Piramal Pharma Limited (PPLPHARMA.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Piramal Pharma Limited Q2 FY '26 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gagan Borana from Piramal Pharma Limited. Thank you, and over to you, sir.

Thank you, Swapnali. Good morning, everyone. I welcome you all to our post results earnings conference call to discuss our Q2 FY '26 results. Our results material have been uploaded on our website, and you may like to download and refer them during our discussion. Today's discussion may include some forward-looking statements, and these must be viewed in conjunction with the risks that our business faces. On the call today, we have with us our Chairperson, Ms. Nandini Piramal Mr. Peter De Young, the CEO of Global Pharma; and our CFO, Mr. Vivek Valsaraj. With that, I would like to hand the call over to Ms. Nandini Piramal to share her thoughts.

Good day, everyone, and thank you for joining us today for a post results earnings call. During the quarter and the first half of the financial year 2026 we recorded revenues of INR 2,044 crores and INR 6,977 crores, respectively. The Y-o-Y decline in the revenue was primarily on account of the inventory destocking by the customer in 1 line CDMO order from unpatented commercial product. We continued our focus on cost optimization and operational excellence, which helps positive impact of the revenue shortfall on the EBITDA. During H1 FY '26, the EBITDA margin moderated to 11% and 10%, respectively, for the quarter and half year ended FY '26. In terms of net debt on the balance sheet, we currently have INR 3,971 crores of net debt, which is a reduction of INR 228 crores over March 2020. We will maintain this at less than 3x EBITDA, largely supported by tight control over working capital and CapEx investments. During the year, we successfully maintained our best-in-class quality and compliance track record of 0. We successfully closed 19 inspections, including 1 U.S. FDA inspection at our Aurora facility in Canada without any observations. On the sustainability front, we released our fourth annual sustainability report for FY '25 under the theme of innovating, responsibly, growing sustainably, which has also been partly issued by DNB Business Assurance India. The report outlines our measurable progress in the areas of environment, social and corporate governance, thereby underscoring our purpose of doing well and doing good to sustainable operations. Moving on to business-specific highlights. Starting with our CDMO business. Our CDMO business reported revenues of INR 1,044 crores and INR 2,041 crores during Q2 and H1 FY '26, respectively, impacted by the inventory destocking. In terms of order flows, H1 -- FY '26 was a mixed bag with a good year-on-year trend in new commercial orders, but slower-than-expected pickup in early-stage discovery and development orders due to inconsistent recovery in the U.S. biopharma funding alongside with uncertainties of global trade policy leading to an adverse impact on order inflows and customer decision mix. However, in the last 2 months of September and October, we have seen a significant uptick in biopharma funding. This, along with the increase in M&A activities are early indications of recovery. Subject of this momentum should provide impetus to early-stage RFPs and order inflows going forward. In recent times, we're also seeing increasing inflows of RPI and RF especially in our onshore facilities and differentiated capabilities by BDC, Sterile -- so Finish and ungate commercial development and manufacturing. We are continuously engaging with customers to build a healthy order book for the future. We're well prepared to capitalize on this emerging strong interest for our onshore facility through our timely investments in capabilities and capacities across our North American and U.K. sites. We believe we're ahead of the curve with ready capacities available across our network for clients looking for immediate track transpose. We're also further strengthening our position in North America by investing $90 million across the Lexington and Riverview site part of our ADC salary program. Also to adapt with market dynamics and better engage our customers we made enhancements in our team which we expect to yield positive results going forward. In terms of our existing development pipeline, we're making good progress. We've recently made a joint investment at our sellers well site with new pharmaceuticals for commercial manufacturing capacity for fixed dose formulation of [indiscernible] and [indiscernible] to meet commercial demand of the drug on the left side is instrumental in the development of the product. And now the product is advancing towards commercialization, we're establishing a dedicated manufacturing suite at the Salineville site. -- as well as dual sourcing at the pizza for site in India. In -- moving to our complex hospital generics -- in inhalation anesthesia, we further consolidate the #1 position in the mature U.S. revapor segment with Meonmarket share increasing 45% and in March '25 compared to 44% in March '24. We're also working obtaining regulatory approvals of placebo flooring is the ex U.S. market to model plants in India which should help us with the pickup in the revenue run rate in H2. Sales of intrathecal therapy during the quarter was subdued due to temporary supply challenges, which we expect to normalize in H2 FY '26. We continue to maintain our #1 rank in intrathecal ban in the U.S. with 75% value market share. In the Injectable Payments segment, efforts to result from supply constraints have started to rein results. We're also seeing improved supply helping us to capitalize on the healthy demand in the market. We're also investing in 505(b)(2)s complex generics differentiated generics and branded products through in-licensing deals or good development deals to enable long-term growth. Moving to our Consumer Healthcare business. Our PH business continued to deliver sustained growth of 15% during the quarter and first half of the financial year driven by the robust growth of about 20% in our power gram. Growth was primarily anchored by little Lanctocalamine, CAR and I range. We continue to make our rated investments in media and trade promotions to grow our power brands and to establish and profitable brands in the market. Our spend in media promotion in H1 FY '26 was around 12% similar to last year. E-commerce growing over 40%, now contributes to about 24% to PCA sales with quick comments accounting for over 40% of the e-commerce channel. During the quarter through collaboration with different stakeholders, we smoothly transition to the changed GST rates with no business impact. In terms of new product introduction, -- we launched 26 new products and SKUs during H1 FY '26. Given the slower-than-expected growth in the CDMO and CHC business during the first half of 2026, we moderate our full year guidance to remain flat. Accordingly, we expect our EBITDA margin to moderate to low teens for the year. However, as has been the trend in prior years, we expect H2 to deliver meaningfully better revenue and EBITDA performance. The recent positive credit that also helped us deliver a better performance in FY '27. These include a strong uptick in customer interest for onshore offerings and differentiated capabilities in our CDMO business. We expect the benefits to list given our timely proactive investments in our overseas state. We are also seeing early signs of improvement in biopharma funding which should help order inflows for early-stage discovery and development projects. Also enhancements in BD team to adapt adapting market dynamics and better engaged with our customers should yield positive results going forward. In the CHC business, we expect the growth to pick up and hire inhalation and easier sales and the ex-U.S. markets along with improved supplies for our injectable pain products. Portfolio expansion through in-licensing and core development routes were a to be important drivers of growth. Lastly, we expect our consumer business to continue its growth momentum driven by Power Brands and e-commerce sales. With this, I would like to open the floor for the Q&A.

