Laurus Labs Limited (LAURUSLABS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Laurus Labs Limited Q4 FY '24 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 Limited. Thank you, and over to you, sir.

Thank you, [ Rhea ] Good evening, everyone, and welcome to Laurus Labs 4Q and Full Year FY '24 Results Conference Call. On behalf of Antique Stock Broking, I thank the Laurus management for giving us the opportunity to host this call. Today, we have with us Dr. Satyanarayana Chava, Mr. V. V. Ravi Kumar, Executive Director and CFO; and Vivek from the IR team. I would now like to hand the call over to Dr. Satya for his opening remarks. Thank you, and over to you, sir.

Thank you, Monish. Thank you for joining us for our Q4 and full year FY '24 Results conference call. We are pleased to have this opportunity to update you on our progress and answer your questions. Our R&D-led commercial strategy made good progress, and I'm pleased with the resilient performance backed by our robust integrated model. In 2024, we advanced on several pipeline projects across our offerings and augmented our broad technology and manufacturing platform. Company's BD efforts also resulted in a multiyear CDMO contract with a leading crop chains company. And over a decade of fruitful long-term collaboration with KRKA fructified into formation of a joint venture. Further, we deepened our cooperation with major CDMO clients on green and sustainable technology platforms, especially higher pressure Hydrogenation, continuous Flow chemistry and Biocatalysis. We're also currently engaged in delivering on multiple projects involving multi-step complex chemistry, large-scale Biocatalysis with in-house end-to-end manufacturing. Over the past 3 years, we made significant investments in our development and manufacturing capabilities to see the next wave of impactable growth for Laurus Labs. Our ongoing innovation CGT investments continue to report significant updates for the period under review, especially the successful NexCAR19 commercial launch in India to treat certain cancers. Further second large GMP integrated CAR-T facility is under construction to service more patients and making treatment more affordable. With our collaboration on gene therapy with IIT Kanpur, company started GLP, GMP plant construction on the manufacture of viral vectors and gene therapy products. We target to operate Phase I by the end of Q3 FY '25. Moving to our financial results, our Q4 core results reflect continued resilience in financial health across our business divisions despite no COVID treatment related supplies and significant pricing pressure on the Generic APIs. We delivered underlying growth of 9% in revenues to INR 5,041 crores driven by strong performance in formulations, CDMO, Onco APIs and bio-division, and also, this was achieved because of stabilizing ARV sales. Gross margins were maintained at 52% for the whole year despite quarter-to-quarter variation. EBITDA margins negatively impacted, and we reported 16% EBITDA margins due to higher OpEx on growth projects and higher R&D spend. Our Q4 results improved sequentially led by positive contribution from our business backed by volume increase and healthy ARPU. To begin, I would like to share key updates on our various business segments. In Formulations, this division reported overall revenues of INR 430 crores for Q4, increasing by 9% over last year. On sequential basis, revenues further improved to 17%. This is primarily driven by consistent recovery in ARV business, along with growth in developed markets. During the quarter, we signed a joint venture with KRKA with a focus to enhance combined generic portfolio and market presence. I feel it's a great opportunity to close our integrated manufacturing capabilities and extensive pipeline from KRKA in innovative and complex generics which offers attractive growth prospects in the long run. Coming to ARV business, overall market volumes have largely remained stable, partly supported by stable pricing trend over the last 2, 3 quarters and macro supplies. We believe the impact ARV franchise are broadly stabilized and expected to stay in this range. While we continue to pursue optimization programs to counter any pricing impact. Our extensive know-how portfolio breadth, including complex formulations, and new market potentially solidify our leadership position in ARVs to withstand any further market challenges. Coming to the developed market, we continue to perform well across our broader portfolio despite higher competitive intensity. During the FY '24, we filed 8 dossiers, and a total of 19 -- 9 approvals were received, including few tentative approvals. In U.S., we continue to get good market share on select products and also increasing volumes. Recent U.S. approval flow through has been very good, and we launched 2 products in U.S. during the Q4, and 2 more product launches is under preparation. This launches will support better asset utilization. Cumulatively, we have a total of 40 ANDAs filed so far. Of this, we have 18 final approvals and 14 tentative approvals. We continue to have diverse portfolio and pipeline across ARVs, cardiovascular, diabetes, CNS and GI. On R&D front, overall R&D spending to sales for FY '24 was at 4.8%. Higher R&D spend is in line to enhance our pipeline, which includes spend towards additional initiatives in cell and