Strides Pharma Science Limited ($STAR)

Ladies and gentlemen, good day, and welcome to the Strides Pharma Science Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions]. I now hand the conference over to Mr. Abhishek. Thank you, and over to you, sir.

Thank you, [indiscernible]. Very good evening, and thank you for joining us today for Strides earnings call for the fourth quarter and financial year 2026. Today, we have with us Badree, MD and Group CEO Vikesh, Group CFO, to share the highlights of the business and financials for the quarter and the financial year. I hope you've gone through our results release and the quarterly investor presentation that have been approved on our website as well as stock exchange website. The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward in nature and must be viewed in context of risk in and in our business. After the end of this call, in case you have any further questions, please feel free to reach out to Investor Relations team. I now hand the call to Badree for his opening [indiscernible].

Thank you, Abhishek. Hello all, and thank you for joining us for the strides Q4 and FY '26 earnings call. Like in previous quarters, I will begin with an overall summary of the Q4 and full year performance, focusing on growth metrics across revenue, margins and operating performance. I'll then take you through a detailed review of geographies. After my section, Vikesh will walk you through the financials in more detail, followed by today. Before I get into the operating performance, let me capture the 3-year journey in perspective. Over the last 3 years, we have been very clear on our priorities, geographical diversification, profitability and balance sheet strength. These priorities were deliberate because we believe that sustainable growth can only be built through strong foundation of profitability and operational discipline. The results of this strategy are now visible. Over the last 10 to 12 quarters, we have consistently delivered improvement across revenue, EBITDA, PAT for reporting our highest ever EBITDA and operating PAT on a sustained basis. Let me cover the first [indiscernible] the geographical diversification, which has been one of the critical pillars of our strategy. . While U.S. continues to remain the key market prior we have long-term aspiration, ex-U.S--ex-U.S. markets have emerged as the most important highlight of our performance. Over the last few quarters, we have been consistently talking about a calibrated strategy of growing these markets, and I am pleased to say that the strategy is now delivering results faster than what we had actually initially anticipated. If we look at the last 3 years, we have delivered consistent growth across key metrics with overall revenue growth at a carrier of approximately 12%, supported by 11-ton CAGR in U.S. and 19% CAGR in ex U.S. markets. More importantly, the mix of the business has shifted meaningfully. Ex U.S. contribution has increased from 41% FY '24. approximately to 46% in FY '26. And on a Q4 basis, it is now close to 50%. This marks a very important structural shift in our business model. It clearly indicates that we are moving away from a single market dependency to a more diversified, balanced and resilient portfolio. Second, profitability. The profitability has been the cornerstone of our transformation journey, and we continue to see strong and consistent improvement. EBITDA compounded at approximately 26% over the last 3 years, driven by the EBITDA margin expansion of 400 basis points to close FY '26 at 19 %. This reflects improvements across other business, whether it is a better portfolio mix, [indiscernible] deep prioritization of low mark in institutional business. strong pricing discipline and overall operational efficiency. Operating leverage is clearly visible at the bottom line. Operational PAT has grown 18x over the last years and EPS has increased to 56 for FY '26, which is the higher for us with a strong exit run rate of INR 14.7 per share in Q4. This shows that we are now operating with significantly longer earnings engine, where growth is translating into incremental profitability. The third pillar has been efficiency and particularly around cash generation and balance sheet strength. Our focus on working capital discipline on cost optimation and cash flow generation has slightly a meaningful [indiscernible] in the financial metrics. Cash flows are strengthened. Cost structures have been streamlined and asset productivity has improved across the board. This is reflected in our return metrics as we with ROC improving from 15.76%. ROC improving to 15.76% for FY'26 from single digits just 2 years back. More importantly, our continued focus on profitability and cash generation has enabled us to significantly reduce debt. Today, we are operating with much stronger and more resilient balance sheet, which gives us the flexibility to invest in growth while negating external volatility. Turning to the full year performance, FY'26 to be viewed in the context of a challenging external environment, particularly from a geopolitical standpoint. We reported a revenue of INR 48,587 billion or INR 48 billion, reflecting a growth of 6.4% year-on-year. This was impacted by a few specific factors, particularly in the U.S. business. The pool season did not materialize as expected in the second half this year, which typically contributes meaningfully to our revenues. In addition, the overall growth was impacted by a markets, which are currently facing donor funding challenges and remain tactical in the interest. Adjusting for these access markets, our underlying revenue growth was much stronger at approximately 10%. This growth was driven primarily by our ex U.S. markets, which delivered a robust 21% growth. Coming to U.S. business. We delivered revenue of $284 million for [indiscernible] and $70 million in Q4. The [indiscernible] during the year was impacted by a weaker season in second half. Historically, the fourth quarter tends to be stronger for us given the seasonal true demand in the U.S., which unfortunately did not materialize as expected this year. Over the last couple of years, we have been consciously reshaping our portfolio transitioning from a smaller revenue products to your more [indiscernible] products. In line with this strategy, we launched 6 