Laurus Labs Limited (LAURUSLABS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Laurus Labs Limited Q3 FY '22 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you, and over to you, sir.

Thank you, Lizan. Good morning, and a warm welcome to everyone to Laurus' 3Q FY '22 Results Conference Call. We thank Laurus management for giving us the opportunity to host the call. Today, we have with us Dr. Satyanarayana Chava, Founder and CEO; Mr. V. V. Ravi Kumar, ED and CFO; and Mr. Vivek Kumar, Senior GM, Investor Relations. I would now like to hand the call over to Dr. Satya for his opening comments. Thank you, and over to you, sir.

Thank you, Monish. Thank you for joining us for our Q3 and 9 months FY '22 results conference call. We hope everyone attending this call and their family members, colleagues and their friends are keeping safe and healthy during these challenging times. We are pleased to have this opportunity to update you on our progress and answer your questions. Since our last earnings call, the world has continued to face unprecedented challenges, both on health and economic fronts. At Laurus, we committed to protecting the health and well-being of our employees and their families. We have continued to implement rigorous safety and hygiene practices across all locations and this without any complacency. I'm very thankful to our colleagues for rising up to this challenge and deliver on commitments and ensuring business continuity. During the last quarter, our industry has faced some internal challenges due to logistics, raw material availability and higher prices especially for solvents. Most of the solvent prices were at all-time high. We are seeing some easing out of this, including the cost of APIs and solvents and availability of raw materials. However, supply chain and logistics costs situation continue to remain challenging. ARV market seen continued sluggishness during the third quarter due to inventory at various channels. However, as we indicated before, we are expecting demand increasing from Q4 onwards. Coming to results over 9 months, the revenue has a marginal growth of 3%, despite lower sales in ARV APIs and Formulations, which resulted in our Q3 degrowth in sales and profits. All other businesses other than ARV APIs have grown for the quarter and 9 months. Increased demand for ARV business witnessing from our API customers and Formulation sales from global multi-national agencies from Q4 onwards. And we believe that the sluggishness is only transit in nature and should be normal from now onwards. Our sustained traction in CDMO is doing very good. And we are on course to expand and intensity our diversification plan as we look to prioritize building sustainable growth drivers in the coming years. We are also affirmative on our aspirational $1 billion in sales in FY '23. And this will be supported with several approvals stated and good progress what we have seen in multi-site capacity expansion across API, Formulations and CDMO division. Moving on to revenue. During the 9 months, we achieved INR 3,511 crores as against INR 3,401 crore. Whereas in the Q3, we achieved INR 1,029 crore as against to INR 1,288 crores in the corresponding quarters. I'm not going to do detail of each division, but I would like to give the overview of each division. The Formulation division reported revenues of INR 1,389 crores for 9 months, with 13% growth whereas INR 373 crores for the quarter with a decline of 13%. The contribution from the Formulation segment has improved during the 9 months to 40% from 36% in the previous year. Coming to ARV business, overall demand declined due to inventory stocking at various channels and we are witnessing a normal trend from Q4 onwards. Dolutegravir-based regimens continue to remain preferred and believe its use will also increase rapidly in the second line and also in the pediatric treatments as a new standard scale. Happy to share that Laurus has signed up and will be part of medicine patent to license for Molnupiravir, which is an investigational COVID-19 drug. This will help us to increase the broad access in the LMIC market. Coming to the developed market, we have broadly observed a stable market share for our existing portfolio. We continue to leverage our front-end presence in U.S., with new launches. We have filed a total of 3 ANDAs during the 9 months. During the quarter, we made a supplementary ANDA filing and expect to file around 6 to 7 ANDAs for the full year. Cumulatively, we have filed 30 ANDAs. Of this, we have a total of 10 final approvals and 32 approvals so far. In Canada, we continue to have 11 product approvals as we indicated in Q2, of which we are launching 5 and in the process for launching a few more. In the EU market, we have completed validation of 2 products as part of the contract manufacturing. And we expect a significant upside in the coming financial year from these products. And we also have successfully completed up to audit from EU last month for these products. Based on our healthy product pipeline progress, we continue to invest in FDF infrastructure, and our brownfield expansion at Unit 2 is progressing as far as our expectations. And it is expected to add significant capacity, which will take the total FDF capacity close to 10 billion units per year. The capacity will be operational from early next quarter onwards. On R&D front, we continue to allocate resources to our initiatives and invest in portfolio based on now. Our portfolio now more on non-ARV than ARVs. So we identified several products in the portfolio, which are complex and also need scale. When it comes to API, our antiviral business during the quarter was weaker than expected and declined almost to 65% year-on-year to INR 202 crores. The steep decline is due to the higher base effect from forwarding purchase made by global agencies during the last financial year. For 9 months of FY '22, business reported negative growth of 26%. We continue to believe that the current demand weakness is constant. And we believe Q4 onwards, things are looking bright. In oncology APIs, current quarter, we did INR 85 crore sales, reflecting a growth of 33% year-on-year. For 9 months, there is a growth of 8%. As you are aware, Laurus Labs has one of the largest high potent API capabilities in the country and we are adding more capacities into the high potent areas and located at Unit 4. And our aim is to strengthen further our leadership in one some of these oncology and high potent molecules. In other APIs, which we see the diabetes and asthma reported quite normal sales in Q3 and revenues have grown sequentially at INR 137 crores. The segment recorded 38% growth quarter-on-quarter, and there was a slight decline when it comes to 9 months. We had 3% decline. During the quarter, we have filed 4 DMFs. Interestingly, 2 DMFs are non-ARVs, taking the total number of DMFs to 71 to date. We also initiated validation of several new APIs and expect to see good DMF filings next financial year. In the Synthesis business, it was a very strong quarter for us and delivered robust growth of 63% year-on-year, at INR 207 crores. From 9 months FY '22, CDMO business also grew over 60%. As you are aware, we indicated in the last quarter, we started constructing dedicated facility for a global life science company, multi-product, multiyear supply contract. And we are also investing in one more greenfield facility for Synthesis division, and also building an R&D center at Hyderabad. All these are progressing as we planned earlier. When it comes to Laurus Bio, the segment achieved a sales of INR 25 crores, taking to INR 65 crores for the 9 months FY '22. During the quarter, Laurus Bio commissioned 2 more fermenters of 45,000 each, taking to a total capacity of 180,000. There was a few months delay in qualifying the fermenters. Now we can say all the fermenters are running and doing CDMO activity for global companies. We're also in process of expanding the research block and also debottlenecking ARPU thereby adding more downstream equipment to better utilize the fermenters. Our focus on ESG, quality and regulatory compliance to drive sustainable growth and further accelerate our pipeline opportunity is one of our top act. This will add to our journey towards our vision and strengthen our core values. We are in the process of qualifying the manufacturing infrastructure, both in APIs and Formulations to achieve our aspiration target of $1 billion sales mark by end of FY '23. If we received the required approvals on time, and we are confident to achieve this target. With that, I would like to hand it over to Ravi to share some financial highlights.

