Laurus Labs Limited (LAURUSLABS) Earnings Call Transcript & Summary

Ladies and gentlemen, Good day, and welcome to Laurus Labs Q4 FY '25 Earnings Call, hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors.

Thank you. Hi, everyone, and a very warm welcome to Laurus Labs Q4 '25 Earnings Call hosted by DAM Capital Advisors Limited. On the call today, we have representing Laurus Labs Management, Dr. Satyanarayana Chava, Founder and CEO; Mr. V.V. Ravi Kumar, Executive Director and CFO; and Mr. Vivek Kumar, AVP, Investor Relations. I'll hand over the call to the Laurus Labs management team to make the opening comments, and we will open the floor for questions.

Thank you, Nitin, for the introduction. Good afternoon to all our stakeholders. Financial year '25 has been a year of significant acceleration and diversification across our company and are proud of continued transformative progress we are making in enhancing capabilities, enhancing capacities, meeting complex needs of our customers, thereby creating value for all stakeholders. We continue to execute our strategic priorities with a strong focus on commercial execution. By leveraging our leading technology platforms, we advanced multiple chemical state projects and commercial phase programs for Big Pharma that has significant patient benefits and also strong commercial potential for the company. I would say majority of these projects are utilizing cutting-edge technologies like bio catalysis, flow chemistry continuous manufacturing, high-energy chemistry, cryogenic reaction etc., which have been growing interest from our partners and also companies focus currently. While we continue to work towards realizing the potential of the late-stage pipeline, we're also strengthening our focus to broaden the project funnel and servicing early-stage clinical programs, especially after commissioning our new small molecule R&D facility recently, which leverages advanced parcel development capabilities. These efforts are helping us deepening our cooperation with major clients and thus securing long-term growth for the organization. Our initiatives in cell and gene therapies have also reported significant updates for the year. Our associated company, ImmunoACT has supported about 300 patients with very good survival rates using NexCAR19. ImmunoACT also carrying Phase I trial for pediatric purpose using NexCAR19 and also another product got permissioned for Phase I clinical trials for BCMA. These additional manufacturing capacity for NexCAR19 is progressing as per schedule, and will be ready for operations by September '25. Regarding new leadership, recruited to lead our initiatives on gene therapy and also antibody drug conjugates, we plan to invest over $15 million to build a GMP facility, which will have capabilities to do Plasmids, Vectors, both adenovirus and anti-retroviral and also the ability to do antibody drug conjugation. Moving to our financial results. FY '25 demonstrated strong resilience in our core business, and we reported healthy operating results. The growth reflects continued robust demand for our CDMO offerings and higher sales in the FDF business. Company achieved a revenue of INR 5,554 crores. Gross margins were healthy and maintained around 55% range and EBITDA margins expanded by 4 percentage points to 20% following better operating leverage. When we look back at our last 5 years, Laurus has done successful expansion of the business and product portfolio. Today, our share of ARV revenues have come down from 67% to 45% in the last 5 years. whereas our CDMO share has moved from 13% to 28%. And we are expanding into multiple therapeutic area within our generic portfolio. These results demonstrate the strength of our business and give us confidence in our outlook. Before we move to the business performance, we have adopted and updated our division reporting structure to make it simplified and focused along 2 distinct business model, CDMO and generics. In the CDMO, we are reporting results in small molecules and large molecules. In CDMO small molecule division has continued to build on the high market momentum and saw robust demand for our integrated commercial offerings, regarding Q4 sales outgrowth INR 461 crores. For FY '25, the division recorded about 49% growth, growth was mainly driven by several mid- to late-stage NCE deliveries and steady increase in sales from new manufacturing assets, which was more down line during the second half of this year. CDMO pipeline movement has remained healthy across clinical, commercial phase. And our full year, we have seen the mix shifting demand increases high-value projects from Big Pharma, which is probably in good support for long-term growth. As on date, we have a pipeline of over 110 active projects, 19 Human Health and over 20 in Animal Health and Crop Sciences. Over 15 commercial projects, including APS and intermediates. We're also nurturing additional relationships in Animal Health and Crop science medians. Key CDMO focused growth projects progressing in line with our plan. In 2025, small molecule APS reactor volume enhanced by 15%, and we are further expanding our multisite capacity for various modalities. In the large molecule CDMO, our Laurus Bio division reported Q4 sales of INR 29 crores. Sales is transitionally lower due to timing of shipments in certain international markets. If you look at FY '24 performance is muted due to timing and discontinued lower profitability business. However, we see strong demand continued in AOF Portfolio. We are looking to break ground for the commercial scale fermentation facility in Vizag by June '25. We believe the new site will further accelerate on high-quality CDMO service capability and growing our industry position to offer CDMO projects, utilizing our enzyme engineering platform. We propose to invest close to INR 250 crores in the projects, which will more than double our fermentation capacity by end of 2026. In the generic, our revenue from generic division has continued strong quarter-on-quarter progress led by both ARV and direct market portfolio reporting a sales of INR 1,230 crores. Performance on the FDF division is in line growing 25% for the quarter and 12% for the full year. We have executed our multiple integrated CMO contract in the year and for some new contracts. We expect this increased sales to continue in future quarters, driving continued improvements in our utilization rate. KrKa JV collaboration is progressing well and land acquisition completed. We expect to break ground for GMP manufacturing facility by June '25. Moving forward, 2026 will be year of rebalancing with generic R&D and manufacturing resources, mainly to enhance product pipeline and meet delivery commitment to our customers. On our R&D front, we have spent about 4.5% of our sales, which is higher by 7% year-on-year. Let me share a brief on our quality and ESG side. In 2025, the company underwent close to 160 quality audit by multiple regulatory agency, and several customers, which was over 20% more than the previous year. Company has successfully completed audits without any critical findings. The company received EIR for Unit 4 with this no pending regulatory inspection outcomes for the company. We remain committed to advancing quality systems meeting highest compliance standards from clients and global regulators. We're also making good progress on ESG and the ESG agenda for long-term success. Now turning into our broad FY '26 outlook. Our business is well positioned, and we are readily evolving towards our goal to become more diversified CDMO/CMO company with promising pipeline, enabling technology platforms and coupled with commercial excellence. We'll continue to increase and deepening our collaboration with major clients, and execute on CDMO potential, while improved resources in generics business. Operating margins expected to improve from better asset utilization and also product mix. I acknowledge the efforts of our dedicated team, which remain committed to the unified vision of providing high-quality integrated solutions to global customers and creating value to our all stakeholders. With that, I'd 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 4 and full year FY '25 earnings call. Total income from operations is around INR 5,554 crore, registering a growth of 10%. For the quarter, we have completed INR 17 crores, INR 20 crores with a growth of 19% year-on-year. Despite the ongoing macroeconomic challenges, we are continuing to see a high level of demand for our offerings. Gross margin maintained at a healthy level of quarter 4 at 54.5%, and for 12 months, it is at 55.4%, mainly due to better product mix as well as the process improvements carried in some of our key large volume APIs. Our EBITDA for quarter 4 stand at INR 477 crores and margins at 27.7%, whereas for the full year, it is around 20.1%, which is in line with our outlook provided a couple of quarters back. On a full year basis, we expect these margins to be higher as we continue on path to operational deliveries, especially execution of our long-term long-lead programs, new asset ramp-up driving better asset utilization. Our profit after tax for quarter 4 is INR 234 crores. And for 12 months, has increased to INR 358 crores. So this is with a growth of 122%. Our ROCE improved from 6.4% to 9.7%. But of course, still, it is at a lower -- close to double digit, but it will improve further based on the asset utilization. On the CapEx front, we invested close to INR 211 crores in the quarter and INR 659 crores per full year. Majority of the expansion, the CapEx is being invested into the CDMO or CMO projects. Our net debt stood at INR 2,594 crores and net debt by EBITDA is 2.3% versus 3.1% in the last year. On the capital allocation front, our strategy remains unchanged, and we will continue to prioritize investments in high-value business segments to drive near and long-term growth. You can refer our IR presentation for more details. With this, I request moderator to open the lines for the Q&A. Thank you.

