Piramal Pharma Limited (PPLPHARMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Piramal Pharma Limited Q4 and FY '24 Earning Conference 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, Rea. Good morning, everyone. I welcome you all to our post-results earnings conference call to discuss our Q4 and full year FY '24 results. Our results material have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks our business faces. On today's call, we have with us Ms. Nandini Piramal, Chairperson, Piramal Pharma Limited; Mr. Peter DeYoung, CEO, Global Pharma; and Mr. Vivek Valsaraj, CFO of our company. With that, I would like to hand it over to Ms. Nandini Piramal to share her thoughts.

Good day, everyone, and thank you for joining us today for a Post-results Earning Call. FY '24 has been a strong year for the company with an all-round improvement across multiple financial and operational parameters. What makes it even better is that this performance has come amidst a challenging macro environment marked by high interest rates, a biotech funding challenge, geopolitical tensions leading to supply chain disturbances and slower consumer demand in rural India. Starting first with the performance for the quarter. Quarter 4 has historically been the strongest quarter for the company with significantly higher revenues and EBITDA margin compared to the first 3 quarters of the financial year. This year as well, in quarter 4 FY '24, we recorded a strong revenue growth of 18%, with our CDMO business leading the way with a 29% growth and our India Consumer Healthcare business delivering a 14% growth. We also showed a marked improvement in profitability with the EBITDA margin increasing to 22% compared to 17% in quarter 4 last year. Our net profit after tax before exceptional items was INR 132 crores compared to INR 50 crores in quarter 4 FY '23, implying a growth of over 160%. During the quarter, we also had U.S. FDA inspections at our Riverview and Lexington facilities in the U.S., of which we have already received an EIR for Riverview, while the observations at Lexington have been classified as VAI. So all in all, a strong quarter. Moving to our full year performance. We delivered a mid-teen growth in FY '24 with an EBITDA margin expansion of over 400 basis points. Our EBITDA grew by 61% over the last year. And we delivered a net profit after-tax, before exceptional items, of INR 81 crores a -- versus a net loss of INR 180 crores in FY '23. Our initiatives in the areas of cost optimization and operational excellence are showing results and would continue in FY '25 as well. During the year, we incurred a CapEx of 87 million, including a maintenance CapEx of about 25 million. The leverage on our balance sheet also improved from 5.6x net debt over EBITDA at the start of the financial year to below 3x, at 2.9x EBITDA at the end of FY '24. We would keep up the momentum to further improve this going forward. Our focus on optimizing net working capital also delivered good results, as our net working capital days improved by 14 days in FY '24. On quality and compliance, we successfully maintained our best-in-class track record of 0 OAIs. This year as well, we successfully cleared 36 regulatory inspections and over 170 customer audits, ensuring compliance with the evolving GMP norms. On the sustainability front, we have taken targets to reduce our Scope 1, Scope 2 and Scope 3 greenhouse gas emissions in accordance with the 1.5-degree trajectory suggested by SBTi. Our targets have been verified by the SBTi as we cleared the initial screening. There are very few companies in India that have their GHG emissions target verified by SBTi organization. And we are also working diligently to minimize our resource consumption, conserve biodiversity, provide a safe workplace for all employees, deliver quality products and services and promote diversity and inclusion in our workforce. We want to enhance the quality of life of the communities around us. The percentage of women in our global workforce has increased over the last year from 15% to 17%. Moving on to business-specific highlights, starting with the CDMO business. Our CDMO business posted a strong recovery in FY '24 with a full year revenue growth of 19% and quarter 4 revenue growth of 29%. Throughout the year, we saw good inflow of new orders, especially for commercial manufacturing of on-patent molecules. As a result, our CDMO revenue from the commercial manufacturing of on-patent molecules more than doubled to 116 million during the year compared to 52 million in FY '23. We also witnessed an increase in innovation-related work, which now contributes 50% of our CDMO revenue, compared to 35% in FY '19 and 45% in FY '23. Over the past 5 years, our innovation-related work has grown with about 20% CAGR, much higher than the growth in our overall CDMO business. Demand for our differentiated offerings also remained healthy during the year, with its share of CDMO revenues increasing from 37% in FY '23 to 44% in FY '24. Our recent capacity expansions in the area of ADCs, HPAPI and peptides are seeing good customer interest and puts us in a good state of readiness to capture the future demand while the biotech funding cycle normalizes and customers look to diversify their supply chains to mitigate risks emanating from geopolitical disturbances and regulatory uncertainties. Our integrated servicing -- or service offerings through end-to-end services and geographically distributed manufacturing and development facilities are seeing good traction, with over 40% of the orders received during the year being integrated projects. During the year, we also received our first integrated antibody drug conjugate ADC order involving monoclonal antibodies. This order involves 3 sites: Yapan for mAb, which was strategic investment; Grangemouth for conjugation; and Lexington for fill/finish. Given the strong growth in the CDMO business, we saw improvement in the profitability of this business driven mainly by operating leverage and cost optimization initiatives. In terms of regulatory compliance, over the last 18 months, 5 of our CDMO facilities in Digwal, India; Pithampur Riverview -- Pithampur, India; Riverview, U.S.; Sellersville, U.S.; and Lexington, U.S., contributing over half our CDMO revenues in FY '24, successfully completed the U.S. FDA inspections, with 0 observations; and received EIR and VAI status. In terms of key challenges for our CDMO business. Biotech funding environment, impacting early-stage orders in discovery and development, is yet to return to full normalcy. Also, the clinical and regulatory attrition of our customers' pipeline is a material challenge in the CDMO business. Complex Hospital Generics. We're seeing good volume growth in our inhalation anesthesia portfolio in the U.S. market, matched by our abilities to service this demand. However, this is partly being offset by lower market prices due to increased competition. We continue to maintain our leading position in the U.S. sevoflurane market, with a significant market share gain in the last 3 years. In the non-U.S. markets such as U.K., France, India, Vietnam, et cetera, we're seeing increased traction for our inhalation anesthesia products. Also, to further tap the growing demand for our inhalation anesthesia products in the rest of the world markets, we are setting up new manufacturing lines for sevoflurane in our India facility at Digwal, which will supplement sevoflurane manufacturing at our Bethlehem facility. We are also looking to integrate vertical integration by expanding our KSM manufacturing facility at our Dahej site. We expect these expansions to come online by the start of next fiscal year. In the intrathecal segment, we continue to command the leading market share in the U.S. Our brand Gablofen continues to be the #1 ranking baclofen prefilled syringe and vial brand in the U.S. In the other injectables segment, we launched 4 new products in the U.S. and European markets during the year. We are also building a pipeline of 24 injectable products, which are in different stages of development, with an addressable market of about 2 billion. During the year, the profitability in the CHG business also improved, mainly led by cost optimization initiatives, yield improvement and better product and market mix. In terms of key challenges of the business, price erosion and lower realizations due to increased competition, third-party development and supply chain risk; and adverse currency movements are the key risks. Moving to our India Consumer Healthcare business. During the quarter and the full year, our ICH business delivered a steady double digit growth in revenue driven by new product launches and growth in our power brands. We also witnessed improvement in our profitability as planned on account of operational leverage and enhanced scale. We continue to invest in media and trade spends to grow our power brands. Promotional spend during the year was at 13% of our ICH revenues compared to 15% in FY '23. [ Our power brands grew 13% year-on-year during the year and combined ] 42% to total consumer health care sales. Our key brands such as Little's, Lacto Calamine and Polycrol grew at a healthy double-digit growth in FY '24. However, growth in Tetmosol was impacted due to unseasonal rains and erratic weather patterns last summer. Over the last 3 years, we have launched 115 new -- 115-plus new products and SKUs in the market, with a reasonable success rate. During FY '24, we also launched 24 new products and 27 new SKUs. New products launched in the last 24 months contribute about 11% of our consumer product business sales. Our sales in e-commerce are showing good growth, complementing our presence in the general trade. E-commerce sales account for about 20% of our consumer products revenue during the year, and we have a presence in more than 20 e-commerce platforms. Coming to the outlook for FY '25. For FY '25, we expect the year-on-year growth in revenue and absolute EBITDA to be in the early teens, with a meaningful improvement in PAT. We expect our growth momentum in our CDMO business to continue in FY '25; and in the consumer products, to deliver a better EBITDA margin. However, in the CHG business, we would be incurring some nonrecurring spends in FY '25 on regulatory product transitions and business continuity to ensure greater stability of supplies in the future. Also, as we prepare to commercialize our additional inhalation anesthesia capabilities in FY '26 to tap opportunities in ROW markets, we will expect some costs in terms of additional manpower, regulatory filings and other expenses in FY '25, with commensurate revenue coming in FY '26. These expenses are necessary to secure the medium-term growth of the business. Our CapEx for FY '25 would be similar levels as FY '24, but we expect to further optimize our net debt-to-EBITDA ratio from the current levels. With this, I'd like to open the floor for Q&A. Thank you.