products during the year and some of our molecules have faced increased competition. And accordingly, we have rationalized our market share while maintaining our focus on the profitability. We exited 9 products that did not meet our internal return thresholds and reinforcing our continued focus on portfolio quality and profitability. We launched [indiscernible] substances from [indiscernible] acquired [indiscernible] portfolio. Given that we are a new entrant control substances, allocations are lower than expected FY '26. However, with a full year of operating track record now established, we believe that we are better positioned to see traditional allocations. This improved -- this [indiscernible] should add to our near-term growth. Over the past year, we have made targeted investments into global R&D programs. We have spent [indiscernible] approximately $30 million over the last 24 months towards IP purchase and partnered R&D programs focused on medium and long-term growth. We expect the benefits of these investments starting in the second half of FY '27. In parallel, our strategic partnership in U.S. are progressing well the B2B business that should drive the incremental growth. Our pipeline continues to shift towards the more differential programs we have clear focus on nasal sprays and, [indiscernible] We also filed our second nasal spray in May 26, further strengthening the portfolio. We continue to focus our aspiration of reaching [indiscernible] to $400 million in the U.S. Coming to the next U.S. markets. This has been a very strong year for us. And more importantly, it reflects a structural transformation that has been underway over the last few years. As I mentioned earlier, we have grown this business at a CAGR of around 19% over the last 3 years, and we are now starting to see the benefits of the investments we have made across markets partnerships and product portfolio. To put this growth in perspective, the XS business has scaled from 440 million per quarter in June of FY '24 to about $17 million in Q4 of FY'26, we are 13 million growth in 12 quarters, and this steady progression highlights not just a growth, but the consistency and sustainability of the business model we have built. . In our other related markets, we are seeing strong traction across key regions [indiscernible] Europe, U.K., Australia, Nordics. The last 2 quarters, the [indiscernible] revenues have grown from about 31 million in Q1 of FY '24 to $52 million and exit run rate in [indiscernible] FY '26, reflecting a consistent sequential improvement on strong execution on the ground. At the same time, Africa continues to be a key contributor within our growth markets. Per performance has been encouraging across regions. Our focus here is evolving beyond just scaling revenues to increase the share of branded business, particularly in the markets such as Francophone Africa, where we are already growing faster than the underlying market. The focus towards branded business will drive both sustainably and margin resilience over the long term. We also announced the acquisition of certain products from Sandoz in February 25, with the addition of the Sandoz portfolio, which is expected to start contributing from the second half of FY '27, we will further strengthen our presence in asset. The combined strength of our existing portfolio on the Sandoz branded business positions us well to become 1 of the leading pharmateclplayers in sub-Sahara African region over time. Our continued focus has been building on high-quality, sustainable business across ex U.S. [indiscernible],and these geographies are characteristic by a relative high entry barriers, stable pricing across a stable pricing environment and strong partner relationships all of which will contribute to predictable and resilient revenues. The price a strong growth in U.S. markets. Our -- our margins have remained robust. This clearly demonstrates that we are not compromising on our underlying business fundamentals and in fact, margin profile between the U.S. and non-U.S. ex-U.S. business is now becoming increasingly similar. This is an important milestone as it validates the ex U.S. is not just a growth in, but also a strong and reliable earnings driver. What also gives us confidence is that the key growth drivers are now fully in place, whether it is presence in the right markets, strong partner relationships. We are diversified and expanding product portfolio or a steady piano regulatory approvals. Looking ahead, our filing momentum in ex U.S. markets remain strong, and we continue to drive growth over the middle term medium time. Overall, we believe that U.S. markets will continue to grow faster than the company average. and will remain a critical layer of our strategy, not only for growth but also for improving the resilience of overall business. On some of the qualitative matters, I just want to cover some few points. One is with respect to ESG. From a ESG standpoint, we are happy to report a 5-point improvement in our scope and inclusion the year book for the second time, reflecting our commitment to responsible growth and [indiscernible]. I also want to make some few comments on the external environment. The external environment remains challenging with [indiscernible] across raw materials, logistic fuel and as well as foreign exchange. We are also closely monitoring these developments and remain focused on cost decline. We remain committed to achieving our long-term aspiration, and we aim to reach EBITDA margins was and gross margins in the 58% to 58% to 60% range, I repeat 58% to 60% range and continue to driving operating leverage to deliver strong EPS and back growth. . Lastly, Board has recommended a dividend of INR 5 per share. And before I close, I'm pleased to announce to share an important leadership update. We have elected to announce the appointment of Ramraj, our current Chief Operating Officer, as an Executive Director. [indiscernible] has been its price group for both in 18 years and brings with him a deep experience across the pharmaceutical and health care sectors. As we continue to Director, Samraj will be responsible for overseeing the global technical operations and strategic management of critical functions, including manufacturing, supply chain and procurement. With this, let me hand over to Vikesh for his comments.