Thank you, Dr. Satya, and very warm welcome to everyone on our quarter 3 and 9 months earning call. Total income from operations for 9 months is INR 3,511 crores as against INR 3,401 crores, within 3% of growth year-on-year. But whereas the quarter, we ended up at INR 1,029 crores against INR 1,288 crores, reporting a degrowth of 20%. Gross margin for the quarter 3 is very healthy and at 58.8% vis-a-vis 54.7% for the corresponding quarter. Our EBITDA came at INR 290 crores with a margin of 28.2%. Our EBITDA for 9 months is at INR 1,038 crores, with an EBITDA margin at 29.6%. Though this reflected through better product mix and compensated for negative operating leverage. So despite of the ARV lower sales, we could -- able to achieve these numbers in the past 9 months' time. And we remain confident of achieving about 30% EBITDA on a full year basis for FY '22. On diluted EPS for the quarter at INR 2.90 are not annualized and INR 11.10 for 9 months not annualized. Our ROCE is at 25.5% on an annualized basis. On the CapEx front, we invested close to INR 246 crores during the quarter and cumulatively about INR 770 crores in the 9 months' time. We remain on course to strengthen our position as a cost-effective integrated pharma player. We are investing in backward integration efforts in making intermediates, creating further API and FDF capacities. As you're aware that we have embarked upon significant growth CapEx of INR 1,500 crore to INR 1,700 crore in 2 years, FY '22 and FY '23. We wanted to update most of the investment across key projects is on track. You can refer to our IR presentation for more details in this. With this, I would request the moderator to open the lines for a Q&A.

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

Sir, on the other API, there has been a good traction. I just would like to understand, is this to do with the new molecule addition or you're seeing the market share gain in the existing molecule?