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

Yes. Am I audible?

Yes, sir.

Yes. Ma'am, first of all, congrats on a good set of numbers at the operational level. Just on the CDMO side, there has been a good scale-up this year; and even, for that matter, in 4Q FY '24, with 18% growth. Considering the order book, considering the biotech funding, for example, like, how do you see this growth momentum for '25-'26? While you have given early teens growth, does it mean that you will have a much better growth in CDMO, but that would be partly offset by certain issues in CHG segment?

I would say we are -- overall, we are committing to an early-teens growth across the businesses. And you could say, yes, the CDMO growth will be better than the CHG growth.

And if you could further elaborate in terms of whether you'll have more number of molecules getting into the commercial side, the Phase III trial further getting into commercial side. Is that is what is driving growth? Or it's more number of projects across clinical trials that would drive it?

So we've seen increase in our on-patent commercial revenues over the last year. If you see, we've -- innovation on patent-related work is about 50%, a little more than 50% of our overall CDMO revenues; and that is something that we would expect to grow going forward. And once the biotech funding improves, I think we should see more growth coming back, but it's too early to say yet for that.

Got it. And just lastly, on the profitability front, while we ended almost 20% EBITDA margin, if I exclude the other income, given that we have certain expenses coming up in FY '25, so would we be able to maintain this profitability or we'll be able to do better than this?