[Operator Instructions] The first question comes from the line of Sajal Kapoor from Antifragile Thinking.

Thanks for giving me this opportunity. Before I ask my question, I would like to acknowledge a trivia fact during difficult times, you assume responsibility and Dr. Satya and the Ravi, both of you. But now that you have made significant turnaround, you are fully acknowledging the team's contribution in your press release. I mean, this signals everything about the culture at Laurus Labs. And I'm sure [indiscernible] and Krishna will take this strong fabric of culture and to the next level internally. And coming to my question, Slide 14 says 30% increase in Continuous Flow and 40% increase in Bio-catalysis. And then on Slide 26 and 25, you are saying 1.5x expansion in client base Y-o-Y and we can see that 20 new projects are being added to the human CDMO. Can you add some color and help us link these very strong indicators together? So we know that ex-China Laurus holds a leading position in the design and manufacturing of our enzymes, as well as large-scale Continuous Flow manufacturing. How can we leverage this unique advantage to secure partnerships for those projects where innovators are actively seeking for a credible option outside China?

Thanks, Sajal for your comment. Leveraging our enzyme engineering and manufacturing capabilities in our integrated offering is quite visible now. We have many projects at different phases where we are doing multiple biocatalytic steps. And some of the enzymes are manufactured in our bio facilities in Bangalore. And the trend is increasing. We also started developing our own enzymes for our Big Pharma partners. And I think the overlap between chemistry and biology is a clear winner, and we have seen in some projects and the trend is increasing.