gene therapy. Commercialization of our fast modified release product was done during the last quarter of FY '24. We continue to invest in portfolio with product-specific approach based on complexity and scale economies. In the Generic APIs, revenues from was very strong at INR 745 crores, supported from growth across franchisees. For FY '24, the overall growth was down by 2% for the entire year, mainly impacted from other APIs, offsetting positive growth in Onco APIs. ARV APIs have retained its volume-led steady momentum and reported a revenue of INR [ 408 ] crores for the quarter. For FY '24, the division has continued to internally support FDF requirements. Accordingly, the business reported flattish performance for the full year. The current order book for our API basket looks encouraging. We continue to maintain a leading market share in the first line HIV treatment. Onco API business reported highest ever quarterly sales of INR 147 crores. For the year reported strong growth of over 27%. During the year, we have completed validation of a few oncology products at our Vizag site, with increased batch sizes, and increased capacity multifold for a few products. We believe our portfolio breadth, new capacities, along with ongoing positive market dynamics will continue to support the additional volumes in this division. Other API segment, which includes cardiovascular, diabetes and asthma have recovered sequentially led by CMO contract delivery and reported a sale of INR 190 crores. FY '24 revenues for other APIs have declined by 22% due to challenging price environment, mostly offsetting volume growth. While pricing headwind may continue even in FY '25, we are committed to long-term growth with a clear focus on cost-led issue in select high-value APIs. We're accelerating focusing on increase the efficiency, sourcing cost improvements to mitigate inflation and price pressures. In FY '24, we filed 4 DMFs, 3 in non-ARV, 1 in ARV. With this, we filed a total of 83 DMFs. In our CDMO business, we did achieve INR 922 crores sales. We saw substantially more RFPs in FY '24 versus FY '23 from several big pharma and leading biotechs. Increased RFPs for the late-stage projects will certainly provide a very good opportunity for the company. Besides, we are also increasing our BD efforts towards securing early-stage projects to widen the project pipeline, laying the foundation for long-term growth. We are working on over 70 active projects. Ongoing commercial supplies for about 10 products, including APIs as well as several intermediaries. Key CDMO growth projects across our R&D and commercial manufacturing facility is on track. Our Crop Science unit is under construction and the Animal Health unit has started commercial validation supplies and scaling that value. These capacities are almost fully contracted with a big pharma partner. The new Animal Health site, we have capabilities to handle steroids, hormones and high potent molecules apart from other large volume products. Our focus continues to be leveraging significant scientific overlaps and build diversified revenue streams from customers. In the bio division, full year reported stronger than expected growth of INR 164 crores sales, 28% over the previous year. This was despite transitionary very low Q4 sales because of order cyclicality. The strong growth was led by diversifying application now for CDMO services and rapid expansion in our customer base. We continue to grow our enzyme engineering and production for small molecule, clinical and commercial API projects, which will augment our pipeline using Green Chemistry for sustainable manufacturing. During the year, we operationalized downstream capacity and R2 capacity increase by 20%. By unit it is likely to achieve peak revenues during our FY '25. We also made plans to create larger fermentation manufacturing capacity both in Vizag and Mysore, respectively. Earlier, we mentioned only Mysore, but we also initiated construction of bio at Vizag because of opportunities we saw in the GMP pharmaceutical manufacturing. The facility will be ready by end of FY '26. Let me share brief on our quality and ESG initiatives. In 2024, the company underwent more than 130 quality audits by multiple regulator agencies and several customers. The company has successfully passed audit inspections without critical findings. We remain committed in advancing quality systems, meeting stringent requirement from clients as well as global regulatory standards. We're also making good progress on our ESG, EHS agenda for long-term success. Now let me turn to our broad FY '25 outlook. We are entering the year with solid foundation and remain committed to unlock sustainable and profitable growth by focusing on technology breadth and the commercial excellence of the company. We are prioritizing efforts to improve our operating margin, particularly increasing asset utilization across our network and delivering on few of our late-phase commercial NCE opportunities. We also expect pricing headwinds in the part of the API portfolio, but which we believe will offset from volume increases and continued cost improvement measures. At the same time, we have seen investing -- we have been investing in Laurus' future and continue to create long-term value for our stakeholders. With that, I would like to hand it over to Ravi to share financial highlights.