So Tushar, as Nandini alluded to, the absolute EBITDA growth will be in the early teens, as we maintained. The scale of this margin expansion for CDMO and the consumer products business will also be on track. It's in Complex Hospital Generics where we are doing some investments at this point in time which are necessary for sustainable deliveries in the future, so yes, absolute value of EBITDA would see a growth.

Next question is from the line of Abdulkader Puranwala from ICICI Securities.

Congratulations on the good set of numbers. One, just first question, on this CDMO business, on the innovation side, again. So I understand about your early-teen guidance, but if you could throw some highlight as to how the order book is looking for next year. And is that visibility improving, as compared to where -- a year or 2 year ago? So that would be helpful.

So I think that we would say that our visibility is higher this year than last year on a like-to-like basis for our CDMO business. And in particular, as Nandini mentioned, we are quite pleased with the on-patent commercial revenue outlook as well as some of our more later-stage development areas. I think the area of uncertainty that remains in our order book is going to be the degree to which the biotech funding picks up and its ability to support some of our discovery and early development projects for our clients, but overall our visibility is, I'd say, modestly stronger than it was at the same point in time last year, driven by the factors just mentioned.

Understood. And just if you -- a couple of questions on the quarterly numbers. So this quarter particularly, the gross margins were a little weaker, as compared to where were-- in the earlier quarters, despite the CDMO business doing that well, so can you throw some light there to help us understand how the gross margins we should build up for the coming years?

Abdul, a real representative of the gross margin is the annual number. Now because we have a business that tends to get lumpy with slightly higher sales in H2 versus H1 and more specifically in quarter 4, what happens is we do tend to have inventories during the initial quarters, which means you have a credit of overhead sitting in the P&L in the first 3 quarters. And eventually, when that gets sold off, you will see the unwinding of that happening, so it's only a timing gap. The annual gross margin is a more representative of the gross margin for the business and the company.

Sure, sir. And just last 2 questions from my end. So I mean the tax rate again for this quarter was higher, so what should we kind of build up for coming 2 years? Or would we be near the corporate tax rate or it is expected to stay a little higher?

So the tax rate is largely driven by the mix given the presence -- that we have presence in multiple jurisdictions and the tax shields will vary in each of those. I would say close to about 50% is what we would look at as a tax rate for the following year.

Sure, sir. And sir, in the opening remarks, ma'am also did mention about net debt-to-EBITDA or net debt-to-equity coming down in the next year. So in terms of the debt repayment, what is the target net debt-to-EBITDA or net debt-to-equity we are targeting for the next year, that is FY '25?

Abdul, like we said, we reached the first milestone of bringing it down to less than 3x, and we'll continue to work to optimize this in the coming year. We're not giving out a specific number, but the work will be to optimize this further.

Next question is from the line of Yasser Lakdawala from M3.

Congratulations to Nandini, Peter and the team on a good performance. We've launched about 150 new products and new SKUs in the consumer health business over the last 3 years, so what is the mix of these new launches, say, under our power brands versus the rest of our portfolio?

Most of them would be under the power brands.

Okay. And just to sort of understand this better: How do you measure the success of these new launches in terms of, like, sales targets; say, field force productivity; incremental promotional spends; margins; inventory? I don't know, if you could give us some...

Okay. So the way we actually look at new products is we tend to launch them under e-commerce because you'll get a faster response and you can understand consumer feedback much better. If there -- in a X period of time, they would reach maybe 1 or 2 in the Amazon or other ranking, that's when we would consider it a success. The other metrics that we would look at is how much promotion spend do they need? And if you do taper it off, how much actually consumer demand do you get? So we actually do kill products that don't meet the profitability target. And those products that do succeed, we would then launch in GT, general trade, and expand them. So for example, Lacto Calamine sunscreen did really well online and then we actually took it to general trade and launched it there. So just an example.

Peter, on the CDMO business, we've done very well with the sort of innovative offerings. So what are the new sort of capabilities we need to add over the next 3 to 5 years to sort of grab a larger piece of the innovation landscape in -- especially in biopharma? And how does our current set of capabilities fit into that discussion?

We're actually well positioned, we think, with our current set of capabilities. We've acquired, over time, the -- what we think are the minimum required pieces in this puzzle. And also we've started to develop a track record of using them in this manner. And we've also enhanced our scientific team. And so I think actually, at this point in time, it's about executing with the network we have and using that in a way to capture the innovative opportunity. And so I think we're going to continue to see the momentum that we've shown on the lagging indicator of percent revenue as we look ahead. And I think the additional capabilities would be more modest or incremental or brownfield in nature then, as opposed to fully inorganic.

Okay. And just the fact that the entire innovation piece has done very well this year. Just a quick question on the remaining half of our business, like how is the generic business faring in terms of capacity utilization and gross margins? And what are the steps we've taken to enhance our competitiveness here? Because it's still a substantial piece of business...