Okay. That's helpful. Dr. Satya, as many innovators are looking for a China-free supply chain all the way to KSMs and intermediates today, what's our preparation at the moment? And what are we doing to derisk our indirect dependency on China? So by indirect, I mean, our intermediate supplier may be dependent on China for KSMs today, but innovators are actively seeking for 100% indigenous India supply chain. And is the recent INR 5,000 crore CapEx announcement is a step in that direction, if at all?

We have a team focuses on backward integration. There are some projects where people -- partners are very particular about avoiding certain sources. Some partners are okay. We have to balance it. Using all [indiscernible] materials from one country or avoiding one country is not a scenario where we can do currently. I think we have to balance it depending on what customer is looking at.

And finally, outlook on the Animal and gross CDMO now that we are commercial across both capabilities and Crop included this quarter. How can these 2 segments drive our CDMO segment in the near term?

We have more clarity on our Animal Health business. By end of next year, we will complete all our validations and go into commercial, which is a significant jump in our Animal Health revenues in FY '26. Coming back to our Crop Sciences, we commercialized facility last quarter. And then we delivered material to a partner. And this year also, we'll deliver some quantity. There are a few projects which are at the negotiation stage. One project we have feasibility being done and other is a negotiation stage. We are encouraging discussions. But maybe we need another year to give more confident results about the partner programs and then future of our Crop Science business. We need one more year to nurture that division.

Next question comes from the line of Deepak Kumar from [Veda] Growth Partners LLP.

In your slide, you have mentioned that tariff percentage is creating a very short-term [indiscernible] for your business?

Deepak, can you speak little louder, Deepak?

Am I audible now?

Yes, now better.

Yes. So in the presentation, you have mentioned that tariffs, on all this noise around -- U.S. tariffs and all. This is creating -- this won't create much impact on your business, so just can you highlight a bit more on that, how you are seeing that play out in your case?

We haven't commented any on tariffs, and we -- it's too early to take any call on the tariffs.

So what -- what exactly and there would be some impact that you must be seeing on your business on all the things which are going on in the global right now .

I think, Deepak, we are not clear on your question. Can you please repeat?

No, no, no, no. See, as of now, I think there is no clarity on the tariff. People are monitoring the U.S. tariff situation. That's what we mentioned. We have not commented anything on the tariffs as such.

The next question comes from the line of Ravi Agrawal from Agrawal Investment.

Congratulations first of all, for wonderful result. My first question is on your CAR-T technology. What can be our exact source of revenue in CAR-T business?

ImmunoACT is our associated company. We only reported the full year revenue results from that. The results, we mentioned that overall results -- and also they are also scaling up manufacturing capacity to 2,500 treatments, and which will be ready by September this year.

Okay. Okay, sir. So whether it will be any royalty from hospital or in what way we can be -- and what kind of opportunity or market we can have in future?

It is sales by our associate company, ImmunoACT to the hospitals, the product sales will be the revenue source.

And sir, one more thing I have to ask that last financial year has been that many Chinese companies are following joint venture for biotech supply in China. Means U.S. company and European companies from JV with Chinese company. So whether we direct Indian biotech and Laurus?

Are you there?

Yes, yes, yes. My question is, last financial year, many Chinese company has formed a joint venture with U.S. and European company for biotech supply. So whether it affects Indian biotech company and our Laurus also?

No, we are not planning any.

The next question comes from the line of Bharat from Quest For Value.

Dr. Satya, can you please throw some light on [indiscernible] like with this new Navi Mumbai facility coming up with 2,500 patient capacity getting commercial this year, may I know how many patients are you expecting to be treated per year?

See, when we mentioned the 2,500 treatments that facility can produce and CAR-T to treat 2,500 patients.

I think till now I think 300 patients were treated I guess [indiscernible].

Current facility can treat 300 patients per year. But the new facility once it is ready, it can treat up to 2,500 patients per year.

Okay. And due to this recent trade war between U.S. and China, did you notice any pattern like increasing demand from innovators for the current commercial molecules? Like for example, if China is first source and Laurus is second source, then are innovator thinking like to reduce quantities from China and increase some Laurus?

Adding a vendor, validating a product, getting approval is a 3-, 4-year process. So I think 2, 3 years, 6 months’ time may not change the prospects significantly. We don't see much change in our customer behavior in the last 3 months.

And my last question is regarding this ARV FDF, I guess that for the current quarter, it is around [INR 450 crores] it is what my guess is because you didn't report in the PPT, but I think it should be around INR 450 crores, which is quite high compared to the normal run rate. Did you prepone the deliveries to global fund due to uncertainty in the U.S. funding?