Thank you, Dr. Satya, and very warm welcome to everyone on our quarter 4 and FY '24 earnings call. Excluding large CDMO PO, the -- we have a 9% growth in FY '24. Total income of operations at INR 5,041 crores against INR 6,041 crores. And overall, actually, we declined 17%. During the quarter, we reported INR 1,440 crores sale against INR 1,381 crores, increased 4% year-on-year and 21% quarter-on-quarter, growth supported from all divisions. Gross margin for full year is around 52%. The reason -- the main reason for the gross margin decline from quarter 3 to quarter 4 is the product mix. Our EBITDA FY '24 was 16% and for the quarter, it was 18%. Our diluted EPS for FY '24 INR 14.60, is it correct? No, sorry. INR 2.9, reporting a decline. And our ROCE is at 6.4% versus 21.3% due to lower operating results and strong capital deployment towards growth projects. On the CapEx front, we invested close to INR 700 crores for the year, and continue to invest in CDMO and Bio divisions, majoritively. Our net debt stood at INR 2,368 crores, as we indicated around INR 2,500 crores and debt to EBITDA is around 3x. It will reduce in the coming year based on the better performance and capping the debt at the similar levels. Going ahead, we are focusing on gradually returning to growth and prioritizing investment in high-value segments, along with the improvement in the working capital efficiencies. You can refer IR presentation for more details. We also would like to take this opportunity to convey that we have proposed a certain board-level reorganization. So Dr. M. V. G. Rao, who is an Independent Director and non-executive Chairman of the Board, shall end his second term on 17th May. You're all aware actually in any Board member -- Independent Board Director, can be there for only for 2 terms. Based on the age actually he is retiring. And accordingly, the Board of Directors are proposing to reorganize to take care of the future requirements. Now another thing is the company is growing and expanding to newer business areas such as CDMO business, including Animal Health, Crop Sciences, Biotechnology, Cell and Gene therapy, apart from the generics. And the KRKA JV under the Generics. Therefore, there is a need to groom the next generation to take up the increased responsibility as part of the succession planning. With that, we are appointing Dr. Ravindranath as a non-Executive Chairman of the Board of Directors with effect from 18 to May 2024. But of course, Dr. Ravindranath is the Board member and Independent director since 2017. Appointment of Mr. Krishna Chaitanya Chava as the additional Director and Executive Director; appointment of Soumya Chava as additional Director and Executive Director, Krishna and Soumya are son and daughter of Dr. Satya, and appointment of Sekar Karnam as additional director. He's a retired banker and he worked in SBI as a DMD and a couple of other public sector banks as a Managing Director. So this is -- with this, we request the moderator to open the lines for the questions and answers. Thank you.

[Operator Instructions] First question is from the line of [ Sajal ] an individual investor.

Dr. Satya, do you believe that the whole can be greater than the sum of parts in the context of offering CDMO services in biocatalysis, enzymes, cell and gene therapy and of course various chemistries across Animal, Crop and Human Life Sciences, that's my first question.

Thanks for asking a very interesting question. And sum of the parts is greater than the whole, definitely. For some projects, we started the biocatalysis using third party supplied enzymes, whereas the --our big pharma partner decided to use our expertise in R&D and manufacturing of enzymes and provided the plasmids and we made the enzymes and currently using that for the batches being executed. This integrated approach is definitely going to offer a significant advantage when compared to nonintegrated players, who are not capable in making enzymes themselves.

So has there been any difference in the level of engagement with the innovators today versus let's say, 5 years back when we were in the Human chemistries, Human pharma chemistries that is, has that level of influence for engagement shifted?

Absolutely, the depth and breadth of engagement has gone up. They can talk to 1 vendor, who can offer all these. That is one. And second, for them, there is no need to go to another CMO for a large-scale manufacturing. We can offer enzyme screening. We can offer -- in fact, now, most of the projects we're handling are very complex in nature. And it has at least 1 or more continuous flow chemistry techniques, and also at least 1 or more biocatalysis in a 10, 12-step complex chemistry. So these are becoming an integral part because the big pharma's commitments towards ESG also pushing them to adopt new technologies, cleaner and greener technologies, pushing them to go to continuous flow as well as the biocatalytic approaches. So we are becoming a very interesting partner to offer all these.