So I'd say, first of all, the places where we have the generic business, the capacity and the capabilities are largely fungible with the on-patent business. And so we ultimately will use those reactors or those capabilities in those places wherever we're going to get the highest return and we don't have a requirement to have any certain offering. That being said, it is still a meaningful part of our business. And we've made significant efforts in making sure that we align what we're doing in those to be growth oriented on a -- and profitable growth orientated. And so we have made certain leadership changes over the last year in certain team members. And we've also looked at our portfolio and made certain new efforts to add, let's say, DMFs or ANDAs in different places where we can support that. So I'd say overall it is continuing to get our focus. Obviously, cost optimization efforts play a greater role in that area, and that has been an important part of it. And people play a role, and also portfolio choices. So we are continuing to focus on it. Our only point is that, if we have a choice and we can get the higher-margin innovative work, we are going to make those choices where they present themselves.

Absolutely, makes complete sense. Just the last question on the Complex Hospital Generics. More than -- or 2/3 of our business is the anesthetic products and I mean, almost 90% is including pain management. So we've identified these new complex injectables. What is our right to win? And in terms of time frame, in terms of management bandwidth and effort that will be required to sort of scale this up to a meaningful piece of our business, if you could highlight some of the efforts we've put in there and how do you see this piece sort of scaling up?

So this is an area where we've historically not performed up to all of our expectations and an area where we think that there's significant opportunity where we can demonstrate, on a lagging basis, success in that area, so we've made meaningful people changes at the organization level with people that we think have the capability and the track record in driving what we would call the other pharmaceuticals segment, which is what you're describing. And our right to win is largely based on our command over the channel, in that many of the conversations you need to have with the buyers or the influencers in the buying decision are common across what we currently have as a strength and the areas where we'd like to succeed with the other pharmaceuticals. So overall, we think that not many people would have an anchor product in the inhalation area which is a substantial product in terms of revenue and an excuse to be in the buyer in a way that many of the others would not get you in the same place. Because obviously, as I'm sure you know, the inhalation products are in the operating theaters and that you require a more in-depth interaction with the buyer segment. So overall, this is a big strength; and that's our right to win. And we think that with some of our people changes and some of our strategy changes that we're going to have a better performance in the coming years. Now as I'm sure you know, in the CHG segment, in this category, this is not a 3-month turnaround in terms of actions to reactions. This may take a bit on the longer side, but we think we've put in a lot of the right pieces.

Next question is from the line of Bharat Sheth from Quest Investment.

Congratulation, team. Ma'am, I have a specific question for the CDMO...

Sir, we are not able to hear you clearly...

Am I now audible?

Yes, you are. It's much better. Thank you.

Okay. So on CDMO business, we have a large part which is a discovery and development sometime -- many a time and that can give a kind of -- I mean, because of external environment, I mean, kind of a rough patch on annualized basis, I am talking. So how do we -- our strategy is, over next 3 to 5 year, to make all these things in a certain way that we don't get such kind of, I mean -- because of external jerk in our business?

I think we have to be mindful of the external market because discovery and development is where the on-patent business is -- comes in. So if you get the discovery and development, especially at Phase II, Phase III, then you have the chance to get better margin and better revenues at commercial. So I think that is -- and if we want to switch to the higher on-patent commercial margin business, that's where we want to start and that's where customers come in. The key will be -- for us, as we look forward, is how do you balance between discovery and development and commercial business and so continue to grow all of those.

All right, so -- okay. And now coming to one specific on the -- you stated about the ADC. So in ADC piece, which are, I mean -- do we have end-to-end capability or are we looking -- there are, I understand, 3 part of the full process, so where do we are currently? And how do we want to, if at all given some white space to cover up that and bring the full ADC business?

Okay. Our strength in the ADC was usually in conjugation in our Grangemouth facility. And that's we've been -- one of the strengths of our ADCs was conjugation, and we've had a lot of work in that for the last 15 years. And we've just actually put in money to expand that facility to take it to even bigger commercial volumes. About 3 years ago, we invested a 33% stake in Yapan Biopharmaceuticals, which gives us the ability to make mAbs, so the monoclonal antibodies. And eventually we can also do the fill/finish in our Lexington facility. So this is a newer offering of ours. Probably, in the last year, we've got our first project. And that's, in a way, the strategy going forward that we would look for and sell more integrated projects.

Okay. And last, one more question, on this peptide. We have acquired Hemmo, so can you give some color where we are at this stage? And how much success are we seeing going ahead in Hemmo business?

So I think the -- as I think we mentioned in earlier calls, the historical strength of this business was in its generic offering. And this is an area within generics you'd want to be in because it's more forward looking and has better margins and growth profile. So that portion of the business has continued to remain strong for us and the area that we are expecting to grow and we've had some success, but we expect future success to be greater would be in the services area, where we can do on-patent work for clients. And so I'd say at this stage the generic portion has done well and it's growing and it's profitable and achieving good financial results. And the services one is still in the earlier stages, and we anticipate that, that should be in the future years a more meaningful growth contributor.

Okay. And last question, for to -- for CFO...

Sorry to interrupt, sir, could you please return to the question queue for follow-up questions?

Okay.

Next question is from the line of Harsh Bhatia from Bandhan AMC.

Am I audible?

Yes, you are.