No preponement was done, no sales for advanced because of this. Yes.

May I know what is the ARV FDF sale for the quarter?

We have done about INR 2,550 crores ARV sales.

For the complete year, but for this quarter?

Similar revenues to last year.

The next question comes from the line of Jeevan Patwa from Sahasrar Capital.

Congratulations, sir, wonderful set of numbers, especially the CDMO has shown a very good, impressive growth. Just wanted to understand next year FY '26. So we have given a quality to comment, but I just wanted to understand how do you see the growth coming on the formulation side specifically? One, I understand with the new CMO contract starting in December, that will add to the growth in the formulation. But apart from that, how do you see the growth coming in the formulation side, especially non-ARV formulation side?

Non-ARV formulation sales increased. We are getting a few approvals in U.S. and Canada. And also our expansion to our existing CMO partner will also be commissioned by last quarter of this calendar year. So non-ARV formulation revenue will go up from Q3 onwards.

For first 2 quarters, there may not be significant growth in the formulation. That's what you are saying?

Yes.

Okay, okay. And on the CDMO side, this first -- second half of the FY '25 has been really impressive. But do you think the similar pattern will be for FY '26 that H1 will be a little weak and H2 will be strong?

I think let's -- we should not look at quarter-on-quarter basis. So as we -- you have to compare [indiscernible] .

Yes. Typically, what happens in CDMO is -- so I have seen this pattern since many -- last 2, 3 years. The first half is typically a little weaker and second half is stronger with more deliveries. So is it going to be similar for FY '26?

Maybe we'll give more information during the next quarter conference call. But right now, we can say the FY '26 growth looks good, and then we will let you significant growth in revenues and profits. That's what we can tell you, yes.

The next question comes from the line of Tushar Manudhane from Motion Oswal Finance Service Limited.

Sir, firstly, on the -- so if you could just call out a book keeping question in terms of ARV, API and formulation sales for the quarter?

ARV, API sales for the quarter was INR 800 crores.

So API and formulation separately, if you can share.

INR 803 crores, Tushar. And so probably we can -- you can take the numbers from Vivek after call.

More or less 50/50, INR 400 crores from API and INR 400 crores from formulations.

Sure. So while there has been quarter-on-quarter significant increase in the ARV sales as I could see. But at the same time, the gross margin reduction is relatively lesser. So is it that easy to do that the gross margin for the ARV as well as non-ARV generic businesses similar to that of CDMO business. Is that the safe assumption?

No, no, no. See, as we mentioned, our ARV sales, you look at it year-on-year, we increased only by from INR 2,500 crores to INR 2,550 crores. So not much significant growth in ARV sales. And we expect FY '26 also even in the similar range. When it comes to our gross margins, always we maintained at around 55% level. That means our operations were running very efficiently. The processes were running efficiently and product gross margins are also very healthy. Maybe if our CDMO revenues grow significantly higher than current quarter, then our margins may improve further. I'll put it that way.

And so just extending that, the CDMO is like INR 400 crores to be sustainable ways to look for given the kind of contracts we have at hand. Is that a sustainable way to look for? Or does it have any sort of launch quantities, which might have some repercussion in the near to medium term?

I think I can say that we have good projects on hand. And the opportunities looks interesting, and we expect growth of CDMO revenues from year FY '25 to FY '26. We are not going to quantify how much we are going to grow.

Just one more on the overall CapEx for FY '26 and if you could also further break down that into different areas?

FY '26 CapEx will happen on multiple fronts. The CapEx, what we are doing to increase our formulation CMO, that will be capitalized in FY '26. And we're also doing some -- we're also planning to do some specific CapEx for another partner in our formulation. And our fermentation capacity, we're investing close to INR 250 crores in Vizag. And we are adding more production blocks at Vizag for our API and CDMO business.

And Bio INR 250 crores.

Yes, that's what. Fermentation is INR 250 crores we are investing. So this year also maybe close to -- around INR 1,000 crores will be the CapEx.

And will there be any increase in debt to support the CapEx?

No.

We may not increase significantly.

And just lastly, with this sort of new facilities coming on board in FY '26, the absolute increase in the operational cost, if you could in terms of employee and other expenses, which currently may be at quarterly is about INR 500 crores per quarter, with the new facilities coming up -- because this is something very certain, right? Irrespective of what kind of revenue -- if you could help us understand what kind of quarterly OpEx will be there for full year FY '26 OpEx?

In FY '26, we don't -- we are not expecting any new greenfield facilities come to operations. There will be more production blocks in our existing facilities only. So the manpower addition may not be very significant. So we don't expect significant operational deleverage in the financial year '26 because we are not adding more new sites.

The next question comes from the line of Balaji from Kotak Mahindra Bank.