Sure. And secondly, related to my first question, Dr. Satya, in the context of this BIOSECURE Act and the stated interest quite vocally from various innovators and the government organizations across the [indiscernible] they want to move away from China, the dependency on China. And the large 3, 4 players in China have got a significant exposure in terms of CDMO services coming from U.S. And in this context given that we have the capability and the capacity. Given -- so what I'm trying to understand is if I look at the large 3, 4, 5 CDMO players in China, they have got significant exposure to U.S. and now we have got the BIOSECURE Act and this desire to move away from having overly dependent on China. We at Laurus have the capacity and the capability, right? Are we in the position to take advantage of this shift that is imminent and it's already happening at various discussion levels. So, can something materially change for India as a whole over the last 2, 3 years. I mean that's the expectation that we have and how do you see, from your vantage point?

This is a very broad question, [ Sajal ]. So this shift in big pharma to divert with their vendor base has started. All Indian CDMO Companies are at the beginning of that shift. So a few companies will definitely be benefited from this. But it will take its own time. So they have to -- if the partner is an existing customer, then onboarding is easier. If they had to onboard a new vendor, it will take its own time. But the benefit of the diversification has started showing results. It is all very clear we got to more RFPs in the last 12 months for [indiscernible] projects when compared to previous years. That is an indication that there is a diversification effort from big pharma, and it is clearly visible.

Sure. And finally, the debt side, we have got 3x net debt-to-EBITDA today. Is it fair to assume that the debt has peaked when EBITDA start mean reverting, we should be below 2x net debt to EBITDA? Or is that's the kind of aspiration that we have in our net debt to EBITDA to somewhere under 2x?

Yes, [ Sajal ] Once the EBITDA improves, that is our aim. And if you look at even historically also, at this kind of a range actually in the last 15 years, we have only for a few years. And we are expecting to come down in the coming year. And your line is not very clear, [ Sajal ] Actually, I think you're -- you may be using like speaker.

Next question is from the line of Jeevan Patwa from Sahasrar Capital.

Sir, 2 questions. So one is on the FDF side formulation side. So we have launched 1 product in the U.S. and there are 2 more products we are going to launch in U.S. I remember some 2 years back, we used to say that we want to be a global leader in 15 products, right. So are these 3 products are in that list of 15 products we wanted to be the global leader?

Jeevan, that's right. So these are the products which are genericized with significant volume and also still growing. These -- the new approvals came as part of our long-term strategy for global markets, not just U.S. A couple of products we are also planning to launch in Canada now, those products.

Because all 3 products have are -- pretty big product. So -- but when you say that we want to be a global leader, are you actually expecting to have like 20% plus kind of market share in this product over a period of time?

We don't want to get into market share by disrupting market by only price. So if you look at for the products where we have increased our market share, it was done over a period of 12 to 18 months after approval. We don't want to get on the day 1 to secure the market share. That means we are cutting our own legs. So we wait for the right opportunity to get market share.

Perfect. Perfect. And secondly, on the formulation last quarter -- last to quarter you said that, we have actually got a client where we were doing tertiary packaging [indiscernible] formulation. So is that contract started or it hasn't yet started? Or when it's going to start?

We're investing more in the packaging lines right now to cater to that contract. And it is not a onetime contract. It's a multi-product, multiyear contract So we're investing in the packaging lines in the new formulation capacity building.

Okay. So when can we expect it to start, sir?

We started supplying finished packs from the existing packaging lines and we are buying 2 more packaging lines, which will be qualified by September this year.

Okay. Okay. So post that, that contract will start fully.

Yes, that's right.

Okay. Perfect, sir. And on the CDMO side, so last few years, we have been adding multiple capabilities on the CDMO side. But we haven't yet heard about any new contracts that we have signed. So after the agrochemical contract, I think, we haven't yet announced anything on that. Is there anything in the pipeline in the very advanced stage where we expect have long-term contracts?

Currently, we don't have agreements in negotiation for long-term talks, but several projects are moving into later clinical phases. For example, currently, we are validating 2 APIs, which will go into the ANDA soon. So the scale at which we are operating moved to offering APIs, not just intermediates. That is a significant step. If you look at -- in the previous [ Sajal ] was asking a question on the diversification. See, most of these big pharma source APIs from elsewhere. So when they want to add new vendor, they want to have a vendor who can offer APIs, not just starting vehicles or intermediates. So that is the advantage we are in right now. But these batches, signing, approvals is a long-term process, but the prospects looks very interesting.

Sure. And sir, on the bio side, so if I heard right, you said that we are starting work on Vizag and Mysore, both the sites. Earlier, we were only working on 1 site, Mysore site.

You're absolutely right. As Ravi mentioned in his commentary, we have opportunities to produce pharmaceutical grade intermediates and products...