[Operator Instructions] The first question is from the line of Avnish Parman from [indiscernible].

Is there -- can you give some color on the base CDM of growth? Just like -- I mean, in the first quarter, there was a disclosure that the base CDMO growth grew by mid-teens -- can you give us similar color for this quarter?

I don't think we're giving that disclosure on a go-forward basis. I think we -- overall, our growth is the base business, but we aren't quantifying with and without specific customers, we think that, that will probably add more confusion than clarity in the long term, if we set up a trend of every quarter giving itemized customer-wise revenue. So overall, we are seeing growth in the business, absent the destocking, but we're trying to move away from line-by-line customer disclosures in each quarter.

Understood. And is there any color on this large PO, which is absent in -- it's going to be absent in FY '26. When does it come back? I mean does it necessarily come back in FY '27 or the second half of FY '27. Is there any color on that?

So we -- it's kind of a follow-on, a similar answer to the prior question stated differently. What we would say is that with that customer, we have not had further clarity as they will reserve reordering, that's anticipated. We will give our forward guidance for the next fiscal year a little bit later in the year as we did in other years. And you can obviously look at that customer to publish their quarterly results a couple of days ago, and you can see the underlying growth of that product isn't kind of the -- depending on how you look between high teens and low 20s. And so you can look at the primary source yourself and determine their overall underlying growth. And that should be a factor in their reorg.

Okay. My second question is on the U.S. administration and the intent. Do you think whatever has been happening by the Trump administration. In your view, what are the chances of moving API manufacturing, either from India or China in terms of or, let's say, from Ireland in terms of formal issue. How do you see that moving back to the U.S.? Is that feasible, probable? I mean, whatever you can tell about it.

I would break this into some parts. I think the first part is that we see a general desire to derisk from China. Not all people are moving in that direction. Some are doing what you would call budgetary quotes for Board management. Others are making decisions. And it's not necessarily driven by explicit government guidance, it's more being driven by a general desire to have independent supply chains for those who feel that's important. And so that could manifest through decisions to look at India as a source if it's a higher volume situation or it could be looking on to the western market if it's a maybe a different level of volume required. If we were recently at CPHI and we saw a significant uptick in what we would call onshore drug product interest from a wide range of stakeholders. And so it does seem in the drug product is getting a little bit of a pivot towards, let's say, the U.S. from a market perspective, and that's probably driven by a variety of factors, including the administration. That being said, in terms of specifically, let's say, a recovery of the biosecure in some new form or specifically a fear over tariffs, I'm not sure that it's an explicit link Instead, I would say that there's a general bias towards one, moving out of China for some of our potential and current customers; and two, for a more onshore, particularly for drug product, but also to some extent, drug substance for, again, some of our customers. But there's a practical reality of the amount of available capacity and the cost of that capacity, that means that it will be percentage shifts, not wholesale ships because there's simply just not enough capacity in the U.S. to absorb the full amount. And so it's going to be marginal shifts of X percent or y percent.