Congratulations sir for healthy results. Almost -- I think last 3 years, these are the best results as of now. Sir, what was your projection on PE, which is uncomfortable as of now at 175 at this level. After these results, what is your stand, the PE might be around 100 something like that, sir?

How can we comment on PE. Sorry, we can't comment on...

We can only comment on business prospects and the products, facilities, regulated inspections, we have no control on how much multiples and all. So we are not the right people to comment, and we don't have experience in that.

Okay, sir. Okay. And actually, your business and everything is going on very right way. So comment on business, only the fundamental side only, the number side only I have a doubt that's the reason I attended the question.

The next question comes from the line of Keshav Mundra from Guardian Capital Investment Advisers.

Yes. So basically, my question is on the share of API and CDMO segment. So we see that the share of CDMO is gradually picking up and API segment is slowly, is not reducing, but it's slowing down, right? So could you give us an idea about how do you see the margins and the revenue growth rates for these 2 segments over next year in FY '26? And on the same front, can you give us an idea of where you will be focusing upcoming CapEx more towards? These are my 2 questions, sir.

As our share of CDMO increases, we also expect the margin improvement should happen. The second, the majority of CapEx is happening to service CMO or CDMO products.

And would it be possible to give an idea of what revenue growth you're seeing in the CDMO segment over FY '26?

We are not giving any forecast or guidance in terms of how much growth we are going to expect. Maybe as we mentioned, we expect growth in revenues and also profitability in FY '26 when compared to FY '25. I think we would like to stick to that statement rather than elaborating further.

The next question comes from the line of Kunal Dhamesha from Macquarie.

I wanted to understand on the ARV business. I know that U.S.A. is not a big part of our ARV business. But after the announcement, what are you seeing on the ground? And what are some of the latest development on that front?

Recently, what we came to know the U.S.A is supporting treatment, but not willing to support prep, that is prevention. So we haven't seen any significant decrease in orders, or inquiries coming for treatment. And we don't see significant impact to our revenues going forward in FY '26. So we will maintain revenues closer to the INR 2,400 crores, INR 2,500 crores INR 2,600 crores around that level.

And sir, let's say, as a risk mitigation plan because we would be deploying meaningful capacity towards this business, right? So I want to understand, is it possible to pause CapEx for us for now and utilize these capacities for the CDMO business rather than doing incremental CapEx because anyway, there are a lot of uncertainties, the margins are not that great. So is there a possibility that you would put when you look at all business segments?

ARV, we are a strong leader, catering to close to 40% of the emerging world HIV patients. And we expect we'll maintain that leadership position. We don't see any impact coming from either product replacement or lack of funding will be a problem for us to lower or allocate our ARV capacity to something else. We don't expect so. We're running our ARV API capacities fully. And going back to your question, we're using maybe 10%, 12% of our formulation capacity for HIV manufacturing, not more.

But API would be higher, right, sir?

API is higher, and we are running at full capacity. And we don't see that going down in the -- not just FY '26, even next 2, 3 years, we don't see any challenge there.

[Operator Instructions] The next question comes from the line of Rajat from Tata Mutual Funds.

Kunal, just ask my question. So more bit on it. Can you just quantify how much is the business dependent on all these agencies like Global Fund, PEPFAR, Bill and Melinda Gates. If you could just quantify that would be really helpful.

Based on reports about 20% of HIV treatment is dependent on USAID -- U.S. Government funding.

And for us also, that number would be similar?

If you divide our HIV sales, 2/3 is -- not 2/3, maybe 55% is API and 45% is formulations. So for our formulation business, maybe you can take -- I think that 20% exposure are for formulation business. That is maybe INR 1,000 crores [indiscernible] INR 250 crores coming from U.S. supported programs globally.

Sure. In case there is this risk which comes in on the treatment as well, so in that case, how do you think about the business? Like do you renegotiate with countries for tenders? How does it happen? Are you thinking anything around this?

We are not renegotiating. I think we will service what orders are placed. See, most of these orders placed by global agencies, except to South Africa. So I think we will get allocations and we service those orders.

The next question comes from the line of Manoj Bahety from Carnelian Asset Management.

So my first question is, if I look at the operating cash flow and particularly working capital, can you help us understand the reason for slight deterioration there, and I believe that, that is the reason for a slight increase in our debt also. Is this temporary? Is it because of higher sales during the quarter, if you can help us understand on that side?

Partly because we are handling very long complex projects in CDMO, our order to delivery is much longer when compared to generical programs. So some of the working capital is stuck in our CDMO programs. That's one reason. And second reason is as our sales formulations increases in U.S. and Canada, our working capital is also going up because of longer lead times in logistics right now. So these are the 2 reasons for our increased working capital.

But particularly, receivables have gone up like from -- so receivables, I wanted to understand particularly why there is such a big increase on the receivables side?