Yes. Just 2 quick questions. One is in terms of the -- so this time around, in the presentation, you have given the big pharma proportion for the CDMO sales. I think, if I'm not wrong, this is the first time maybe that we have given out a segmental data. Could you help us understand, what was the share in FY '23 roughly?

It is in last year's presentation, but it was about 1/3, 1/3 and 1/3 last year. What has happened is -- for the emerging biopharma is some of them have become big pharma because they were bought over the last year. And others, I mean, the -- as we said, the biotech funding drought can be seen, so we actually made a conscious pivot, probably 18 months ago, to focus a lot more on big pharma and we can see some of the results now.

Okay, there is some level of reclassification as well.

Yes. So Harsh, generally, we give the segmentation on an annual basis. So if you check Q4 of FY '23 presentation, you'll see the number for FY '23, okay? So that's one part. The reason for increase in big pharma is 2. One is we have kind of put more efforts on big pharma, and some of that has got converted. And secondly, some of the emerging pharma last year have been bought by big pharma, so they have been reclassified as big pharma now. So it's a mix of both.

Okay. And just to get a little bit more color on CDMO growth in the last 12 months. So INR 4,000 crores business going to almost INR 4,700 crores, INR 4,800 crores. I think -- so a large part of that has to do with the incremental business from on-patent commercial manufacturing. Now that has to do a bit of both, right, new molecules as well as more revenue per molecule in the base business. How would you classify that to be the case for FY '25? Would we expect a similar profile in terms of growth where a large part of the growth will continue to come in from the on-patent business? So I'm just trying to understand the FY '25 growth profile for the CDMO business that we are baking in.

So if you look at the drivers of the growth, we think that, the trends that we've described in our strategy over the last few years, these are not usually quarterly trends, these are usually more longer-term secular trends driven by our strategy, and so we would anticipate the growth to be higher in the on-patent, we would anticipate the growth to be higher and differentiated and we'd anticipate the growth to be higher in the integrated, which are 3 pillars of our overall strategy. And within the on-patent, we would continue to expect the on-patent commercial, new commercial, to be a strong contributor because, at least based on the best forecasts we get from our customers, the molecules that saw the growth in the year that just finished, they still see good forecasts for the year that is coming forward. And so we would anticipate that to be a meaningful driver of our growth as we look ahead. It's the 3 components, again, the integrated, the differentiated, the on-patent; and within the on-patent, the new commercial. I'll just give a point that Nandini mentioned in her earlier comment at the start, which is we aren't really counting on a massive turnaround in the funding environment for emerging biotech. If and when that materializes, that would be, we think, an upside to our guidance.

Sure. And last question, if I may. The opening comments, you mentioned some incremental pricing impact in the U.S. inhalation portfolio, so I'm just trying to understand. This has more to do with the market getting more aggressive for new tenders which may come up or this has to do with the renewal of the existing business on a broader basis? Just for our understanding.

So we have certain events. So we have multiyear contracts in many of the locations where we operate. And instead of being lots of different things, we would just say there was one particular contract that came up for bidding and we had to take a price reduction for that and that factored into the full year results. And that was the single event that occurred within the year.

We do expect this sort of events to sort of happen in FY '25 as well, to a certain extent, for whatever deals wins that come up?

I think, given we're in 100 countries, there will be different tenders at different points in time. And we factored in whatever we think is likely to occur in the period in next year in our aggregate guidance, but by definition, in any 1 year, there will be some tender somewhere that is going to come up for renewal that will require us to look at the market scenario at that time.

Next question is from the line of Nikhil Mathur from HDFC Mutual Funds.

Many congratulations on a great FY '24. I think the company has ended the fully year on a great note. While I think my first question is around the return on capital profile of the company. While I think this year, especially second half, has turned out really well, but I think there is still a bit of desire that is there in terms of return on equity, the return on capital metrics for the company, so can you share some thoughts on 3 to 4 years view? How are you seeing your return on equity or return on capital employed shaping up in the coming years? Are there some hard targets that the Board has set and the management has to kind of deliver on those metrics?

So Nikhil, firstly, obviously, this is just the beginning. And we have a path to go in terms of enhancing the overall ROCEs in the business. As you're aware, in the last couple of years, we've made investments, which have added to the denominator. Now it's a question of how do you get more of top line, improve the overall operating margin, which will also result in an enhanced ROCE. And at this point, we're not giving a very specific guidance as to what that ROCE number would look like, but obviously the attempt is to move this northwards and improve it across all the 3 businesses.

With the -- if I'm not wrong, sorry, I joined a bit late, your guidance on top line for a 3- to 5-year period is low-teens, right, if I'm -- did I get that right?

It's just for FY '25, we're saying early-teens.

Okay. And with an early-teens kind of a growth rate, but you have alluded to some investments and the same level of CapEx as well, but would you be able to achieve year-on-year improvement in return on equity going forward?

With an improvement in the overall EBITDA -- absolute value of EBITDA, we will see some improvement in the overall ROCE as well.

Okay. And in terms of investments that you talked about. I think there's a need to do a bit more OpEx in FY '25. Does that imply that, for the time being, the margin progression will be a bit, let's say, steady? And the big jump in margin progression here on will happen in FY '26-'27 only?

