RPG Life Sciences Limited (RPGLIFE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to RPG Life Sciences API Update Conference Call hosted by Dolat Capital Market Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Zain Gulam Hussain from Dolat Capital. Thank you, and over to you, Zain.

Thank you, Danish. Good evening, everyone. I am Zain Gulam Hussain on behalf of Dolat Capital, welcome you all for the API business update of conference call of RPG Life Sciences. I would like to thank the management for giving us this opportunity to host the call. Today from the management team, we have Mr. Ashok Nair, Managing Director; Mr. Amol Lone, CFO. I now hand over the conference to Mr. Ashok Nair for the opening remarks. Over to you, sir.

So good afternoon, everyone. I'm Ashok Nair here. And with me, I have my CFO, Amol Lone and API CEO, Mr. Deepak Shukla. So thank you for joining us. As always, it's my pleasure to be interacting with you all. Before I discuss our acquisition of Raghava Life Sciences that we announced yesterday, I would like to briefly step back and take you through the strategic announcements we made on 29th July, and yesterday's transaction is a part of our same overall strategy. So on 29th July, we announced 3 important initiatives. First, we transferred the API business of RPG Life Sciences into our subsidiary company, RPG Active Pharma. With this because we are seeing structural tailwinds in the form of global supply chain diversification towards China Plus One strategy, PLI Make in India push and the global API industry is shifting towards supply chain diversification, increasing regulatory expectation and growing demand for reliable manufacturing partners. So we believe India is exceptionally well positioned in this environment. And RPG Life Sciences already has presence in niche high-margin APIs, and we believe that the time is right for our API business to get dedicated management focus, dedicated resources and greater strategic flexibility to pursue growth opportunities as a strong growth engine for RPG Life Sciences. Our existing API business operates from our Navi Mumbai facility, which was recently modernized with some capacity expansion as well. We are focused on niche high-value, low-volume product supported by R&D and process development capabilities. The subsidiarized AP business recorded external third-party sales of approximately INR 95.1 crores in FY '26, apart from captive supplies to the formulation business. We have onboarded a dedicated CEO, Deepak Shukla, who comes with deep industry experience and are building a leadership team with complementary experience. Second, we partnered with InvAscent, one of the India's most experienced health care-only focused private equity investors. This has brought access to deep sector expertise and industry relationships on API, which can be leveraged for growth. More importantly, we are creating a buy-and-build-led organization capable of pursuing value creation opportunities at a much faster pace. That's a combination of organic growth on top of our strategic acquisitions. So InvAscent will hold 40% in the subsidiary, that is RPG Active Pharma on a fully diluted basis. The first tranche of the fund raised of approximately INR 243.33 crores will be utilized towards the purchase consideration payable for the 2 acquisitions announced. Now RPG Life Sciences will retain balance stake in RPG Active Pharma and the management control, along with the consolidation of the subsidiary in the books of account. InvAscent is a pharma-focused partner with more than 20 years of sector experience and about 40 investments, demonstrating a strong track record of value creation. We expect the partnership to support product selection, M&A, customer connection, cross-selling opportunities and sharper execution. This partnership provides us the financial capacity and sector partnership required to accelerate value creation and derisk the overall journey. Third, we announced the acquisition of Actis Generics. Actis brings a highly capable intermediates and API manufacturing unit, backward integration prospects, a growing product portfolio and a strong customer relationship. It was the first building block in creating a larger consolidated API organization. The acquisition consideration is approximately INR 80 crores, including net working capital under the share purchase agreement dated 29 July 2026. Strategically, Actis adds a fully backward-integrated platform for API and complex intermediates from Vizag. Its facility operates close to full capacity with scope for expansion at the site. It brings technically demanding multistep manufacturing processes, a competitive cost position in key molecules and an antidiabetic and a cardiovascular portfolio supported by long-standing customer relationships. The significance of Actis is that it strengthens the chemistry and intermediate side of the company. Now I'll focus a bit on the latest acquisition of the API and the intermediate business of Raghava Life Sciences, which is in line with the strategy I narrated. What excites us about Raghava is that we get access to an asset with a significant strength in place, a modern state-of-the-art facility spread over approximately 9 acres close to Hyderabad, around 300 KL of installed capacity, WHO-GMP and EU-GMP approvals, dedicated R&D infrastructure, a portfolio of 29 molecules with 22 commercialized APIs and 7 at development stage and some established marquee customer relationships. Though, the largest manufacturing block is fairly new and has been built over the past 3 years. The product portfolio has regulatory credentials, including CEP