The other API, we have added only 1 molecule this year. And the growth came from -- we have contract manufacturing APIs to our customers in Europe.

Okay. Is this to do with the restrictions in China? Or do you think this is more sustainable run rate to go back?

This has nothing to do with the disturbances because of China. So this is normal growth. And this molecule we were doing earlier and we were able to get more orders because our partner got more market share in India.

Got it. Okay. And just lastly, on this dedicated facility for a global life science company, could you share some more color in terms of what kind of investments on this particular project or what is the size of the contract and spread over what year?

We can't give you the size of the contract, but it is a multiproduct, multiyear contract. And part of the CapEx is also funded through commercial advance. And we've just started building facility for that client. And we -- as an interim, we also added a manufacturing block in our existing Unit 4 to complete the validation as part of the contract. Once the new manufacturing unit is up and running, we will transfer these to their new sites so that our partner will gain in year ending regulatory approval process. So we -- this is very significant for us and a dedicated team is working on the development of those projects, technology of those projects. And things are moving as we anticipated earlier.

Got you, sir. And just lastly on Molnupiravir, there is a lot of thoughts on the efficacy of those and then comparing to the final draft, but at the same time, we have a license from MPP. So are you seeing a good amount of traction of the business prospects on this product? Or given the efficacy this is not so greater product to look forward for?

There are sales, but it's not meaningful. There were many approvals. Many got licenses from MPP and ICMR did not include this in the treatment guidelines. So the uptake is not as expected. So the business is not going to be a meaningful one for us.

The next question is from the line of Sudarshan Padmanabhan from JM Financial PMS. Sorry to interrupt Mr. Padmanabhan. Sir, we are not able to hear you clearly.

Yes, can you hear me now?

Much better. Thank you.

Yes. My question is to understand a little bit more on the ARV business. Both, if I look at the API side and the Formulation side, there has been a drop, a drop worse than expected. I mean when you talk about the inventory and things getting back to normal, we have basically seen the numbers coming right from over INR 50 crores a quarter in the fourth quarter of the previous year to about INR 200 crores. Do we see a gradual ramp up back to where it was? Or are we going to see pretty fast kind of a ramp up? Do you see that in fourth quarter things can normalize completely?

Fourth quarter, we see majority normalization will happen. We are not anticipating our ARV API sale will go back to INR 500 crores. Maybe Q1 next year will be quite normal. But even though there is a little bit normalization pending for ARV APIs in Q4, but our other divisions are doing extremely well. So we don't see any challenge for us to get back to normal track, a normal growth trajectory for us from Q4 onwards.

[Technical Difficulty] in Synthesis business, I think you have done a phenomenal job in...

Sorry to interrupt, sir, we are not able to hear you.

Yes. Sir, my next question is on the Synthesis business. I mean you have done a phenomenal job in terms of the ramp up, almost moving from INR 50 crores in FY '20, almost a quarter 2 to about INR 200 crores now. Can you give some color with respect to where do you see the business, let's say, in the next 3 years, given the opportunity, given that we have a dedicated plant for a customer, what is the kind of scale that we can see, I mean? And what are you doing at this scale to get -- give that kind of importance to this business?

This business is very important to us, and we're giving required focus to strengthen this. We are creating dedicated R&D. We are creating dedicated manufacturing sites. And we believe a INR 200 crore per quarter is not a big number for CDMO. If you look at the global CDMO companies, they're doing extremely well. And we believe we have all qualities to become a very large player in CDMO. Our regulatory track record, our EHS compliance, our manufacturing quality infrastructure, our team quality. So we have all qualities to become a much bigger player in CDMO play. We can't give you the quantitative numbers all will do in the next 2, 3 years, but we have so many avenues to grow. As we're investing in a new manufacturing site for a customer, yes, we haven't got any revenues from that plant right now. So this business, we believe we are at a very infancy stage. So INR 200 crores per quarter is very, very small for our aspiration.

With respect to Richcore, I mean, do you have a plan that we will be able to...

Sorry to interrupt, Mr. Padmanabhan. Sir, we are not able to hear you. We request you to come up...

Hello?

Yes, sir. Please proceed.

Yes. So final question from my side is when we bought Richcore, we wanted to extend the bio capability wherever possible in the current business as well. Is that happening? Are we starting to look at extending the bio capabilities in the current business and seeing some kind of an operating leverage of synergies going through that?

It is happening as we expected. They have several enzymes for our chemical synthesis. And they are optimizing those enzymes to improve the needs. They are also working on classical fermentation of APIs, especially for steroids. So it is going on very well. So what intent we purchased significantly there is working very well.