Thank you, Badree. Very good morning, good afternoon, and good evening to all of you. has been another year of strong profitable growth, which has been anchored in our pillars of profitability, efficiency and growth. At the core of business philosophy has been a disciplined approach towards profitability led growth, a very efficient capital allocation and a drive to achieve sustainable and resilient business model. We are very pleased with the sustained progress across all of these metrics of profitability, efficiency and growth over the past few years as we continue to build long-term shareholder value. Over the last 12 quarters, we have significantly expanded on our profitability metrics, improved our cash flows and strengthen our balance sheet. Despite the challenging external environment in Q4, where we have seen additional cost . [Audio Gap] Non-quarter growth in our [indiscernible] which truly reflects the resilience of our business. I will now take you through the numbers, starting with the full year performance. For FY '26, we are reporting an EBITDA of INR 95 crores. which is a healthy 15% growth year-on-year, with EBITDA margins expanding by 140 basis points over FY '25 to 19%. On operational PAT, we have grown even faster with a 50% year-on-year growth. We are reporting an operational PAT of INR 518 crores of crossing the INR 500 crore mark for the first time. [indiscernible] was supported by sustainable growth in our EBITDA and lower finance costs. Our EBITDA to operational PAT conversion ratio also significantly improved which underlines the structural strength and quality of our profitability. Operational EPS also grew by 50% year-on-year with an EPS for the year at INR 56.2 per share. Our reported PAT for the year is at INR 575 crores, which is up 40% with a reported EPS of INR 60.3 per share. Our reported PAT is higher than operational pact on account of the sale of investment property that we had in Q3 of FY '26. On the efficiency metrics, our cash-to-cash cycle is at 124 days, which is an increase of 7 days year-on-year. And this increase is on account of higher inventory levels, which have increased by 21 days year-on-year. So in addition to the superior growth that we've had in ex U.S. markets, which was supported by these inventory levels, we have also built resilience in our supply chain, adapting to the challenges that have been posed by the current environment. And therefore, it's [indiscernible] up adequately to take care of our business needs. We had a corresponding increase in payable days in Q4, and we expect these to normalize over the coming days. After funding for this increase in cash-to-cash cycle, we've delivered an operating cash flow of INR 703 crores for the year, which translates to a 76% EBITDA to operating cash conversion. We also invested in growth capital spend. We invested INR 418 crores across both tangible and intangible [indiscernible] It includes INR 236 crores of tangible CapEx, where in addition to the maintenance CapEx that we spend every year, we made very targeted growth investments in building our nasal capabilities. enhancing capacities to support our ex U.S. business and acquisition of a new office space in U.K. to cater to the growing needs of our business. We spent INR 182 crores towards intangible investments, which included certain global rights, global product rights, which will drive our growth in the near future in both the U.S. and the ex U.S. markets. In the intangibles, the spends also include a very significant upgrade to our global ERP platform as we migrated to SAP [indiscernible]. While we made significant investments in growth this year, our superior profitability and cash flows have helped improve our net debt-to-EBITDA ratio from 1.9x last year to 1.55x as we closed FY '26. This is despite a negative impact of the currency depreciation, which impacted our net debt by about INR 112 crores for the year. Our reported net debt as of March 26 is that INR 1,437 crores. In addition, our investments in OneSource valued at INR 337 crores adds further strength to our balance sheet. In terms of debt reduction, our net debt on a constant currency basis reduced by INR 197 crores, which reflects the strong underlying cash generation and disciplined deleveraging in our operational business. While there may be near-term headwinds due to our cash-to-cash cycle, we remain confident of improving our net to EBITDA ratio over the next few quarters. Our ROC continues to improve. It is at INR 15. 86 for FY '26 compared to 14.9% last year, which reflects our improvement in operating performance. With the significant investments in growth during this year, which are yet to play out, we see this metric to continue to improve in the near future. Overall operating expenses for the year were at approximately 40.6% of sales. Employee costs remained stable at 19% of revenues. while other operating costs increased to 21.5% due to both a business mix shift towards ex U.S. markets and the elevated supply chain and manufacturing costs largely in Q4 due to the dynamic geopolitical environment. Our net finance costs stood at INR 138 crores for the year, which reflects a constant reduction from FY '25 levels, which has been supported both by lower debt and improvement in our borrowing costs. Our effective tax rate for the year remained at up 15%, which is at the lower end of our expectations. Quickly moving to the Q4 performance. For the quarter, our EBITDA grew 0.10 year-on-year to INR 240 crores, which reflects our continued growth in absolute profitability. Our EBITDA margin for the quarter was 18.1%. EBITDA margins were impacted on account of cost increases that were attributable to the escalations [indiscernible] and air freight, which will seem to be significantly higher than the previous quarter. these costs were to the tune of INR 20 crores, which would have otherwise added to our performance for the quarter. Despite these challenges, we are delighted to report growth in absolute numbers and we continue to remain focused on building a resilient and sustainable EBITDA profile. Our PAT and EPS continue to expand on a quarterly basis. Operational PAT at INR 136 crores grew 20% year-on-year with an operational PAT margin of 10.3%. Operational EPS for the quarter at INR 14.7 per share reflect a continued improvements in earnings quality. Our reported PAT for the quarter is at INR 129 crores with a reported EPS of INR 13.8 per share. which has grown by 54% year-on-year. Overall, FY '26 has been another year of disciplined execution with strong growth in profitability significant improvement in operational PAT and EPS improved ROCE balance sheet discipline while we continue to invest for future growth. The growth momentum in our ex U.S. business, along with our profitability orientation has enabled us to drive improvement in gross margins and EBITDA with a significant expansion in PAT and EPS over the last couple of years. We remain focused on building a structurally resilient business with sustainable growth disciplined capital allocation and continued strengthening of our balance sheet. Thank you, and we are now happy to take any questions that you may have.