Is it Fermentation API that we are talking?

Intermediates and API, both. So while we changed -- augmented our strategy to non-pharma products at Laurus Bio and pharmaceutical-related fermentation products in Laurus. That is the change what we -- change in strategy what we had in the recent past.

So Mysuru will be mostly the food protein site? And Vizag will be working towards pharma segment?

You're right, Jeevan.

And in that, I have just read on project report, which was submitted to the government on the food protein side, Laurus project report, which mentions about 10 different food proteins with total capacity of 1350 tons. So is it like the long-term plan of the company of getting into 10% food proteins of 1350 tons of total capacity.

Those are the pipeline products. So those are all contract manufacturing. You see, the Laurus Bio is -- except the cell cultured ingredients, none of these food proteins are marketed to customers. This is B2B.

Because each of this protein is very high value proteins, 1350 tons pretty large capacity.

When it is a food 50 tons is not a big, it is a small.

Next question is from the line of Krish Mehta from Enam Holdings.

I wanted to get the mix for ARV versus non-ARV for Q4. And ARV FDF versus non-ARV FDF for Q4.

In the APIs in the Q4, out of our INR 745 crores, INR 417 crores -- INR 408 crores came from ARVs and INR 337 crores came from non-ARVs. So you are also seeing the gradual increase in the share of non-ARV APIs and also gradual share increase in the ARV formulations as well.

And what could be the number for the entire ARV share for Q4?

Can you repeat your question?

I was asking what is the entire number for the total ARV share for Q4 including FDF and ARV?

INR 709 crores.

That's about 50% of our sale came from ARV in the Q4, formulations specific.

Next question from the line of Nitin Agarwal from DAM Capital.

Sir, my question is on you made a few references to late-stage contracts on CDMO. So are you referring to molecules which are already commercial and you would be becoming a second or third source for the innovator. That is the kind of contract you're talking about over here?

We -- what I mentioned 2 products under validation, those are yet to be launched. They are filing NDAs soon.

But, sir, are you also pursue opportunities where the molecules are already commercialized and the innovator is looking for a second supply source?

Some intermediates, yes, but those are at the very early stages of progress, I would say. I put it that way.

Sir, if I would then probably summarize some of the things that you just said. Can you give us some time line for when would the meaningful impact of The Animal Health business contracts will start to be visible, Crop Protection contract becomes to start visible.

I can't give you more specific details, but we expect these products and the RFPs what we are receiving will add a lot of value for the -- all the stakeholders.

Next question is from the line of [indiscernible] Capital.

Mr. Ravi, first, a couple of housekeeping questions. What sort of tax rate do you expect for next year and thereafter? We are now above the corporate tax rate. How do you see this planning out?

I think we shifted to the new regime for the Laurus Labs. So the -- we expect to be around that 25% plus will be the tax rate. But our subsidiaries, we haven't adopted in -- we haven't migrated to the new regime. So maybe we expect in the similar range what we have this year.

Okay. And what's the CapEx plan for next year?

Sorry?

CapEx.

CapEx, I think, we'll be in the similar range of the current year.

And sir, where would that go to?

That goes to the Bio and the CDMO.

Okay. The receivable level as a percent of sales appears to be pretty high this year compared to earlier years. Why is it that? And is it going to remain like that?

We are not clear to your question. Can you just repeat?

The consolidated receivables number, debtor days, appears to be higher this year? Is it -- why is it? And is it going to stay like that?

No. Because of the quarter revenue is higher the receivables also higher by end of the financial year. But it is based on the quarter revenue, the receivable number will change too.

Understood. Okay. And finally, could you just help me understand the thought process behind the investment in ImmunoACT? I mean specifically, how did you -- what kind of financial analysis did you do, what kind of opportunity that product has? And what sort of ROI have you reached from it?