At the PPL level, you are right. Within the businesses, as we said, the CDMO and the ICH businesses will continue to show margin expansion scale-based.

Okay. And can you also just give some highlights on what is the capital work in progress and intangibles under development? I think there are somewhere around INR 1,100 crores of value of both. What is this into and how will this get expensed out going forward?

So as Nandini alluded to in her opening speech, we are in the process of doing some investments in our critical care business. This is towards expanding capacity for key starting materials in India. This also includes the manufacturing capability for sevoflurane which we are creating in India. And likewise, it also includes certain debottlenecking CapExes which are happening across the sites. That's primarily as far as the CWIP is concerned. With respect to intangible assets under development, besides the software, this also includes certain DMFs which we are developing for our generics portfolio and which are in various stages at -- of development at this point in time. It also includes any development in our critical care product space.

So when does this get expensed out in a meaningful way?

So as and when these DMFs actually get commercialized is when it gets amortized toward the estimated useful life of the particular assets.

So we would expect the 2 sevoflurane netted investments to be made live by the end of the fiscal year.

Correct. The CWIPs would actually go live earlier; intangible assets, depending upon whenever the commercialization happens.

Okay, so the OpEx bump...

Sorry to interrupt, sir. Could you please return to the question queue for follow-up question?

Okay.

Next question is from the line of Aditya Sen from RoboCapital.

Sir, this is just a clarification. You said that our EBITDA growth will be in early teens in the coming years. So this is on the base of Q4's EBITDA number or full year FY '24's EBITDA number?

Full year.

Full year.

Next question is from the line of Girish Bakhru from OrbiMed.

Just elaborating on the ADC bit. Can you give more color on the conjugation? You said that is the key area where you have the expertise. What sort of work we are doing, just a bit more color on the technology? Because this side is getting very crowded. Of course, so many companies are offering conjugation services. So just wanted to know, are you, I mean, yes, offering linker technology, doing enzymatic work or modifying the antibody? What kind of work you're doing there?

So just to give some further background. We think we have one of the broadest set of experiences across different conjugation technologies of anyone out there because we've been doing it since nearly the beginning of the category. And so at least, whenever we go to market and describe the wide range of conjugations we can do, we rarely see a situation where someone comes and says, "Oh, I don't think you can do that or you haven't done that before." So I think that's an area we think is one of our strengths and will continue to be one of our strengths as we go ahead. And so I'd say that, that is not a reason why we would typically not win a project if we were to not win one. And then Nandini did describe the 3 -- 2 other planks, which is the mAb, which is the most recently added to our set of offerings; and also the fill/finish, which we've had for some time, but we actually didn't mention another area that we have a strength, which is we actually have our Riverview facility in Michigan is fully capable of it, has done some amount of work in the linker-payload area. And I think the change in the market has been, up until maybe the last year or 1.5 years, our customers would come in with buying best of breed and looking at individual offerings. And so then we would typically get the conjugation and/or the fill/finish, but I'd say, with the hotting up of the sector, we've had a much greater number and also the potential geopolitical risks from the BIOSECURE Act. We've had a hotting up of interest for fully integrated programs, where now we're bidding on programs that would include mAb, conjugation, linker-payload, fill/finish. And so we expect, as the year goes ahead, to have more examples in that category.

Understood. And just related: You expanded Grangemouth by, I mean, 70%, 80% capacity expanded, so you -- that is probably manufacturing -- is that because of payload or linker manufacturing? Exactly what's that?

Just conjugation. The payload-linker will be done at our Michigan facility. And it actually doesn't require a very large area, but the particular area that we expanded the most was in Grangemouth. And that's for the conjugation, which is where you're combining the pieces. And that's the area where we added the 2 larger, more commercially oriented suites, along with the customer experience center and some of the quality areas.

And lastly, if you can give, I mean, what's the big pharma percentage win here in the ADC conjugation?

I don't think we give that number specifically, but I would say that we've been quite pleased with the number of large pharma that have visited our facility in the last 6 months. And we anticipate this to be an area of strength.

Next question is from the line of Alok Dalal from Jefferies India Private Limited.

Vivek, can you quantify the onetime spend that you are going to incur in FY '25 on complex hospital?

So it will be close to about $8 million to $9 million, Alok.

$8 million to $9 million. This includes everything, right?

Yes, $8 million to $9 million.

On the OpEx.

Okay, fine. And on the competition, I thought it was a very steady market. Has this come as a surprise, this price reduction?

It's more that when you have a 5-year contract that comes up for renewal, if one market participant decides to take a particular line of attack on the renewal, we kind of have to compensate. And so that occurred in a particular renewal with one U.S. GPO.

Okay. And last one, on CDMO capacity, are you well placed next 18, 24 months with the capacity on hand?

I think we've done a bunch of investments in capacities across the board whether it's in Riverview or in Grangemouth. And so I think we will -- we're more or less well placed. We may, on a site by site, do some certain debottlenecking if necessary.

But CapEx intensity should be in the 85 million or lower-than-that kind of range FY '25 or beyond?

It will be similar to last year.

Next question is from the line of Punit Pujara from Helios Capital.