The next question is from the line of Mikael from Mount Intercon.

I just wanted to know the capacity expansion that is happening in U.S., so which we are expecting to be completed with 27%. So when can we expect the meaningful revenue contribution from these facilities?

So the U.S. for the CDMO, we have the Michigan facility, which is a facility. We have the -- all right. So the point is we have 3 material facilities in the U.S., the Riverview facility , which is high potent API, the Celesio facility, which is solid dose and liquid remote and then we have the Lexington facility. The substantial expansion is primarily centered around the Lexington facility, and we have a modest expansion that is underway at the Riverview facility, particularly for lingered for A -- in terms of revenue growth potential should the onshore push become more dramatic. We have immediate capacity available at all 3 sites. -- and our message to potential in current customers is that should they want to place something for tech transfer, we could do it tomorrow. And so we don't need to wait for the expansions to complete for the revenue to go up. What we do need is for customers to make the decision to do onshore production and have the money available and the intent to move the programs. And so our message, and we were just at CPHI, which is a large trade fair, as I'm sure you know, and that was a general message we shared with our customers and our potential customers. And overall, the market was receptive to the onshore offering. In terms of the Lexington facility, we have the same capabilities available at smaller scale already. And so our explanation to customers is you can start to track transfer now. And then whenever the expansion is ready, we could qualify the additional line -- and so there's no need to wait, and that's the message we share.

Okay. Also I just wanted to know like what is the addressable market size that we are targeting for this?

We are...

So sorry to interrupt in between. Ms. Meghana, I would request you to please be on mute while the management answers your queries.

I think it's important to note that for any of the areas we serve, we are in the low single-digit market share of this overall CDMO market. It's a very large market. You don't need a large number of wins to get a material revenue growth. India, headquartered CDMOs are still a very modest share of the global market. And we believe that it's also a highly fragmented market, and there's a significant opportunity to grow. And so by no means headroom or available market size, the issue. The issue is our availability of clients to place work in the time frame we want and our win rate.

Okay. And just 1 more last question. Like how are the power brands like little plate performing? Like do we have anything this is active overperforming any of the product that is not performing well? Anything of that sort?

I think the power brands are actually at 20%, and that is at a higher growth rate than the rest of the portfolio, where the average is 15% are doing well.

The next question is from the line of Vinod Jain from WF Advisors.

My first question is whether the FY '13 guidance in terms of revenue and profitability is still standing in view of the need through 1 and Q2 results.

I think we'll give more specific guidance later on in the year, but I think we're still holding to the FY '13 number.

So the guidance stands?

Yes.

Okay. The second question is, even if it is a repetition, whether the loss of demand from the concerned CDMO customer is temporary? Or is it long term?

We are continuing our relationship with the CDMO customer across many other sites and products. And I think we expect to be tempered.

The underlying product is growing. We are there -- we believe we are their primary supplier for their largest market, and we believe it's a temporary situation.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

On first half numbers and looking at fiscal '26 guidance, I'm not asking for any change to revise it, we have a minus 5% decline in revenue. I know we have a second half, which is better. But what are some of the things that give you comfort in the second half if you were to retain your guidance that you shared at the quarter 4. So I just wanted to understand that.

Shyam, are moderating our guidance for revenue to be flat for the year and for the EBITDA margins to moderate to low single -- as you are aware, historically, our H2 has always been higher than H1, and we expect this year to be no different. You will see H2 to be better than H1 for the larger part of the business, both CDMO and comp hospital generics will have a better H2 versus H1. So basis that and basis considering how H1 has been, we have moderated the guidance accordingly.

Got it. And when I look at the individual pieces in that, have you also done -- I think we gave some qualitative guidance on these pieces are going to be like CDMO versus CHG versus the ICH. So is there some qualitative color on how it's going to work even for the 3 segments that?

So we've given guidance at the overall level in terms of how the overall company revenues would pan out. And that's what we have kind of moderated now.

Just a second question. I was just looking at your stand-alone and consolidated financials, first half versus first half. So I know 2H could be different and comparing to but I'm comparing with an and we have seen like cost in the international series. I'm just doing very simplistic concerns are asking it either revenue or PAT. So it has widened in terms of the net profit margins as costs have increased thing. So I just want to understand what's driving that? When do we see starting some of these divergence actually narrow and we start moving to closer towards the break ones on the international?