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

Yes. Can you explain what are the risks and the upsides in the regimen change from TDF to TAF?

The regimen change from TDF to TAF is not happening, which we also captured in our investor presentation so that our investors can also better informed. We don't see any change. So based on the CHAI projections, the TAF market share gain by end of 2025 is not significant.

Okay. Okay. Sir, for this quarter, since you provided a stand-alone number as well as consolidated numbers, your subsidiary revenue has gone up sharply to INR 96 crores versus historical average of INR 25 crores. Anything particular because there is not approximate increase in costs or anything in the subsidiary financial. But there is a sharp jump in revenue. Is it related to some onetime income over there?

Ravi, do you want to answer this question?

There is no onetime income, but the -- our new -- one of the subsidiaries started generating revenue.

Yes. But there was no proportionate increase in the cost or anything when you see historical 3 quarterly numbers which you provide every quarter.

But there is no one-off kind of income.

Okay. Because your historical average for last 5, 6 quarters is INR 25 crores. This quarter, subsidiary number is INR 96 crores. So the number is a huge jump of INR 50 crores, INR 60 crores increment.

That's correct. That's correct. You're right.

Because your cost base has remained flat, almost no change in the cost. Anyway, so maybe if you can explain it later would be helpful.

Okay.

We move on to the next question. That is from the line of Krish Mehta from Enam Holdings.

I just wanted to know the ARV versus non-ARV split for the company as a whole for the quarter?

What is the question? Can you repeat?

I want to know ARV versus non-ARV split as a whole for the company for this quarter.

About 50%, both APIs and Formulations put together.

The next question is from the line of [ Bharath Kumar from Quest for ValueQuest Capital. ]

My question is for Dr. Chava. Regarding the formulation capacity of 4 billion tablets, which is coming out this year, you said that in the last con call that it will be used by our -- for our European partner and site transfers are already done. And our site is also included in the dossier. And you said that the regulators have scheduled for the site inspection. May I know if this inspection is complete and did we get the approval for commercial production?

One inspection was concluded 2 weeks back, it was successful. And one more inspection for packing lines is expected in May this year and which is on track. See, nowadays, inspections are happening online. So I wouldn't see any challenge there.

No, because revenue coming from June this year.

You're right. You're right.

Okay. Okay. And my second question is regarding the global tender. The global tender for ARV Formulation, which we got in 2018, I think it is supposed to end last year, but because of COVID, I think it is extended by one year and I think this year end, I think it is going end. Can you please let me know like which we have applied for the new global tender for the next 3 years?

Is extended by year. So we'll be part of that. See, we are a significant player in -- not just in APIs, but also in Formulations. So we'll be there.

So you've applied for the tender...

It's a regular phenomenon. So I'm sure we'll be there.

Okay. So did you get the tender for the next 3 years? Or is it like you can process...

It will come.

The next question is from the line of Pranav Tendolkar from Rare Enterprises.

Sir, when you say that the business will at normal margins and normal growth rates, what exactly is normal because just 5 quarters ago, 46%, 47% -- or 6, 7 quarters ago, 46%, 47% of gross margins and sub-20% of EBITDA margin was normal. And clearly, the pandemic had supply chain issues and they are getting resolved now. So can you just highlight how the margin can be drastically different from, say, 5, 6 quarters ago? Going forward, I'm not asking on a quarterly basis but somewhat on a sustainable yearly basis.

So we invested in R&D much ahead of the business. We invested in capacities much ahead of the business. And if you look at the -- our R&D expenditure remain constant as a number. But as a percentage came done by almost 3.5%, 4% and our man power cost used to be 12%, 13%, now is it at 9%, so when if look at 4% came from R&D expenditure, 4% came from man power, which is an operational leverage. That led us to EBITDA margin expansion. EBITDA margin expansion has nothing to do with COVID because we are not in the COVID-related products. We don't have remdesivir, we don't have other biological products. So our growth in EBITDA margins came because of the expansion plans and commercialization of those facilities, commercialization of those products.

Perfect, sir. Perfect, sir. But on gross margin level, further increase of 5 percentage points, yes?

You asked a very interesting question. The gross margin improvement is because of expansion of non-ARV business.

Right. No, no. I'm asking about 5 percentage points over last 7, 8 -- clearly, pre COVID, okay, okay.