and KDMF, that's the Korea approvals. The acquisition is structured through a business transfer agreement via slump sale. RPG Active Pharma will acquire the factory, product portfolio and customer relationship of the API and intermediate business for a consideration of up to INR 135 crores, including net working capital, subject to customary adjustments and closing conditions. To clarify, we are acquiring only the API and intermediates undertaking and not the CRAMS operation that the company used to operate. In this, we get a business launch fund where strong foundations have already been laid to invest in manufacturing, R&D-led product development and regulatory approvals, but where the full utilization is yet to be realized. So this would always take 2 to 3 years to replicate for us. And the revenue potential at Raghava with fuller utilization level is approximately INR 200 crores. The levers that we would like to look to implement to unlock this value include strengthening business development, increase utilization, expand into higher-value markets, especially EU-focused, and optimize product costs while creating better operating leverage across the organization. Further, Actis is highly complementary to Raghava, where we see opportunities to use Actis intermediates, improve cost competitiveness and support faster scale-up of selected APIs. We believe that by combining Raghava's product and capacity with Actis's backward integration possibilities, RPG's existing API business, systems, processes and governance framework, along with our PE partner sector expertise, we can unlock substantially more value than either asset could achieve independently. So this is where the real value creation story lies. We are building a larger, stronger and a more competitive API organization with wider capabilities, deeper customer relationship and greater participation in the growing global API opportunity. To sum up, RPG Active Pharma now has the requisite building blocks required for fast-paced future growth, products and manufacturing capacities, R&D, customers, capital and talent supported by a strategic sector partner. It's worth taking a note that what we have been able to create in a short period of time through this consolidation play. Just a few months ago, the API business operated with approximately 110 KL of manufacturing capacity from a single site. With the addition of Actis and Raghava, RPG Active Pharma now has approximately 505 KL of installed capacity, representing more than a fourfold increase in manufacturing scale without requiring major additional CapEx now. Our employee strength has increased from about 217 people to over 500 professionals, now being led by a dedicated CEO whom I spoke about with deep industry experience. Our R&D scientists' team has expanded from 28 to 53. We have expanded from 14 products across 6 therapies to 45-plus products across 13 therapies and from 123 customers to over 250 customers and from 12 pipeline molecules to 28 molecules now. We have transformed a stand-alone API business into a significant larger multisite backward-integrated organization with further committed capital available for organic and inorganic growth. Every acquisition we look at for API will be with the lens of being a building block in one integrated company focused on deep capabilities, capacity, chemistry, product portfolio, approvals and customers. We will also look to incorporate U.S. FDA approvals and therefore, access to the U.S. markets as part of the larger strategy. So our immediate priority is closing and disciplined integration. Towards integration, we are running a very disciplined PMO meticulously focusing on all work streams. We are also supported by a top consulting firm for integration. This is a very strong post-acquisition execution rigor. We are targeting superlative 25%-plus growth CAGR in the API business through organic and inorganic interventions, sustaining over the next 5 years. The API margins are targeted to be in the overall range of our existing API and company level margins. Consolidated financials are unaffected by the transfer. Our focus remains on APIs that are niche, multistep, complex chemistry, low price erosion. Therefore, we expect value creation in terms of valuation multiples being on higher side of the spectrum as against commodity bulk drugs. And our acquisitions are and will remain at prudent valuation. With organic sales growth and margin improvement, there's a large upside for multiple expansions. So overall, we believe that the structure and endeavor are value accretive for RPGLS as a whole. More importantly, I want to share a broader perspective on our overall RPG Life Sciences company. I'm sure you must be aware of our recently announced quarterly results for quarter 1 FY '27, where we saw how our DF business, which contributes to 70% of our revenue, has again delivered market-beating growth. Consistently over the last 5 quarters, we have grown 1.3x to 1.8x than the market, helping us to enter the top 50 pharma company list last quarter by advancing 12 IPM ranks from rank 62 in March '25 to rank 50 in June '26. And as per MAT Pharmarack June 2026 database. This has now made us the fifth fastest-growing pharma company in India in the last quarter. So a strong API business is complementary to the formulation business and will make it even stronger. The API carve-out increases management bandwidth for the formulation engine as RPGAP has a separate dedicated management team. Therefore, focus deepens on both verticals, and we expect better overall performance of both. Thank you very much, and we are now happy to take your questions.