I think a few years back, when we had a -- when we have -- still we have that strategy of investing up to 10% of our profits into disruptive technologies, either in-house or external. When we are explaining the strategy, one of the big fund. Actually, they have connected this ImmunoACT team. Then we had a lot of discussions around the world with a few experts and a few oncologists on this treatment, and we found it's very interesting. And that's how we made a first investment of INR 40 crores. it was a high-risk investment made a few years back when it has not even completed a Phase I clinical trial. So once the Phase I clinical trial completed and then before completing the Phase II clinical trial, again, we got an opportunity to invest further. But of course, the valuation has been much higher than the first investment because the Phase II -- it is about to complete the Phase II approval. So now they got the Phase II approval and then they already launched in the market. They already serviced. Now today, including their clinical trials, they have completed the 100 patients treated. We're very happy that we could be able to contribute through our money. This treatment has come to India. So -- and then recently, you must have noticed in IIT Mumbai, President of India has dedicated this product to the Indian people. So it's very interesting things going on. They are setting up a large manufacturing facility in the Navi Mumbai. They got a land parcel, and they're building on their own. I think it's an interesting things happening there. And then we also -- they are also tying up with some other countries. And that's also encouraging. And they're also trying to get in another treatment. They're also in the -- they have to conduct a trial. So this is -- it looks interesting today. But we don't have any plans to further increase our stake, and they don't require any money more.

When you look at the kind of investments that we are doing. For the investments, what we made in ImmunoACT, so far, we're only recognizing our share of losses in our balance sheet, and also invested almost INR 120 crores. So -- but the opportunity is very big. And like that we are also investing in R&D as well as in the manufacturing assets at IIT Kanpur. These initiatives are putting, would be very interesting for the long term, but short term these are very painful investments.because we are investing in CapEx, OpEx and all these are going through the balance sheet. But one has to realize that your company is putting money in the right places for long term and sustainable growth.

Next question is from the line of Bharat from Bosch.

We have increased our API capacity by more than 50% recently. But if you see this other API segment, last year, we have done around INR 800 crores. And this year, we have done around INR 600 crores. So it's around -- decline of around 25%. How do you see this like capacity going up 50% and revenue declining by 25%?

The capacity going up is the reactor volume and most of the reactor volume once we've increased is utilizing for the manufacture of clinical phased programs of big pharma. So the capacity increase is not primarily meant for generic APIs. It's majority meant for clinical programs for Phase II, Phase III and validation batches.

So do you see any pricing pressure in other APIs because there's a decline of 25% in other API year-over-year?

So actually, if you look at the quantum of revenue coming from other APIs is only a quarter of our revenues. That is not the big chunk of revenues. 50% of the API sales comes from ARVs and then contract manufacturing and Onco is another 25% -- 30% actually. Maybe around 25% is contributed other APIs. So the growth in other APIs or lack of increased margin in other APIs is not going to impact the entire APIs segment.

Okay. And if you see compared to Q3 and Q4, there is no much significant product mix change. In fact if you see the Onco API contribution increased from 7% to 10%, but there's a decline of 450 basis points in the gross margin. May I know the reason for this?

That is primarily driven by the product mix in Q4. If you look at there is little growth in our CDMO revenues from Q3 to Q4, but there is a significant growth in our ARVs both the APIs and Formulation in Q4. So these -- and also this is the primary reason for that.

I think -- if you look at quarter 3, Bio and Synthesis together 22%. From there now in the quarter 4, it's 18%. So the -- both Synthesis and Bio are the high margin -- high gross margin areas. 4% decline is like now changing the part of it. And second, the finished goods and in process also inventory has come down. So the part of the overheads will be added to the inventory valuation. So that also is another reason. These are the 2 reasons. But once -- in the coming years, we are not saying that this will be at the same level, but it can improve once the CDMO revenue share is being increased in overall.

Okay. That's very helpful here. And just for my understanding, just to mention that I understand right. So the R3 in Mysore is 2 million liter capacity, that is state approved and then now we are building a new plant in Vizag, that is also 2 million liter capacity. so in total, it's 4 million liter fermentation capacity, am I right?

CCan you repeat your question?

So in Mysore, the R3 plant in Mysore is 2 million-liter capacity, right? And the new plant, which we are going to build in Vizag is also 2 million-liter capacity, right? So it's total 4 million liters capacity?

So is it -- but actually, the fermentation plant we are planning at Vizag, there will be currently is 500,000 liters only.

Okay. So this is on top of R3 in Mysore it, right?

Yes.

And my last question is that I understand that management is very bullish in CDMO segment. But if you see the trend of our CDMO revenue for the last 3 years, in FY '22, we have done around INR 900 crores and FY '24, we have done again INR 900 crores. So in the last 3 years, it's almost flat with no growth. How do you see it? It's like can you expect good growth in coming years?

If you look at the investments that we've made in Animal Health front, will see revenues -- significant revenues in FY '25. Our Crop Science is strong, you will see investments maybe next year, not even this year. And many projects are moving from Phase I, Phase II to Phase III are commercial. So I would say this is a transitionary period for the investments that we have done to see significant contributions coming from those initiatives.