So given the fact that we have multiple sites outside of India, it's actually a mixed result. Yes, some of the sites are -- get to breakeven. Some of the sites actually are seeing a year that is better than what it was in the prior year. Typically, overseas sites tend to have a bigger H2 than H1 even as compared to India. India is relatively more stable, but overseas has -- so this picture of divergence that you're seeing between stand-alone and consolidated results, this will narrow out as the year progresses, especially in the quarter 4 yes, we do expect the performance of overseas facilities to pick up. If the question is over a longer term, then yes, as you are aware that our overall capacity utilization -- at some of our overseas size is still suboptimal. They are not yet broken even -- and as the capacity utilization increases in the years ahead, which is where we have done our investments and expanded capacities, we do expect the EBITDA margins to move upwards for the overseas facility.

Last to the large order you did mention it's probably a temporary phenomenon. So anything -- I know you don't like talking about individual customer and what the contract are, but what are some of the -- how do we get reassured that we have all what it takes from getting that order at future point of time? Is there if you could help us kind of reassure that piece because that seems to be the big delta and how numbers are coming out versus what you would like to see growth coming back like in fiscal '26.

So any qualitative color you can share will be very things with that customer, we will be showing in green on their internal supply chain dashboard also parameters based on our current performance and our recent performance. because we do have other ongoing work with them. And so we would anticipate that there's no reason why they wouldn't continue to order from us. The stock is depleted. I think just to refresh because some of us have some time has passed. The customer had built up stocks expecting, particularly in the U.S. market, a significant growth, which is the market in which we are supplying for them. And that was based maybe on their M&A case, and it didn't play out the way they wanted. And I think in the prior call, we discussed that there were some third-party validation of this in like a Wall Street Journal article about how that particular product played out for them. And I think we shared that on our prior call. Overall, they -- obviously, it's still growing, but it didn't grow the way they wanted. And so then as a result, they had more stock than they needed. And so we needed to let that stock deplete and then when that depletes then they can reorder for that market from us. So we're -- overall, we have no yellow or red flags on our performance with them, and we believe we are qualified for that primary market and the growing product is growing. They just have to burn the inventory.

The next question is from the line of Madhav from Fidelity.

Just wanted to get an update if you can share any color on our 3 Phase III opportunities in the pipeline. -- how many shots on goal we could probably have in the next 12 to 18 months? Any color that?

We're trying a new trick because a lot of our customers on let us talk about them. But every once in a while, we're lucky and we're able to convince a customer to talk publicly. And so I think the two we can talk about that we put in the public domain because our customers have been happy to share that would be the new M&M opportunity, which we did, I guess, a kind of a semi-dedicated or dedicated suite for them in Sellersville. We're actually very excited about that program and partnering with them and their trust in us for that. I think as Nandini described, we did the development work for that set of combinations in Omnibid BDS and we're dual source out of Delego and Pittenpor, which I think again shows the value of global network as we're doing the same SKUs out of 2 sites to give the balance of proximity and value. And you can obviously put on analyst reports from that particular that customer, and you can see how third-party analysts see that future. And we're just really humbled that they trusted us with that. I think there's another one that's more modest in size, but it's the George Health, which I think we also shared is a combination drug that, again, is in our network where we developed it and we are manufacturing it. So again, this is showing the multisite benefit. And that's helping people with their hypertension and control and it's got a really good value for health systems because of the combination and the gearing benefit for patients. So we're really excited about that. I think those two we can talk about -- what I would say is that we're very excited about our Phase III pipeline. These are much chunkier and more meaningful than maybe some of our average ticket sizes in the past. And we think that these are going to be big drivers of our growth. Now we can't guarantee all of the successes, but a bunch of them are reading out in the -- a fair number of them are reading out in the time horizon you described. And I think also worth noting is that a lot of them are in what we call the differentiated areas, including some in the ADC category. And so we're -- we think this is part of why we're remaining confident. And back to the original question asked by another person on the call of our 30 guidance, we think that these Phase IIIs are a meaningful contributor to that why we still think that the growth is going to be good in the medium to long term.

Got it. That's super helpful. And then also on the opportunities for the -- onshoring opportunities in the U.S. When you say tech transfer, just maybe a basic question, but I would assume these are for products which are already commercialized and the customer is looking to add another site in the U.S. like that should be on commercial on patent opportunity. Is that how we should think about it?