I hope I am audible.

Yes.

Yes.

Yes. So you quantified this $8 million to $9 million to be invested for Complex Hospital Generics in FY '25. Does it cover all the geographies, clinical requirement, incubating new distributing channels, regulatory front? It covers everything or this is just the developmental investments that you are making?

So Punit, this is largely towards certain regulatory expenses that we need to do, certain product transitions that we need to do and it's more to ensure greater stability of supply for the future.

Okay. And would you be able to quantify, like how many dossiers you are targeting across the markets?

This is not product development.

It's existing products, tech transfers. So as we said, it's expanding capacity in both Dahej and Digwal. And we expect those to come online at the beginning of the financial year next year, so FY '26. So in order to get the plants up and running, you will need to hire people, do qualification, validation, regulatory submissions to get those up and running, so -- but you won't see the commensurate revenue until FY '26.

Okay. In sevoflurane, you mentioned on the price erosion. And I think there are only 4 players in the market, so is this the other 3 competitors, 1 of them have cut prices or there's a new entrant here?

So there are some changes in the Chinese distributor choice in the U.S. market, but the actor that I described that led to the price was that existing legacy competitor.

Okay. And your guidance of overall revenue growing in early teens but CDMO growing faster. For the CDMO business, the guidance, it does not include any potential upside from biotech funding you have, is that correct?

No, it doesn't.

Understood. And last question is: So early-teens EBITDA Y-o-Y growth should imply a higher ticker at EBIT and PBT level. Is that correct way to understand? Or the investments will offset that also?

So there will be meaningful increase in PAT, as we alluded to in our guidance.

Next question is from the line of V.P. Rajesh from Banyan Capital.

Congratulations on a good set of numbers. Most of my questions have been answered, but just on the EBITDA side, I think in one of your interviews you talked about 24%, 25% kind of margins on a long-term basis. So if you can give some time line around that, whether that's something to expect in fiscal '26 or will it be further out?

I think it's still 3 to 5 years.

Next question is from the line of [ Chintan Chheda ] from Quest Investment Advisors Private Limited.

Congrats on a good set of numbers. Sir, just a clarification. So the early-teen kind of EBITDA growth we are talking about in FY '25, is it after considering the nonrecurring expenses in Complex Hospital Generics?

Correct.

Okay, yes. And secondly, on a quarter-on-quarter basis, our interest cost has gone up despite we have repaid a 1,000-odd crore kind of debt, so just is there some one-off to that? And secondly, how should we look the interest costs for FY '25?

So you're right, [ Chintan ]. If you're comparing the sequential quarter, the interest looks high. So one, of course, is as you're aware, the overall rate hasn't come down. And second, this fourth quarter also includes an element of interest that we have to pay on tax since we outperformed performance in India. As far as FY '25 is concerned, our target is to ensure that our overall debt gets further optimized versus where we stand. Now everything depends upon how the interest rates pan out. While there are talks about interest rates softening, only once that starts you will start seeing a reduction. From debt standpoint, we will ensure that we will control it within the limits that we have set out.

Next question is from the line of [ Ranodip S. ] from MAS Capital.

Wanted to understand your school of thought behind going for the men's grooming market. How big is the market? And what kind of projections are we planning in the years to come?

I think it's a new market for us. I think we saw an opportunity there for us to grow. I actually don't think we have individual projections that we can release, but I think it is an opportunity for us.

Sure. My next question was with respect to the senior consumer care market. Projections are it's already a $10 billion market with 10% CAGR growth. Are we having any thoughts around going about this market?

I think our focus is actually on India consumer. I'm not sure we would want to export or set up a consumer business elsewhere.

Next question is from the line of Vinod Jain from WF Advisors.

Congratulations on the good performance for the quarter. It is gratifying to note that the company is turning around in terms of profitability. The issue I want to address is the Q1, Q2, Q3, Q4 phenomena of the company wherein the Q1 is having the lowest performance and Q4 has the best performance. Now this, I believe, the skewed performance affects the overall profitability of the company. I have a point that there is no slide to explain this phenomena. And what is the view to be taken on this going forward?

So firstly, this skew that you see and you will see that this has been a historical trend as well largely in the CDMO space and it's driven by the demands of when the customers would like to have their products at their disposal. And typically we're seeing that the Jan-to-March quarter, which is -- begins the financial year for them, is when they pick up the highest quantum of stock, at the beginning of the financial year. And this trend will continue. We will see -- but while our endeavor would be to kind of ensure that we have a more even skew, to a great extent, this depends upon how the customers pick up the products. So even for FY '25, I think we will see a similar skew with a low Q1 and a larger H2. I think that trend will continue. In terms of giving this information in the slides, we'll see how we can cover this in the slides as well.

So can we expect that Q1, Q2 may be negative in terms of profitability and then Q3, Q4 would be positive?

See, at this point I'll just say that H2 will be bigger and Q1 will be the smallest.

Next question is from the line of Miloni Mehta from Asit C Mehta Investment Interrmediates.