If you look at the fourth quarter revenue is in higher revenue, right? That is one of the things. But when you take a number of days as for the full year, it looks like higher. But if you look at INR 1,750 crores is a sale in the fourth quarter, the receivables are INR 2,000 crores. So that's how you have to look at.

Got it. Got it. And sir, my second question is like on Slide #25, you have highlighted that there has been a significant increase in RFPs and acute pipeline projects, which is 110 now, 90 is on the Human Health side and 20 is on the Animal Health. So can you help us understand that what this number was like 2 years back? And how do you see -- as an investor, how do we see the revenue potential of this? And at what stage these pipeline projects are?

This number used to be about 60 around that number, 2 to 3 years back.

It has almost doubled sir, right? 60 to 110.

Yes, around 60 yes.

Right. Right. And sir, the second part is that some color on the quality of these pipeline projects, how do we see revenue potential out of this pipeline project, particularly I'm asking whether a good amount of that are near to Phase III.

We have a mix for projects. But I'd say the projects majority in Phase 2 and 3, not in Phase 1, I would say that.

Next question comes from the line of Harshit Dhoot from Dymon Asia.

One question related to ARV on the -- Mr. President of the U.S. has said multiple times that they have stopped the USAID funding. So as you highlighted that is this impacting around 20% of our ARV sales. Is it right to understand that, sir?

We have said, it is affecting, the formulation business, which we are catering, which is funded by U.S. funds is maybe around INR 250 crores. That's what we said. It's not that we are going to lose INR 250 crores sales.

Okay. Okay. Got it, sir. And the second thing, we have been trusted partner of [indiscernible] have given the timely supply and all. And the [indiscernible] a molecule. So will it have impact on us or not?

Actually, we didn't get your question very clear. Can you repeat?

Sir, we are a trusted partner of a [indiscernible] we have given them time supply to [indiscernible] COVID a lot. And now that the [indiscernible] molecule everything. And [indiscernible] .

Lot of echo. We're unable to understand your question.

Can you give me [indiscernible] answer.

Harshit, can you get on to the handset mode, incase, if you're on speaker.

I'm on handset. Is it better now?

A little bit.

I can speak again. [indiscernible] has been known as one of the trusted supplier of [indiscernible]. And where it is [indiscernible] supply chain [indiscernible] will it have impact on Laurus [indiscernible] will it impact on Laurus or not?

Maybe you have to write to Vivek, we can answer, but we have a lot of difficulties in understanding your question. I'm sorry for that.

The next question comes from the line of Chandramouli, an Individual Investor.

I wanted to know when will reach return of capital employed to the [indiscernible] levels, and also on the return on equity going back to those level. If I compare with [indiscernible] or other competitors, they are already there. So would I be as an investor right in expecting that Laurus' is on the growth path for the next 2, 3, 4 years, we will be reaching those higher levels?

I think your point and observation is very, very valid. If you look at the ROCE numbers, we were there earlier. It's not that we never had that number. It will take a few years for us to get there. Again, I think we have a desire and putting our best efforts to get there. I think we'll get there. I don't want to attach any year when we'll get there, but we are putting efforts to go there.

The second question is now that you are getting into multiple optionalities, cell therapy, hospital-related formulations, crop sciences, would you be rewarding the long-term shareholders with optionalities of creating value by divesting such businesses as and when they reach scale? And when do you think you [indiscernible] them to reach such scale?

If you look at we have created well-diversified CDMO offerings, Human Health, Animal Health, Crop Sciences, Dietary and Cosmetic ingredients, small molecules in this and large molecules like enzymes and cosmetic proteins. Out of these, I would say we need some time to get to scale. Our majority of CDMO revenues are coming from human health right now, and that will continue to grow. Our animal health will peak in FY '27 maybe. But we are also nurturing a new partnership in Animal Health, then that partnership will give some additional revenues. In Crop Sciences, as I mentioned to one of the questions, we need one more year to give more granularity in the division, how growth looks like.

The next question comes from the line of [indiscernible] from Nomura.

Sir, in the press release, you mentioned that the generics performance was softer with a lower uptake in the oncology API side. So when do you see this oncology API performance picking up? And could you just quantify what is the oncology API sales this quarter?

As we mentioned, we modified our reporting system to a simplified version of giving generic APIs, formulations. And we are also giving you overall ARVs revenues combining APIs and formulations. I think if you look at oncology APIs, I'm not going to define the growth path of Laurus Labs, previously, currently and in the future also. So if we grow by INR 100 crores or sell less by INR 100 crores, it's not going to impact significantly. That is the reason we modified our reporting pattern to make it simple.

Okay, sir. Sir, my next question is on the CDMO market that you have presented in Slide 7. You said that the market is impacted by the pricing pressure from the IRA. So have you seen the pressures in your customers, to in your CDMO customers? And what has been the impact of the IRA on your pricing or on your revenues in the last 2, 3 years?