It's the whole spectrum. I would say that there will be people who will be in the clinic who maybe, let's say, at that pace point, and they've been using an offshore provider. And they now have got to that point where they have some compelling data and the their board is saying in light of the current geopolitical context, if you really want to continue with your primary supplier being in China or other locations and we're seeing requests for people to, let's say, add us as a source to their existing source or in some cases, pivot. I think the second 1 would be we would see some kind of on-market commercial on patent projects that would be looking at extra sources. But interestingly enough, we're also seeing some generic players looking at their drug product choices as well, like particularly for Sellersville as an option. So we're seeing actually across 3 distinct phases, some of those choices, and we are bidding on those individually. And so it's not monolithic. It's a little bit more broad-based.

Okay. And these Phase III tea opportunities are already commercial business above and beyond the 30-plus pipeline, which we already have, right? So these are like -- that could add to the funnel rather than already being part of it?

Correct. So what we're describing is RFPs, we see for work we don't yet have, and that, therefore, would be additive what we've disclosed that's already in our customer pipeline.

Just one more, if I can ask. The new Amsterdam opportunity, given that it's already in the public domain, any time that you can share, like could would this be an FY '27 opportunity for us as well if sort of the customers commercialization pipeline goals as to plan?

I would encourage you to look at analyst reports for that company. There are many national analysts covering them, and you can look at that in excruciating detail or at high level to your discretion.

The next question is from the line of Bharat Gupta from Fair Value Capital.

Just 1 question with respect to the entry of a new Chinese player in the isoflurine market. So can you provide some color like how it can impact our market share? And what is the total addressable market size for this kind of a molecule?

So we don't -- there's no patents on the production technologies for or -- we expect that there will continue to be new players entering and maybe even existing players working with new distributors or new companies that process downward steps. And so you'll continue to see moving pieces in that market based on whatever math we've done, I think we have a world competitive cost position. And so we -- and also distribution does matter. And so we generally see the iso flooring market as stable, not particularly growing or shrinking. And we think that we have a meaningful strong position in it from a market share perspective. And so while there could be some minor perturbations with entries and movements, I think what we found with the Chinese, particularly in the larger western markets, they find it harder to succeed than maybe some of the ROW markets. And so overall, we're not anticipating any major shifts there, but we'll continue to watch, obviously, day-to-day.

The next question is from the line of Amey from JM Financial.

So my first question on Baton product sales. So is it possible for us to give 1 at and product sales for the first half of this year?

I think that will be hard. We generally update it 1 figure -- and so we will do that with our annual disclosure.

So second question I have on the ADCs. What amount of investments so far has gone into the ADC asset? Is it possible to estimate some number around that?

Let's come back to you on that. I want to say it's north of $100 million because some of the investments are co-mingled or multipurpose. So the example would be the $90 million into the in review while the review portion is dedicated specifically linker payload, the investment in the Lexington expansion is multipurpose. So it could be ADC, it could be not ADC. So if you could maybe talk with our IR later, we can figure out how we answer that because we could -- the answer is I could give you different numbers depending on what store you want because of the multipurpose assets.

Sure. And you have said that some of the assets overseas have been subjectively utilized. Is it possible to quantify the number for -- particularly for Lexington and Riverview in terms of capacity utilization?

So Lexington purse, as you are aware, that we wanted to create commercial scale capacities, which is why we have announced an investment of about $10 million -- that investment is currently underway. So Lexington in a way, was largely development scale capacity and the commercial scale capacities are currently being put in place. As far as Riverview is concerned, we had done expansion a couple of years ago. And currently, we do have some capacity available to be able to meet the interim requirements. And we have also done a small investment recently or commenced it to be able to be able to handle payload linkers at the site.

And 1 clarification to I'll get what Vivek shared is that Makinson site does currently provide commercial supplies. But size port is more modest. And so the whole benefit of the expansion is they can handle much larger batches and double the volume of the filling capacity, but orders of magnitude more lie capacity.

The next question is from the line of Kunal Randeria from Axis Capital.

Sir, what would be the growth outlook for relation in anesthesia because in Seberi U.S., you're seeing, we'll be hitting a ceiling at close to like mid-40s market share. So I would like to understand this kind of non-U.S. markets. What would be a realistic growth outer for the next 3 to 4 years?

So I think you've rightly noted that in the U.S., we're already on all the major GPO awards. Many of them are dual sourced. They're unlikely to go to single source. And so it's going to be hand-to-hand combat in the U.S. market. And you can see that in that combat, we are showing market share growth. So we think we're well positioned. That being said, it would be modest in the U.S. So the primary growth opportunity remains in the ex U.S. markets and where we think we still have significant opportunity. If you look at our overall global positioning, we're still #4 in the market. And so therefore, there's room for us to move to #3 or number 2 and that's through market share gains. Now that's where the Digwal expansion plays in and the hedge expansion plan in the cards because they give us further capacity at a lower unit cost and a lower variable cost per unit. And so then our whole plan is to register a number of markets with these new stores of Digwal and that is taking some time. And also, just to be clear, we are trying not to go too aggressive on price too early to make sure that we can be disciplined in how we approach the market. And so we had hoped for and anticipated maybe more growth in the first half year, but we are trying to be responsible market participants. And so therefore, we're being careful in how we approach it. And so we have significant headroom available. Our cost position is globally competitive, but we're trying to make sure we protect the product margin as we go down these steps. So we do see that as being a meaningful growth contributor for us in the medium term.