That is because of our ARV -- non-ARV business is growing much faster than ARV business. Our non-ARV business, Synthesis business, Formulation business, other API business are more profitable, more gross margin business than the ARV business. That is the reason EBITDA expanded and also gross margin expanded. So there are multiple things which led to the EBITDA expansion, operational leverage and then gross margin improvement.

Right. Right. Perfect. So that makes sense. Sir, just 2 supporting data or view, if you can give. So what is the price correction on ARV and other products or formulations that has happened from, say, during COVID? And what is the difference in the 2 gross margins, ARV and non-ARV, if you can actually provide some comfort to investors about that?

That's difficult to give numbers. So we're comfortable, we want to give the split how much we are making in ARV Formulation, how much in other formulations. That is a very sensitive information which we don't want to speak.

The next question is from the line of Jeevan Patwa from Candyfloss Investment Advisors.

Congratulations, sir, for a very good set of numbers. So there are few things that I liked about the number. One is obviously the CDMO sales has been INR 207 crores this quarter, which is a very good run rate. So the question is, is this sustainable run rate for the next few years? Or next year, do you think this run rate will be even higher from here?

Our Synthesis business, as I explained, the INR 200 crore is a very small part of our capabilities. So we do expect significant growth in this business.

And secondly, you said it's too little for our aspiration. So what is your aspiration for Synthesis business, sir? How much you see your Synthesis business in the next 3 years or 4 years?

By FY '25, we want this business to be at least 25% of our overall revenue.

25%. So you're including biologics as well in the CDMO?

All, all.

All. Okay. Okay. Second question is, in the Biologics side, we have INR 25 crore run rate quarterly, and we have commissioned 2 more fermenters. So can we assume it's going to be INR 50 crore from here onwards? Can we assume that?

It will be around INR 40 crores, probably until we expand capacity further.

Okay. And in one of the interview, Mr. Rajesh Krishnamurthy of Richcore has actually said that they are planning for 2 million-liter fermentation by year 2023.

Yes. They have taken land -- 30-acre land and in the process of finalizing the design and also talking to the customers who intend to use that capacity. So 2 million liter will not be put in one go. They will put in a phased manner of 1 million plus 1 million plus 1 million. In fact, the land can accommodate up to 3 million liters fermentation capacity.

Wonderful, sir. Wonderful, sir. Thanks a lot, sir. And next is, so if I look at 9 months' numbers, our sales have actually gone up 3%, but our profit -- so gross profit has actually gone up by INR 130 crores, but our PBT is down because of obviously the operating leverage. So we have got depreciation, interest, other expense and other costs basically going up. So that has eaten up our PBT. But our inventory has actually went up from INR 185 crore to INR 320 crore, almost INR 140 crore increase in our inventory. So the question is do you see some part of that inventory in liquidated in Q4?

Yes, see, our ability to ramp up production and then the ARV demand will come all of sudden. So we are preparing to starting to take that opportunity. So we are not having any concerns on these inventory levels.

The next question comes from the line of Hussain Kagzi from AMBIT Asset Management.

So my first question was with regards to Formulation. So if I get it correctly, 65% to 70% of our Formulations is ARV. So I just wanted to know that since we are seeing a decline in the ARV API side, so is there any case of this -- shown a similar decline being visible in the Formulation side of I believe with a lag effect? So that is my first question.

There is a decline in the ARV Formulation not to the tune of ARV API decline. ARV API quarter-on-quarter, we saw 65% decline. But we didn't see that much decline in Formulation. There was a 20% decline in Formulations, but now to the API decline.

All right. All right. And so any update on the approvals that we will seek to get on the Formulation side of API. So by when do we expect to get those approvals on non-ARV?

One, we are expecting this quarter and one maybe in the month of April. So we are having a lot of approvals pending with various agencies and we are on track to get those. There was a delay for 3 quarters, not because of our facilities are -- so everything is on track now.

All right. All right. Got it. And lastly, so there's no doubt that ex-ARV we have done exceptionally well if I see growing at 45% CAGR for 2 years. And if I go by your numbers. So I think by -- but as of Q3, I think it's still 50% up -- the remaining 50% of our business is ARV. So basically, if I just wanted to get a sense that you did mention that there be a little bit of volatility in the ARV API side of business. I understand that's the nature of the business. But on a steady state, would we say your view or your assumption or where do you see a steady-state run rate for that business in the future, say, FY '24 or '25, because we finished the year, I think around INR 1,300 crores to INR 1,400 crores in ARV API. So can you -- is that a stable run rate which can be seen future barring the quarterly volatility. So I just wanted to understand that part if you can help me.