I think that is a general commentary we made. It's not that broader commentary. But a lot of assumptions. So we gave market scenario in a concise way, but it has nothing to do significantly with Laurus Labs offering in CDMO.

The next question comes from the line of Chirag from White Pine Investment Management.

Congratulations on a good set of numbers, sir. Sir, my first question is with respect to the CDMO revenue that we have reported this quarter and in Q3. So first question, sir, can you just comment a bit on contribution coming from big pharma and [indiscernible] because you have been mentioning that? And can this sustain for a reasonable period of time, at least for 3, 4 quarters? Or there is an element of lumpiness which is there?

One good thing in our CDMO revenue is, it is coming from majority big pharma partnerships. So what we can expect, we have a partnership with big pharma. So there is a continuum of projects. We are not working on a success of one project forever. So our partners have a very strong pipeline. We keep on getting more and more projects. And our project -- that is the reason our project pipeline is increasing.

Okay. So this was not the case earlier, 2 years back, this was not the case. So the volatility that we have been seeing in the past on CDMO will subsidize significantly. That is the right way to look at it?

Can you repeat the question?

I was saying, in the past, this was not the case, right? So the volatility that we used to see in CDMO revenue should subsidize significantly going ahead, given more number of projects with the similar customer and more number of Big Pharmas in our CDMO revenue. And given that they are in a stage right also.

Yes. Earlier, we have a lot of revenue volatility because we are handling several early-stage clinical programs, whether they go to late stage or not, there's a lot of volatility. Now some volatility will be there. I'm not saying there will be no volatility, but that is reduced significantly because our number of active projects gone up.

And so late stage would include Phase I, right, sir?

Yes. Yes, you're right.

Will include Phase I. And the second, sir, you made a comment that you want to invest in ADC. I think if I heard correct, [$50 million-odd] right? So can you talk a little bit about it, what exactly you are intending to do in ADC? What part you are trying to cover in ADC? And what is the thought process? Because your plate is already full in that sense, given our balance sheet and the debt level. So if you can just talk more about it?

So we already make payloads and linkers in antibody drug conjugates. We have a request from our partners to get into conjugation. We are not going to make maps. We made it very clear earlier also. We only do conjugation because we have good experience in making payloads and linkers.

Just a clarification -- just a clarification, what is the revenue of ADC currently for us because we are doing [indiscernible] and linker?

We're currently is a few million dollars, nothing more.

The next question comes from the line of Utsav Jaipuria from DAM Capital.

Congrats on the strong performance. Sir, if I look at your revenue mix today, CDMO is like close to 30% of revenues. So how do you see this mix evolving over the next 2, 3 years? Like is there a number that you're targeting internally?

We expect the revenues coming from CDMO segment will grow. And we are not giving a number for you to catch. So it will grow. As you have seen, our ARV revenues are, we believe it's going to stay closer to INR 2,500 crores in the medium term as well. And our efforts in increasing our product portfolio and adding more products in generics is also happening. Our CMO in generics is also growing. So as we mentioned earlier, we expect significant growth will come from our CDMO division. So it will grow, and we are not adding any percentage to that.

Okay. Sir, what could this mean for margins over the next 2, 3 years or EBITDA margins, perhaps?

As the CDMO revenues contribution goes up, we expect margins should also improve.

Okay, sir. And just lastly, on the Krka JV. What are your plans for this business in terms of the targeted products and therapies that you are planning to introduce?

I think it is at the early stage right now. And maybe our partner is more keen to divulge those details than us.

The next question comes from the line of Rupesh Tatiya from Intel Sense Capital.

My first question, sir, is this 15 commercial projects, how many are Human Health and how many are Animal Health? And then whatever projects are there in human health, are you like a single source supplier or a dominant or primary supplier in source? That is question number one.

Thanks for raising that comment. So in that 15, I think those are Human Health only. We are not adding any Animal Health into that. Maybe next time, we'll add those, club everything into one and then show. That's like harmonizing, we'll also link those 2 together and then give one number. So 15 what we mentioned is Human Health.

Are you like in a single source supplier or a primary supplier in those 15?

No, no, that -- we don't want to reveal that information.

But that -- I mean that gives some indication on quality of business, sir, right? I mean you have always talked business, right? You've always talked about...

About INR 1,000 crores revenue is coming from commercial supplies. I'll put it that way.

Okay. Okay. And sir, I mean, next year, Animal Health, there is a very clear trajectory. I think we have some INR 100 crores -- INR 600 crores of asset, very clear trajectory, INR 150 crores, INR 200 crores of agrochemical assets, I think very clear trajectory in 2, 3 years. But the rest of the business, I mean, there is no kind of like a way for an investor to guess. So either you give a financial guidance or you give capacity utilization guidance or in some way, either you give a financial outlook or you give some hints about operational outlook because otherwise, it becomes very difficult. So that is my question. Non-animal, non-agrochemical CDMO business, how will the trajectory look in 2, 3 years?