[Operator Instructions] Our first question comes from the line of Mohammed Patel with Edelweiss Public Alternatives.

Can you hear me?

Yes, we can hear you. Please go ahead.

So I wanted to know what is the approximate headline numbers for RPG Active Pharma trailing 12 months or FY '27, what should be the sales, EBITDA, PAT on P&L side and some balance sheet items like net worth, fixed assets, working capital after the announced transaction?

So the guidance numbers -- so we are -- overall, we are aggressive enough. We are not publishing the numbers as a separate API business as of now. But -- so the guidance is like on a sustained basis, we are endeavoring 20%-plus CAGR in next 3, 4 years.

Okay. So I also wanted to know the revenue and EBITDA potential for the API business, which is now -- I'm breaking it into 3 parts. So the current API external sales, which is INR 96 crores, Actis INR 48 crores; Raghava INR 19 crores. So in the medium term, in the next 3 to 4 years, how should I look at all the 3 pieces growing? And what will be the key growth drivers of each of them?

So the key drivers will be the molecules that they have, and then we will have a synergy between all the 3 companies and then the integration from the production side. From the top line perspective, as I mentioned, the stand-alone that number we have for INR 90 crores, which is for our company. So altogether, 20% CAGR that we are endeavoring for 4 to 5 years as a CAGR for the consolidated AP business.

Okay. And you have mentioned long-term aspiration of INR 1,000 crores in the API business. So broadly, how many years should we take to reach that INR 1,000 crores? And what should be the sales mix at that time? And how will be the bridge from the current sales to INR 1,000 crores?

So see, like we mentioned in the earlier as well, so there are organic and inorganic, both the initiatives. This is the second initiative, which is inorganic. So the collective initiatives will drive us in 5 to 6 years to the INR 1,000 crores landmark. As of now, the stand-alone and plus adding to these 2 acquisitions, we'll be at almost half to the benchmarking that we are having as of now.

So just to add to Amol, if you see, we have historically delivered consistent growth and believe that the path to INR 1,000 crores will come from multiple levers rather than any single initiative. So our domestic formulation continues to grow ahead of the market, while international formulation, APIs and new product launches provide additional growth drivers. Now the API business is becoming an increasingly important growing platform. And as I said, we have created an RPG Active Pharma. So that should actually take us. Going forward, the bridge will come from market beating growth in domestic formulations, scaling the API platform and expansion to new international markets. And more importantly, the new product introductions and disciplined inorganic growth opportunities will create a long-term shareholder value.

Okay. And in terms of the INR 700 crores investments that we'll be making in the API business, what will be the split between RPG and investor? And what will be the time frame approx?

Sorry, come again, question, please?

So we are going to invest INR 700 crores for the API business. So how much -- how will be the split -- what will be the split between RPG and the investor? And in what timeframe we will deploy the INR 700 crores.

See, from the time frame perspective, as you said, we are looking at the assets and it gets converted into the -- and of course, the timeframe that we have is another 12 to 15 months. We will be trying to see all the -- completion of all the acquisitions that we are endeavoring. And about the investment, so the investment is a total commitment as of now. But as we see, if the opportunities are there, considering the shareholding pattern, both the parties will be keep on investing.

So basically, this is a strategic partnership aimed at building a meaningful API organization rather than delivering short-term outcomes. So both partners are aligned around long-term growth and opportunities and the capital deployment plans.

