TLE600?

TLE600, the opportunity is very small, very small. Yes.

Okay. But TLE400, the number of approved companies would be only 2 to 3 at most?

Yes, 3 as of now.

Okay. And you also indicated you have the approval for TAF-based formulation, if I understood it correctly? Or is it for the API you're talking of?

We got approval for dolutegravir, emtricitabine, TAF NDA. And we also got orders. We also got orders for these formulations, and we will service that in the next 6 months. And we'd expect more order for that.

Okay. On TAF, just wanted your expert opinion. What I am able to understand is that because of TAF, the weight gain, especially in the female cohort of the African population is very high, north of 10 kg. And that's a concern for comorbidity. Do you concur with that, and therefore, do you see likely a limited sort of market right now? Or do you see this as a product that will substitute TDF in a very big way [indiscernible]?

See, the difference between switch from efavirenz to dolutegravir is class. Efavirenz is NNRTI and dolutegravir is integrase inhibitor. When it comes to tenofovir and TAF, these are same class. So I wouldn't see the disruption like efavirenz to tenofovir -- efavirenz to dolutegravir similar to TDF and TAF. Yes.

The next question is from the line of Tarang from Old Bridge Capital.

Sir, just I was reconciling some numbers. So Laurus today would have a gross block of about INR 2,600 crores. And there's about a [indiscernible] of INR 400 crores. So that's INR 3,000 crores. And about INR 1,500 crores of CapEx going in the next 2 years. [indiscernible] not help in revenue in FY '23. So if I add all of this up, about INR 4,000 crores of gross block. So 1.5x would translate about INR 6,000 crore, INR 6,200 crores of revenue. So -- whereas you've been indicating that maybe this asset base could help us reach about $1 billion of revenue. So where is the disconnect, sir?

You're talking about net block probably. Our gross block could be bigger than INR 4,000 crores. If you take INR 1,500 crore additional CapEx, it will be maybe close to INR 5,000 crores gross block.

Okay. So that's the INR 5,000 crores of block and 1.5x, correct?

Yes.

The last question is from the line of [ Prashant Rane from Exclusive Advisors ].

Congratulations for a good set of numbers. My question is about, we are expanding our businesses in so many new areas and there are a lot of challenges it will be [ bringing with this ]. So how it works out in terms of management bandwidth and attracting talent as far as the [ soft plan ]? So -- and what is -- so I would like to know the management views about it? And do you think this [ soft ] is one-off dilution? Or it is going to be a feature for attracting talent?

Thanks for asking very interesting question, Prashant. We continuously allocate stock options to attract, retain talent. And we are setting a benchmark in the pharma industry with the number of stock options. And the value of the stock options, what we have given to our colleagues. Right now, we are not seeing any challenge in attracting talent in any of these divisions. And we constantly in lookout for adding mid- to senior management talent in all the divisions. And we continually add that. See, one good thing is we are not in the process of adding hundreds of ANDAs. We are not having the strategy of filing hundreds of DMFs. So our approach is develop few products, maximize those products into many geographies and get leadership position and gain market share. So with that, our commitment to scale, commitment to quality is very well appreciated across the industry. And that is helping us to retain talent very well.

And is that the revenue per employee? Is that the metric which you track internally?

Pardon, Prashant?

Yes. So revenues per employee, is that the metrics which you track internally? And if you can also answer about the management bandwidth going ahead. Is it sufficient or do you expect some organization changes?

We do monitor revenue per employee, EBITDA per employee since inception. And currently, our revenue per employee is little over INR 1 crore per employee. And when it comes to the bandwidth, did you look at our Richcore acquisition, we didn't acquire the company, we acquired the talent. In fact, the current leadership team and the founders will continue to run. So there, we don't see any bandwidth -- management bandwidth challenge. When it comes to the other business, we are running the same business, adding more blocks, more products. So we are adding talent. And currently, we don't see any challenge in senior management bandwidth right now.

Thank you. I would now like to hand the conference over to the management for closing comments.

Thank you, Nikhil, for organizing this call, and thank you for -- all of you for participating and giving us your perspective how we should perform and how we should invest. And thank you, and keep safe during the pandemic. Thank you.

Thank you.

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