One thing I wanted to give information. When we have clubbed Animal Health, Crop Sciences, dietary supplements into our CDMO, because all those what we're doing have similar gross margins. So we don't want to club low gross margin business with high gross margin business. So we club that into one because all those -- all that revenue coming from one product to one customer. Mostly, it is for branded companies. So we don't need to segregate revenues coming from Animal Health, Crop Sciences, Dietary Supplements and then give you 5 headaches. All those business lines have similar gross margins because of that we have clubbed together.

So maybe what is the total gross block in the CDMO business as of today? And how much are we utilizing?

Gross block for these divisions, we don't have a specific.

Some ballpark number, some ballpark number will be fine.

No, we can't -- because it's -- you can utilize for both the generics as well as CDMO, how can we give a separate asset? It's very difficult.

Animal health and Crop Sciences, INR 700 crores. That number we can give you.

The next question comes from the line of Sajal Kapoor from Antifragile Thinking.

For the follow-up. Dr. Satya with close to 40% employee base in R&D and quality assuming a more industry level 15% attrition rate -- how do you see the demand-supply dynamics given the fresh CapEx that we need to undertake, the recent agreement that we had with the Andhra government. I mean, do you see us getting into a challenging situation where we are not getting the right kind of talent for our requirement because our requirement for R&D and quality will be in a few thousands, right?

I think attrition is in early teens, mid-teens. So even our quality and R&D, as you rightly mentioned, about 40% of our employees in that division -- in that both divisions put together. We have to recruit 400, 500 people every year to maintain at the same level. And we have a well-established mechanism internally, interns, fresh graduates from universities, people with 1 or 2 experience. I think we're managing. And we believe we will continue to do that.

Okay. So you don't see that to be a challenge, including the fresh greenfield, brownfield CapEx that we have just announced, it should not be a problem?

We believe it shouldn't be a problem.

The next question comes from the line of Manoj Bahety from Carnelian Asset Management.

So I was just looking at like from FY '22 to FY '25, total CapEx, which you have done is around INR 3,200 crores. And in one of the slides, you mentioned that the slide just before that, that our current asset turnover is around 0.83 vis-a-vis average of 1.1x. And considering a large portion of this CapEx must be towards CDMO. So I was just trying to understand that with this kind of CapEx, which is already done in 2, 3 years' time, is INR 3,000 crores kind of top line from CDMO are possibility on the CapEx which we have already done and looking at the pipeline of Phase II and Phase III, which we are having.

It's a mix of CapEx in the greenfield sites and brownfield investments were done. So our investment in Animal Health and Crop Sciences will take a lot of time to go beyond [indiscernible] certain ratio because those are the new investments. And our formulation investments are yielding good results. So what the idea we put that slide is to give, there is a possibility to go back to those levels. That's the confidence we want to give it to our investors. But we had 1.1 asset turn earlier. Currently, it is under utilized. And once utilization goes up, we can get back to that number.

Sir, the reason for asking this question because your ARV is not going to grow. And growth will come from CDMO only. So if this 0.83 to 1.1 happen, then CDMO has to contribute to that. So it's INR 3,000 crore of possibility because if we have to reach -- historically, we have done even 1.5x because of the onetime order. But if I take only 1.1x also, is that a possibility?

See, your observation is very right. The asset turnover ratio for CDMO is higher. And once -- it all depends on the projects, scale and the complexity of the projects. I think you have to watch. I think you have to watch. We can't give you a number right now where we'll go there.

No, I think the CapEx, what it went or what is going to be in a CDMO. And apart from that, even a formulation, we are investing it. So I think you will see the growth because we can't specify the numbers, we are looking at as an asset turn. So we can't give more details. But yes, it is a potential to grow more in the CDMO and the formulation. These are the 2 are the growth drivers.

Got it. And just 1 last. You mentioned that next year, your CapEx will be INR 1,000 crores. With this INR 1,000 crore CapEx and the way our working capital has moved, how do you see the debt level, whether debt level will go up or you will be able to manage with the current debt level and INR 1,000 crore CapEx will happen out of the internal cash flow?

Debt level will not significantly grow. We were indicating before also like maybe 10% minus or plus. In that range, actually, we will move.

Okay. 10% has happened this year only. So next year...

If it is at 10% at the current level, it is maybe INR 250 crores plus or minus.

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

Thanks, Nitin, and all the investors for their very insightful questions. Thank you.

Thank you.

Ladies and gentlemen, on behalf of DAM Capital Advisors, that concludes this conference. You may now disconnect your lines.