And second, just on this mast product. So is this supply just for the U.S. market or for -- it's a global supply agreement because New Amsterdam has out-licensed the European rights on the player. So who calls the shots here, the marketing partner.

Our relationship is with that client. They have their own agreements with other partners, which are their decision and their purview, but our supply at the moment is to them, and then they can do pass that onwards however they feel appropriate.

I mean sorry, I mean will you be supplying just foreign for the U.S. market or even for the European market? Because that's where the approval, I think the next.

We're qualified to supply those markets, and we don't believe they have other CD mills qualified for those markets. So it's our expectation, but not our right to supply all of the markets. But ultimately, they'll have to have their individual discussions with their individual marketing partners, but we're ready and qualified and able to.

The next question is from the line of Abdulkader Puranwala from ICC Securities.

So just taking the question from the previous participant about your collaboration with a -- could you highlight what is the kind of investment you are doing here? And in terms of the commerciality of this project, by when should we see that getting reflected in your numbers?

We have to be a little bit modest in how we describe this because while we are able to describe that we're working with them, the alignment was that it's a modest investment in the plant that they supported and we've been asked not to disclose the specifics, but it's modest, and it's largely equipping the facility -- the rooms in the facility to handle the particular APIs mentioned because they have specific handling requirements. And so that's what was put in for that at the Sellas plant, and we think that's going to -- part of why they picked us. In terms of the timing, I think I answered that earlier to another person asking is I would encourage you to look at the analyst reports for that company. And if you were to anticipate the revenue for us would be in line with whatever the analysts think that the approval would be. And I would encourage you to look at primary sources, it's going to be better for you.

Sure, sure. And secondly, on the FY '20 guidance, you guys have maintained. So I mean on the top line front, do we to kind of hold to the previously shared revenue contribution across your 3 segments and on the EBITDA margin as well.

I think for FY '30, yes, we are continuing to hold to that guidance.

Sure. And last 1 from my end. So the FY '26 low teens EBITDA margin guidance, which has been revised, does that also include other income in your assumptions?

Yes.

Yes.

That's right.

The next question is from the line of Sukrit Partin from iSIGHT Fine Limited.

My question is as global -- as more global players enter the CDMO space, -- what is Piramal Pharma doing to build a strong edge not just through capacity or client wins, but something deeper that like-like a way of working or thinking that grows over time and make the company hard to replace -- yes.

So I think we obviously were just at CPhI, and so we were able to see how our positioning would match up against our competition. And I'd say there's a couple of elements. First of all, there's what I would call table stakes, you have to have the right approach to EHS and quality. We think that we're very good in those two areas. Our quality track record gives customers a lot of comfort that we won't have any supply interruptions due to quality issues. That's the first point. The second 1 is we've been putting disproportionate investment into technologies that not everyone can offer. Well -- and I'll give an example, but I won't give the details. One example is ADCs. Everyone says they want ADCs, but we've been doing it for 20 years, so we can show a track record over multiple decades that give clients comfort that it's not just us. We put money in and we have a shiny kit. It's that we actually know how to work it, and we've had people working on these things for literally 20 years, and we know how to do it. And so trust that if you give a project, it will go well is an important area. I think the next third point is really important. If you looked at our competition and our competition typically have certain geographic centers. And so exactly, you have a North America-centric competitor or a European-centric competitor or a Chinese centric competitor or an Indian center competitor. When we are seeing a lot of concerns from geopolitical issues, we see our customers are sitting on the same side of the table with us, working out what we can do in India, what we can do in the onshore location and in what combination. There are very few competitors who can do this. And then an example is actually the new Amston project we just described, where they had a huge volume of complicated formulation work to be done that simply couldn't be done in our U.S. facilities at the speed and the quality they wanted. We did that in India -- we did the initial tech transfer in Pittenpor, and then we now have done it in sellers go. You can't combine these assets with too many of our competition, and we have similar stories in API and some covering API and drug products. So I think that is a bit of our secret 1 bid. It's the combination of country-based assets, all in a non-China frame. And then the last bit is we are obsessed with delighting our customers. It's something that's very important to us. We want them to be emotionally attached to us as a choice, not just satisfied with our OTIF. And so -- we are relentless in our understanding of how customers feel about us based on how we deliver such that they can want to promote us and be referrals and give us them as their next project or refer a friend to use us. And so that's the last, but I think we have a unique customer listening process that really does make a difference. So those are the points I would highlight that we think position us well to grow above market notwithstanding the current quarter's performance.