Next question is from the line of Rahul, individual Investor.

So Dr. Satya, in terms of strategic priorities and beyond next couple of quarters, can you share your vision for the company's long-term growth trajectory? And that will be my first question.

See, if you look at the transformation and transition the company underwent in the last 6, 7 years from a pure-play API to Integrated Formulations, then we started investing in Bio, then when we started investing into Animal Health, started investing into Car change chemicals and also Cell and Gene therapy, assets being created. So all these will put the company into a very integrated CDMO player offering broad segments. And each of these segments has their own gestation. For example, selling enzymes is easier, Crop Science is easier. Animal Health may have to go through a lot of regulatory pathway. And the Human Health has to go through even more stringent and long regulatory pathway. But all these we've invested very early into this vendor diversification by the major pharmaceutical companies. So we believe we have created technology platforms and also created capacity to capture that opportunity. And we are saying this for the last 3 quarters. That numbers haven't improved significantly as one of the investors asked FY '20 to FY '24 revenues are same. It is true. But the clinical development time line is 7, 8 years. If it is very short range 5, 6 years. And we have projects in different phases of their life cycle. And when we are investing in these initiatives, either we have partner who is willing to work with us or we have a contract with a partner who is already working with us or we have conviction that people will come to us, use our capabilities. I think all this will definitely demonstrate in the -- you asked your question in, I believe, 1 or 2 quarters. But at some point of time, these numbers will come. And all of us who have confidence in the company will definitely benefit from this.

As a follow-up question, since CDMO is a integral part of the business. 5 years out from now, around what percentage do you think CDMO space will be contributing to the overall revenue mix for Laurus? And In your personal humble opinion, are there any pharma peers here that you or Laurus Labs looks up to that are doing excellent work in the CDMO division? If you can share with us even that that will be very much appreciated.

CDMO business used to contribute 20% of revenues in FY '20, FY '21, '23 was a big jump because of the COVID-related supplies. But again, FY '24 is similar to 20%, if we add CDMO of ARVs and the Bio about 20%. We expect in the next couple of years this should grow to again 1/3. That's our belief.

And any Indian pharma peers that you think are doing great work in the CDMO space that as a company we can pick up the best practices from or you look up to?

I mean I don't want to comment on your question.

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

Yes, sir. Sir, firstly, on this $40 million Laurus fermentation CapEx. So is this considering the contract already in hand or we are building the facility and then subsequently, we'll look for a contract?

It's a mix of both. We are also -- have certain intermediates plan and some partners want to use our expertise in fermentation. So it's a combination of internal as well as we make products for our partners.

And sir, out of this total INR 700 crores CapEx if you will readjust for FY '25, how much would be funded from [indiscernible] crores or will there be further increase in debt?

We don't -- I think Tushar, we are not planning to increase too much debt. So I will use -- you know our depreciation itself is almost like INR 350 crore, INR 380 crores. So I think we will try to manage without increasing any substantial debt, Tushar.

Okay. Okay. And the CapEx which we have invested to, let's say, INR 2,600 crores or in particular for the CDMO project. So effectively the pickup timeline, because as we have indicated in the presentation as well that there has been some delay in the pickup of the Animal Health facility, which has been actually operational from November '23. So effectively, when do we need a meaningful scale up from the investments which we have done on the CDMO facility. Is it like second half FY '25 or is it getting pushed to FY '26? Sir, I'm not able to hear you.

In this year, FY '25, we will deliver large quantities for Animal Health NCE program from that site. And will be completing validations for around 4 products in this financial year, commercial validations. So we started or we are going to start commercial supplies from Annual Health facility this year. Whereas Crop Science facility will be ready by end of this year, but commercial supplies will come only next year. In the CGT space, we're building vector capacity and then gene therapy products capacity at Kanpur. Maybe we will have revenues only in the next financial year. I hope I answered your question.

Yes, sir. And similarly, also, if you could throw light on the API side investment? because at least in FY '23 also at the industry level, API has witnessed significant erosion in prices, while at least FY '23 bigger companies were able to offset its higher volume throughput, but broadly, these APIs are like legacy or old APIs or the demand would be in the range of, say, 5% to 7%. So will we be able to offset further price erosion in FY '25 also? Or will we see the pricing headwinds impacting the profitability for FY '25?

We don't expect the pricing will be impacted further. And we will give you more details in the coming quarters conference calls. See, we are identifying some areas where we could really add value by making fully integrated products. We'll give you more light in the coming quarters? What are the areas we're focusing in the API space, Yes.