The INR 1,500 crores, INR 1,600 crores could be the base what we think is sustainable in the ARV APIs.

Right, right. And that would be for the next 2 to 3 years if...

Yes. Yes.

We'll move on to the next question that is from the line of Tushar Bohra from MK Ventures.

Sir, just one point on your one of the slides, I saw that the gross margin expansion Y-o-Y, I think will be Slide #5, gross margin expansion Y-o-Y is significantly higher. And rather, I'm referring to Slide #8, so we got about 410 bps Y-o-Y gross margin expansion and a 540 bps data compression Y-o-Y. So that's almost 900 bps swing between gross margin to EBITDA. So while some of this could be possible because of operating deleverage because of lower sales, I'm sure there would obviously be some costs associated with new capacity which is still not contributing. Can you just help us with the breakdown of where this slippage has happened?

As you have rightly mentioned, the operational deleverage reduced the EBITDA margins because we have the facilities, we have the deals, we have the investments in the R&D. All those are happening without clear revenues. But that's the reason for the EBITDA degrowth. Whereas the gross margin improvement is because of the product mix. All of you are aware the ARV APIs are not high gross margins when compared to the rest of the business. So we have the API for less than 25% of our sales this quarter, Q3. Our EBITDA margin improved because of that -- sorry, the gross margins improved because of that.

Sir, how much of the capacity is not revenue generating today? Or let's say, how much of the cost can be attributed to capacities that will start contributing meaningfully going forward, new capacities?

Ravi, do you want to answer this question?

Yes, greatly. What are will be the new additions we have done capitalization this year, that is not generating any revenue, Tushar.

So how much are the gross block or the cost of these facilities operating cost some metrics, sir? Would be helpful.

I'll give the gross block-wise, 25% of our CapEx is not yielding revenues right now.

25% of your CapEx done over FY '22?

No, no, 25% of our gross block.

25% of your gross block.

Yes. Yes.

So it would be fair to assume, sir, that at least 300 to 400 bps slippage would be only because of this new capacity, which is not yielding revenue and not necessarily operating deleverage?

Yes, we are broadly in that. Yes.

Okay. Sir, a different question. Now we see a significant contribution from Synthesis this quarter and below normal contribution in that one from the ARV APIs. Is it fair to assume there would have also been some gross margin compression on the API side? And therefore, the overall addition from Synthesis in margin is much higher than the 200 bps suggested?

We can't give the margins that granular, sir. Yes.

Okay. Is it fair to assume, sir, that our Synthesis margins would be significantly higher than the corporate average?

Yes.

Yes. Yes.

And likewise, Formulation margins would be reasonably higher than the corporate average?

Maybe see Synthesis, Formulations and other APIs, the ARVS, that's the order.

Sure. Sir, finally, one last question. If you can help understand qualitatively, what are the things happening on Synthesis side? I mean we are cooking up at INR 800 crore run rate annualized today. And if I do the math correctly, 25% of your revenue in 3 years would be about INR 2,500 crores, INR 3,000 crores. So you're talking almost a 3 to 4x jump in Synthesis over a 3-year period. Just help us understand the demand side breakdown to this, do we have specific contracts in place? Or what kind of discussions we're having, something, sir, that would help us understand this pull up, short pull up?

We can give a very broad view. So we're building a dedicated facility for the contracts which we have signed. As of now, the contract is not giving any revenues. So that's one significant. We have contracts in place, multiproduct, multiyear. And 2 products, which may go from Phase 2 to 3 and commercial in next 2 to 3 years. Those are also very significant. We are the only one source for those projects. And we have a lot of projects, a lot of customers that we have added into CDMO. I'm not saying every product will be successful with every customer. So that risk is there in CDMO. But we have lot of projects and we're building capacities to take on those opportunities.

So these new projects, sir, that we are referring to for which you are building up a dedicated capacity, it would be fair to assume that it is sizable in context of current Synthesis revenues?

Very sizable.

We'll move on to the next question. That is from the line of Nitin Agarwal from DAM Capital.

Dr. Chava, on the other API business, so rather, let me go top down first. You've talked about the fact that FY '23 is still holding the belief that you can achieve a $1 billion top line. Now that's almost INR 7,400 crore, INR 7,500 crore top line versus the INR 4,000 crore run rate we had for the quarter, very large jump when we're talking about from a very short period of time. And you said this is subject to some of the approvals coming through on time. Sir, in which segments are these approvals -- this guidance contingent on? Which segment these approvals would be in our business?