My final question is about margins and cost lining. -- forward-looking question. As CDMO volumes and compliance cost keeps on shifting, how are you planning to protect the margins? And are there any smart internal methods that you're putting into place, that may help you keep the delivery quality high, but without hurting your profits?

I would make two points. I think the single largest driver of our margin expansion, as we've probably shared on other calls, is the operating leverage of individual sites. We've shown how in the revenues at a site go up, the EBITDA margins go up and when the revenue of the cycle is down, the EBITDA margins were down because of our multisite network approach. So our growth is a very large contributor at the site level to our aggregate profitability, and it's one of our primary areas of focus. The second point about growing smartly. We believe technology and different areas of automation and even in some cases, AI are going to play an important role in improving our productivity and our reliance on labor and changing how that equation works and even our use of materials and yield. So we have a lot of focus on use of technology and investment in that technology to allow us to not have to grow our personnel or our material costs in line with our revenue over the period to address some of the inflation or other compliance costs.

Thank you for the guidance. And I wish the entire team best of luck for Q3.

The next question is from the line of Dewang Shah from DD Enterprises.

The first question is like we are continuously not getting the EBITDA levels what we are expecting from last -- if I'm not on from the last 3 financial years. So is there any plan to get it on the track.

At a high level, last year, we believe we met our guidance as to what we said we would do, which was an improvement over the prior year. And so that year was in line with our expectations and our communications and a positive movement. This year, we did have a sedan event, which was driven largely by a single customer destocking, which we described when we set out our guidance for this year. And also, we've had additional subsequent events, which we are working to address and we don't think it changes our long-term guidance as Nandini mentioned, for FY '30. But we do accept that we are -- we've had to restate our guidance for this year. We do think the underlying factors for our performance in the medium long term remain intact.

Yes. The main question is like, is there anything like last quarter, we have seen that our biggest customer was at least talking of the inventory or something. Is there like -- is there anything like we cannot rely on something like this? Or it's like it's a nature of the business, only that like this can be done -- sorry, this can happen in the further quarters also? Any plan to hedge all things like -- sorry yes.

So I think the plan is to actually get scale -- individual scale at each of the individual sites so that if there is an issue going forward, with a large customer destocking you have enough other business to make up and see you can keep the operating leverage the same. I think that's the plan.

The next question is from the line of Alankar Garude from Kotak Institutional Equities.

The first question, apart from the slower funding environment and the possibly slower pickup in CO flooring in ROW markets, are there any other reasons driving the cut in FY '26 top line guidance?

I think these would be the two main reasons. I think the other 1 would be we are supply constraints for some of our other critical care products, while they are beginning to resolve, I think we're still facing some short supplies.

From CDMO.

From our partner, CDMOs there.

Got it. And Peter, on this CEO flooring issue, you spoke about not being too aggressive on pricing in the first half -- which are the key markets, maybe a few markets you could highlight you are referring to within ROW?

We just look at the large RW markets that you would all associate as being large pharma markets, where we're playing across the field, and we're just trying to be careful about the steps we take in the order we take them.

Got it. The second question is from a timing standpoint across tech transfer as well as the pipeline opportunities in CD. -- which are the ones which are likely to manifest earlier. Would it be transferred or the pipeline we I know this is not an easy question to answer more of crystal ball gazing, but any sense on that would be helpful.

So this is a general principle, not specific answer. The Holy Grail from a sales team perspective is always the tech transfer. They are probably fewer and less frequent because that means something has to have gone wrong at the current CDMO or some major change at the client said it because why tech transfer is the holy grail that you can go directly from the plant to the plant. Most development work requires lab work first and then later plant work and you don't have to wait for the clinical trials to season. So one would -- we find tech transfers if we do planning or prospecting the area that we want to go for, but they're kind of harder to predict, harder to secure and less frequent, but obviously desirable from a timing perspective. That being said, a more assured path for growth is the winning standard development orders that require lab work and then scale up and then clinical results to manifest and so forth. And that's the follow the molecule strategy that has been present for a long time. So that's the -- what you can rely on and therefore, are the foundation of any strategy.

That's helpful. And the final question, were sales of the major product, which is currently witnessing destocking spread out largely when we -- in FY '25?

Yes, that was part of the benefit we got last year.

The next question is from the line of from MIPL Family Office.