Next question is from the line of Madhav from Fidelity.

I just had 1 question on the IIT Kanpur linked project, which you spoke about, where you said some revenue could start in FY '26. Could you give us some more detail in terms of how much CapEx are we doing here? And I mean, who are the -- typically, who are the clients these kind of projects? How many products do we have? It's like a slightly new thing. I don't think you mentioned about revenue starting from this part of the business earlier.

We expect some revenues will come next year for vector manufacturing. In that CapEx and OpEx in the next 3 years could be potentially close to INR 300 crores, the next 3 years, CapEx and OpEx would together.

Okay. Okay. So INR 300 crores of CapEx for the next 3 years...

CapEx and OpEx, I'm not saying only CapEx. It is both.

Total, Okay. Okay. So when you say OpEx it seems like R&D spends for? That's where area of spending will be?

R&D spend will be in the range of 5% only, yes, still.

For the company as a whole, right?

Company, the overall company.

I think CGT, what Dr. Satya said, you need to keep in mind that it is assuming that it needs to pass through a clinical trial. Majority cost will be for the clinical trial. So -- otherwise, if it is not successful, then clinical trial costs will not be incurred.

You're saying this INR 300 crores CapEx and OpEx [indiscernible] is linked to a clinical trial which will come in if the project moves ahead successfully in the next few say sort of steps?

Yes.

Next question is from the line of Ankit Singh from Kotak Institutional Equities.

This is Alankar here from Kotak. Sir, just 1 clarification on gross margin. You made that point on lower contribution from Synthesis and Bio. But just trying to understand whether higher CMO contribution in the API segment has also led to lower gross margins in this quarter?

The CMO segment in APIs is better than General APIs, but less than the CDMO. So you're right, that is also a part contributor.

Understood, sir. Sir, then essentially, from an overall EBITDA margin standpoint, would it be fair to say that our EBITDA margins can improve meaningfully and go beyond 20% once again, only once this Synthesis and Bio contribution increases fairly significantly. Of course, I mean we need to adjust for a slightly higher CMO contribution in this quarter. But more from a directional standpoint to go beyond 20%, we need a CDMO Synthesis plus Bio to increase meaningfully?

Right, yes.

Understood. And maybe one final question, sir. Regarding your discussions with CDMO clients, are these more with existing clients? Or has the engagement with potential new clients increased significantly over the past year or so?

2 new clients, but the extended more relations with the existing partners.

Sorry I missed the first bit sir, you mentioned?

We've added 2 new clients and extended -- we're extended in the sense increased our product basket with the existing clients.

And when you say added 2 clients, does it mean on the engagement side, there would potentially be more clients. We are discussing with more new clients, we are discussing the CDMO contract?

At the every stage -- at the very early stage. Nothing meaningful will come in the 12 months from the new clients. By the time, we signed [ CDI ] 6 months will be over.

Next question is from the line of Foram Parekh from Sharekhan.

So sir, I think you said that in CDMO sales, sales from Crop Protection and CGT sales would not be a part of sales in -- for the next 1 to 2 years, even Animal Health sales would be after FY '27. So with the same amount of CDMO sales, can we assume that EBITDA margin for the next 1 to 2 years would be in the same range? Or there are -- I mean there is a potential to increase the EBITDA margin. So how should we look at it?

See, what I mentioned Crop Sciences and CGT, no revenues will come from FY '25. With the Animal Health revenues will come in FY '25 itself. But the peak revenues in Animal Health will be in FY '27.

Okay. So with just so do we at least see 100 bps increase in EBITDA margin annually.

I think we don't want to give a specific number. We hope the EBITDA margins will improve. Because -- see, we are not taking any new initiatives. People are there at all these new factories. So any sales coming from -- extra sale coming from will -- should add into the EBITDA margins.

And sir, my second question on the ROCE. We are at the bottom of the ROCE levels right now. So from here on, what is our plan? I mean, do we have any target ROCE in the mind, for the next couple of years?

We can't tell for the ROCE for the couple of years. But broadly, we were -- we always used to aim for 20% to 25%, but I think because we made a lot of investments, once we started yielding out of this investment, we can be better ROCE.

Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Dr. Satya for closing comments.

Thank you for participating in our Q4 FY '24 and financial year '24 results. And we appreciate outside in view of the organization and asking very relevant questions. Thank you, everyone. Have a good evening.

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