Diabetes, cardiovascular, these are the 2 where we are expecting approvals. And at the same time, here we are seeing the run rate of Q3. So this year -- if you look at the 9 months, we have done INR 3,500 crores. So your run rate of INR 4,000 crores for this year is not -- is on the lower side.

Okay. Fair enough, sir. And sir, on diabetic and cardiac that you mentioned, so these are approvals on the Formulations, on the API side? And any specific market that you're looking at where the approvals are contingent?

For Europe as well as the North American markets.

Okay. And sir, these would be the primary driver for our other API business?

Other API and Formulations growth.

Okay. And sir, what would be -- currently assuming once the ARV Formulation business normalizes, and the current $6 billion capacity, what is the capacity utilization of a Formulation plant right now?

Right now, it is very good, actually. So not much of spare capacity available now. That is the reason we're building in a phased manner from -- in fact, we custom on landlords.

And sir, when do you see this capacity of $10 billion getting completely utilized in your assessment?

Maybe early, the first quarter of 2024.

Okay. And sir, lastly, on the oncology business, the oncology API business, how should we look at that business, are there newer molecules that we're looking to add in the segment? Or do you see opportunity for significant volume growth in the existing product?

It's both, sir, both.

We'll move on to the next question that is from the line of Ranvir Singh from Sunidhi Securities.

Sir, my question relates to our aspirational going to have USD 1 billion revenue by FY '23. So just wanted to understand, if you could explain a little in detail because going by the API revenue and saying this is not clearly to reach the historical peak on the ARV segment. And that 25% upside in next 2 years -- the next 3 years in CDMO. Just I wanted to understand that how much -- because even 9 months figure annualized are from $650 million kind of revenue or $350 million revenue gap for FY '23. So that I wanted to understand.

See in the API space from November onwards until April this year, we are adding 25% more capacity than what we had earlier. That's very significant. And as we are discussing, our formulation capacity is almost doubled -- going to be double from the current capacity to the expanded capacity. So what we need to have first one is capacity, second one is products approval and then customers. So we have capacity. We are in the process of getting approval and the customers are happy to buy. So why we are saying aspiration at $1 billion, for that we need to have capacity, first which we have done and then approvals are going on. And our customers are happy to buy from us because we are not adding a new customer. We are increasing sales to our existing customers. So that is the reason we are still comfortable with that number.

Okay. And just I missed on ARV API side, I think one of the participants asked that average -- kind of normal revenue, where we see the normal revenue on quarterly basis coming to because if I factor the restocking cycle and destocking cycle, the average should be some INR 350 crores, INR 400 crores kind of revenue. So are we reaching there?

Yes. We expect Q4 onwards we will reach that level closer to INR 400 crores on ARV APIs.

Okay. And in your commentary, you said that 3 elements actually was challenging, availability of raw material, logistics and prices of certain products. So availability of raw material, did you mean related to ARV API or some other API?

Other APIs, not specifically ARVs.

And what's your status now availability...

Now, it's improved, it's improved. Yes. See, the availability is there, but we have to pay higher price.

Okay. Okay. Fine. And last one, what is your current debt. After this expansion, we believe that debt would go up. So what's your status right now?

Ravi?

Around INR 1,750 crore debt. As we indicated before, by March, our debt is going to increase. But from next year onwards, we are expecting debt to be reduced.

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

Four questions from me. First, on the Synthesis business. Sir, this business largely entails manufacturing of intermediates or APIs or both?

Both.

Okay. Sir, as you move forward with this business when we ramp it up, what proportion of your revenue is here are likely to be from new molecules, either commercialized or in the process of commercializing?

As I mentioned by FY '25, so we have a strategy to take Synthesis division revenue contributing a quarter of our total revenues.

And all of it would be from new molecules, right, under commercialization, trials or getting commercialized. Would that be accurate?

From new clients or existing contracts, new products.

But NCs largely, right?

NCs. Yes, you're right. See, the Synthesis division, our approach is -- we don't add CMO of generic api synthesis. CMO of general api synthesis go into the generic division only. So these are one product, one customer business comes here.

Got it. Got it. Sir, among the plants that you have here, are these FDA-approved capacities?

Current capacities are all FDA approved. The one we are building will also go through approval when we validate products.