Our next question comes from the line of Shubh Mehta with ICICI Securities.

Hello, am I audible?

Yes.

First one, if you can help me, sir, what is the TAM of 22 products which we have under the Raghava, which are commercialized? And if you can name or quantify top 5 or top 3 products over there?

Yes. So as we said, 18 products are commercialized. The TAM of products is in billions. As you see, they are high-growth markets. If you want the top 5, which -- one is, of course, sitagliptin, vildagliptin, then we have rivaroxaban, apixaban, lacosamide, empagliflozin, empa. So there are many like this. So I'm just -- you wanted the top 5 or 6, these are some of them and even some...

And how do we plan to scale up? Sir, also, do we see some captive opportunity over here from Raghava to use it for captive utilization?

Yes, of course, we do see there is a lot of synergy between Actis, Raghava and our Navi Mumbai plant. And there are plans to see what more synergy can be used and how we can use those API things for our own captive production. So over time, we expect the synergies to drive higher growth, better margins and stronger returns on capital deployment. And we have identified opportunities across backward integration, manufacturing optimization, capacity utilization and customer expansion, which can improve competitiveness across multiple plants. And the other thing is, see -- if you also see the 2 businesses are highly complementary, okay? Actis brings strong intermediate and process chemistry capabilities, while Raghava adds scale, capacity, product breadth and regulatory approvals. So I think this fits into our whole scheme of things and our strategy and plan.

All right, sir. Second one on the balance sheet. What is the cash position, if you can help us understand in the balance sheet at this point in time because we have invested INR 80-odd crores in Actis and INR 135-odd crores over here in Raghava and then we had some rights issue also.

So in the earlier announcement and now also the amount which is coming from PE is fully getting invested into both the acquisitions.

So current cash position in the balance sheet would be around...

No, so it will be just sufficient for the working capital management of the AP business. You're talking about only the RPG AP, right, API business.

No, no, no. I'm talking about the consol entity.

Consol level, we will be INR 200 plus crores.

INR 200 plus crores. Also, sir, on the strategic front, initially, when InvAscent invested the amount, the valuation was around INR 600-odd crores, which -- for 40% stake of INR 243-odd crores. And the same rights issue, which we did, I believe it was considerably at around valuation of INR 210 crores. Can you help us -- can you double-click over there? What was the strategy? Or how do we -- how should we look over it? So is there some kind of arrangement which we have with InvAscent?

No. So the valuation -- the rights issue is only for the subsidiarization and there is nothing -- this is not connected. The both activities are completely different. The subsidiarization has happened and then the investor has come with the input -- I mean, their infusion of the money and then we'll be doing the acquisition. So that is how we have acquired these 2 companies with the support of the investors.

Our next question comes from the line of Nishita with Sapphire Capital.

Yes. So I just wanted to understand, you mentioned that we plan to invest INR 700 crores in our API business. So what is the INR 700 crores for, is it just for the acquisition? Or are we also adding some capacity?

So basically, the INR 700 crores is for -- looking for acquisition. There will be some part of it, which will be used for capacity building and improving our R&D capabilities.

Okay. And so in the next 12 to 15 months, we will utilize these INR 700 crores for the acquisitions, right? As you mentioned that will...

Yes, that's exactly our endeavor. We would like to deploy the funds within the next 12 months.

Okay. Okay. And the acquisitions that we are looking for, are they in the same category as Actis and Raghava? Or like are we looking for some forward integration in our API business?

So we have been very clear that our play has to be niche molecules. Our play has to be in molecules, which is difficult to make and where you need multiple step synthesis and multiple step development. So our looking for such acquisitions will be towards the same side. And our focus will remain, of course. We already have strong franchises in therapies such as nephrology, rheumatology and other chronic segments. So giving us a relevant commercial base where select API capabilities can potentially also be leveraged further. And our focus remains on creating value across the entire chain through product selection, R&D, manufacturing and commercialization. But at the same time, we would like to be disciplined as far as the capital allocation is concerned.

Okay. Understood. And my next question is that -- so what are our margins -- EBITDA margins in the current API business without the acquisition?