Just wanted to understand what kind of traction we've been seeing in the European markets for new African -- and going forward, what kind of growth can we expect for this product?

We're still early in the launch phases for that, and it's probably too early to break out some specific guidance, but we would anticipate it to be, I'd say, modest in revenue contribution. We realized that we may be overplayed our communication of it in some earlier meetings because we wanted to give it as an example of the types of products we want to add. But from an overall salience from mutuality standpoint, it's always going to be modest and has been modest, and we would expect it to grow, but it's never going to be as big as our other current large products. But we wanted to talk about it because it's an example of a product where there's limited competition and significant value over the standard API option that's not targeted at the pediatric or neonatal use. So Short answer is, it's still exciting. We're still finding growth in it. We're still early in the launch, but it won't be a material growth driver.

Secondly, on complex cost generics business expanding in the rest of the world market. You mentioned that you were trying not to be too aggressive with pricing on that front. But I wanted to understand if you're going to be maintaining similar margin profiles to the product in the U.S. or what kind of margin profile can we expect from the rest of the world market going forward?

So we don't see yet a reason to believe that the margins will be lower. What we did see is that the input prices even for our heavily vertically integrated supply chain have come down for us. And so we were hoping initially that we could maintain some amount of the pricing and get a benefit. And what obviously is other people are buying those same starting inputs that we are. And so then that may have flowed through the price into the market faster than we would have wanted. And so at the current stage, we don't yet see a reason why we should anticipate different margins than we have been projecting or enjoying. It's just that we were trying to be a little bit smart about how we approach the pricing in each of those different market entry events. But overall, we are seeing probably better-than-anticipated RM purchase prices and even some of our internal plants have performed a bit better than we thought when we designed them for both the hedge and equal. So we think we have headroom here too and not have to choose so far at the moment.

Got it. And my last question is more of a bookkeeping question. Our effective tax rate is going to be volatile in the [indiscernible]. Could you maybe provide some color as to what it could be going forward in the next 2 to 3 years?

Yes. I don't know if you've been hearing our calls before. But for us, the effective tax rate in each jurisdiction is what is actually applicable in the jurisdictions in which we operate. The reason why you see the volatility is because of the mix, the higher the quantum of profitability from sites where we are currently paying taxes, the higher the ETR goes up. We do expect this year it to model, but it will completely depend upon the kind of mix of profitability between sites where we pay taxes versus the sites where we currently don't pay taxes or we have carryforward losses. So that's the reason. It's a very slightly difficult for us to give guidance on a very specific ETR rate. But we do expect that as our profitability of our overseas site goes up the ETR will start coming down, and it should normalize to about 24% to 25% at the right scale of utilization.

The next question is from the line of Bhiwani Kulkarni and Individual Investor.

I was just wondering, I have -- we have seen that there is a debt reduction of INR 228 crores in from the last year to the H1 FY '26. So how are you doing that? Because we are seeing there is a negative bottom line, but we are paying off the debt. What's the plan there.

So Mr. Bhiwani, there are multiple initiatives currently to ensure that we are operating our overall net working capital in a robust manner. So whether it is increasing efficiency of collections, whether it's reducing the quantum of inventories that we are carrying or it is seeking early refunds of the GST because we are largely an export business, getting the GST credits faster is how we are ensuring it. So there's a whole set of initiatives to kind of ensure that the cash collection cycle is faster, and we're able to maintain the debt at a certain level.

Okay. The follow-up question is, can we see some of that reduction in the coming quarters?

So given the fact that we have guided for a certain level of CapEx, which we will incur. As you're aware, we've got about $49 million of CapEx, and we do expect us to spend about $100 million to $120 million in the amount of CapEx, we will see a modest increase in debt in the subsequent quarters for the year.

The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited.

Ma'am, I have one question on CDMO side that because of this volatility in supply and you say that once this -- we have a more product pipeline, then our EBITDA will be a stable EBITDA that one can look for. So can you guide us, I mean, when do we really see a good kind of, I mean, a product portfolio and sustainable supply that can, I mean, give some comfort on EBITDA when it will be, say, 1-year, 2-year time line that we expect?

I think we can talk more about guidance for specific years later on. I think we're still holding for the FY both revenue and EBITDA. And I think there, you will see we will have doubled our revenue. So we'll be a $2 billion company by then with a 25% EBITDA margin, which I think is a sustainable one. So I think -- but I think we will continue -- it's not a hockey stick, and we continue to work on track for that.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Gagan Borana for closing comments.

Thank you very much. We hope that we were able to answer most of your questions. In case you have any follow-up questions, please feel free to reach out to me. Thank you, and have a good day.