Got it. And last, sir, how much of the CapEx for 9 month FY '22?

About INR 700 crores within CapEx the first 9 months.

Plan for the next 3 months would be?

Should be -- FY '22 and '23, our capacity will be in the range INR 1,500 crores to INR 1,700 crores. So that number is still valid.

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

Sir basically, as you mentioned the future possibility of this 25% for your gross block being utilized, could you actually throw some light on what this future revenue possibility might be of this 25% that's not been utilized?

As we explained, we have built this facility to meet our product demand and our customer demand. So we can't give you a specific number. But see if the asset turnover ratios, if you look at, it's about -- between 1.25 and 1.5. So it will be in that level.

We'll move on to the next question. That is from the line of Aejas Lakhani from Unifi Capital.

Dr. Chava, my questions are answered, but since I have the opportunity, just wanted to understand that from a gross margin perspective and EBITDA perspective, can you give some guidance for -- or how you are thinking about FY '23, '24?

See, for the last several quarters, we were saying although we had much higher than 30% EBITDA, but we were talking to our investors saying that we are confident to maintain 30% EBITDA for FY '22 and beyond. If you look at our 9 months, we were very close. We are more than 29.5% EBITDA for 9 months. And then Q4, we are also confident to achieve the 30% EBITDA. So we are comfortable to say, again, that our business now is capable of generating EBITDA margins of 30% -- around 30%.

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

Sir, in ARV API, how has price movement happened from the peak, how much would have been the correction from the peak?

It is 2% to 3% lower than earlier.

Okay, okay.

It's not big. See, it's highly matured products. So none of them are newly launched products. So our products are matured. So price fluctuation is not significant.

And sir, in terms of both ARV API and Formulation, are there any new players which have got finalized by the global tenders of FR and all the old players who are in panel are they becoming more active? What's the competitive scenario you're sensing for the next 6 to 12 months?

In the Formulation space, you can expect 1 or 2 new players coming in. But in the API space, at least in the next 12 to 24 months, we haven't seen anyone investing big infrastructure to get into the ARV API space.

The next question is from the line of Prashant Nair from AMBIT Capital.

Ravi, just one clarification on your comment which you made earlier. So when you said that you're confident of maintaining 30% EBITDA margin, was that for the fourth quarter? Or was that for the full year as a whole?

Full year.

Full year. Okay. So you believe you can make up some of that over the 9 months, I think you're at 29.2% or 29.3% so that you can make up in the fourth quarter?

Yes. That we can make up, yes, yes.

Okay. Fine. And secondly, just a follow-up question to what the earlier participant asked on pricing. So on ARV Formulations, while volumes have been lower in the tenders, as pricing also corrected through the last, say, 3, 4 quarters?

Pricing corrected in the ARV Formulations. See here, when we are saying pricing is not like 5%, 10% reduction, like what we hear in other regions, it is a 1%, 2% reduction in the pricing.

Ladies and gentlemen, due to time constraint, we'll be taking the last question. That is from the line of Dhaval Shah from Swan Investment.

Sir, just not understanding I wanted on the ARV side, like when you're discussing about the ARV business in the past couple of quarters and years, we always have a good visibility of our volumes. So last 3 quarters, what happened in the -- in terms of the procurement by the agencies that we saw this dip in our volumes is from my understanding, if you could please explain.

See if this decline is only for Laurus Labs, then it is a concern. That means we are losing market share. And somebody is gaining. This you might have seen from other listed companies, how much ARV revenue declined, they have shown. Then we have done better when compared to them. So this decline in ARV APIs is only transact. Our ARV API sales depends on how our customers are successful in tenders. Whereas our Formulation sale is -- follows the general trend of the other formulation company. So if you look at our decline in ARV Formulations, sale is less when compared to the ARV API sales, yes.

Okay. Okay. So you mentioned you may take around INR 1,500 crores, INR 1,600 crores of annual run rate on the ARV API side, which will be -- on a quarterly basis, it will be much lower than what we had around INR 550-crores odd. So why this less number. So what are you seeing in the end market?

Maybe we are cautious in saying that number.

Thank you. Ladies and gentlemen, that's the last question. I now hand the conference over to the management for the closing comments.

Thank you, everyone, for your interest and patience. And asking some very interacting questions which will help us to reshape, realign any of our priorities. Thanks, Monish. Thanks, Vivek and Ravi Kumar for answering.

Thank you, everyone.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.