Congratulations on good set of numbers. Actually, I wanted to understand, like it is mentioned that the CapEx would be same as it was been the previous year, but any specific update on like how it will be on all the 3 businesses? Like would it be again similar to how it was been last year and the CDMO expansion of capabilities? And also actually, it is mentioned that you are looking forward to enter new markets on the inhalation anesthesia side, right? So how would be the -- I mean, any guidance on it, business side specifically?

So on the CapEx front, historically our highest CapEx spend has been in the CDMO space. For FY '25, we are incurring some CapEx in our critical care space as well. And this is particularly what we discussed earlier in terms of expanding capacity for our key starting materials as well as being able to manufacture the inhalation anesthesia product sevoflurane in India. So that's where primarily it's happening, and certain product development expenses in our critical care space that will help expand the overall product portfolio. In our CDMO space, it is going to be a large part of the spillover CapEx of what we have been doing in the past, along with some other investments for debottlenecking across multiple sites.

Maintenance.

And maintenance CapEx, of course.

Okay, okay, clear. And so in last few con-calls, actually, looking at the consumer businesses we were continuing to reduce our promotional spends and we were looking forward to increase our margins in the same, so what is the guidance on that particular business? Is it still the same or any changes that we can expect?

It's moving in the right direction in terms of improvement in margins. As we said that, once we cross 1,000 crores, we'll again keep on looking at optimizing margins in this space. So it's moving in the right direction.

Okay. And any changes that we see in our power brands or it would still be the same intact power brand contribution that we have from 5?

I think it's still the same.

Next question is from the line of Chintan Shah from JM Financials.

So one question, it's slightly long term in nature. So we alluded that EBITDA margins of mid-20s, let's say a 3 -- while they are 3 to 5 years down the line, I just wanted to understand what would be the path from, say, 15% to 25%? I mean, what will drive this? Is it, will it be CDMOs? Or because I believe, CHG, there's not much scope for expansion. So if you could highlight, broadly, what will drive this?

So Chintan, if you've looked at our quarter 4 margins, they are at 22%, right? I mean one of the primary drivers of the 22% margin in quarter 4 is the fact that we've had a higher quantum of revenue, which only denotes the nature of the business that it tends to be a high-fixed-cost business. So as we enhance scale and capacity utilization, margins will typically enhance. In our CDMO space, which is where over 60% of our business is scale-based and therefore, the largest driver of margin for the future will be the CDMO space. So as we increase revenues over here, you will see exponential increase in margins. Our Complex Hospital Generics is relatively already in a better position in terms of the overall EBITDA margins. And the third, of course, will be our consumer product business, where also, as the scale enhances, we will look at further optimizing the margins in that business. So basically, CDMO and ICH will be the drivers for margin in the future.

Okay. But just 2 -- 1 follow-up on that. So the seasonality will continue to maintain, right? So on a full year -- by Q4, we'll deliver 20% to 23%. Obviously, quarter 1, 2, et cetera, would be much lower, so what you're trying to say is that there are so much of utilization levels to improve that once that runs up, we'll be able to deliver on that margin? And that Q4 margins we are talking about, so 22%, could actually be much higher, say, around late 20s or early 30s? Is that right?

So I think every site is at a various -- varying level in terms of scale and utilization. One thing you have also seen is that the overall mix of the business is improving more towards on-patent products, which is another factor which is going to drive overall margin enhancement in the future. So it will be a combination of higher revenues on a full year basis in CDMO across our sites as well as the further enhancement in the mix.

Okay. Got it. Understood. And just one last question. Anything in terms of inorganic that we'll be looking at in, say, FY '25 or '26?

See, at this point in time, we have done a lot of organic CapEx, which we would look to utilize and improve the overall returns margins. If there are some small tuck-in acquisitions which complement which don't have a significant stress on the balance sheet, we won't shy away from looking at it, but right now the focus will be largely to deliver on what we have done on our organic CapEx.

Next question is from the line of [ Afzal Mohammad ], an individual investor.

So in CDMO, across Phase II and Phase III, how many molecules have breakthrough therapy designation or fast-track designation from the FDA?

I don't think we published that at this point in time. Perhaps, we can -- you can connect with our IR later offline.

Okay. So on-patent commercialized products, what percentage are biologics and what percentage are small molecules?

The majority of our work is small molecule.

Okay. And going forward, do you expect majority of the revenues coming from biologics in the next 1 to 2 years?

Actually, biologics is very, very small. I think, I would say, predominantly in the near to midterm, we will be much more small molecule.

Okay. And do you have the capability to manufacture bispecific antibodies or gene and cell therapies, which is the future?

So the investment -- the strategic investment that we mentioned earlier in Yapan is our primary vehicle to explore that area of opportunity.

Okay, sounds good. So in the next 1 to 2 year, the primary driver of revenue in the CDMO space would still be the small molecules. Is that correct?

Yes.

The only corollary of ADCs, which is a carve-out niche that we described earlier in the call also.

Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Gagan Borana for closing comments. Over to you, sir.

Thank you very much. I hope we have answered most of your questions. In case you have any follow-up questions or any clarification, please feel free to reach out to me. Thank you, and have a nice day.

Thank you. On behalf of Piramal Pharma Limited, that conclude this conference. Thank you for joining us, and you may now disconnect your lines.