We will now begin the question-and-answer session. [Operator Instructions]The first question is from the line of Pratik Kothari from Unique PMS. Please go ahead.

Sir, my first question on the U.S. portfolio. I mean while we have reoriented and we are doing exactly well in our other regulated markets and the growth markets, One, if you can touch upon what is happening in the U.S. market in terms of -- I mean, because you're seeing product based combinations, even the product launches that we had anticipated or plans for them go through. So just 1 comment on U.S., what is happening there?

So Pratik, from a U.S. perspective, I just want to give you some few things which cannot happen in the last year. One is the seasonal aspect. Second is the -- we have been telling that the control substances will need a past history. Like we need a good stable year of control substance before the growth comes back into this because it depends on quota then production and then the actual commercialization. And the third one is in terms of the portfolio, if you really see -- we have got a lot of launches coming up from the second half of this year, which will continue until about '28. And we just don't want to lose profitability discipline as far as the U.S. business is concerned. And that has been a stated policy. And if you really see post the one source that happened, still the growth is quite good from 11% perspective over the last 2 to 3 years. And overall, if you really see, this is a conscious effort to maintain the profitability at the marketplace. And we believe they should all -- the growth should start from H2 onwards, with a higher trajectory.

Correct. And then it's a steel growth, I believe, because we still hold on to a target for next year. So this would be driven by a combination of everything the nasal spray [indiscernible] substance...

Aspirationally, we have kept 375 million to 400 million -- and if you remember, the 400 million was given in the contract, some 2 years back, and we won't chase that for the simple reason that we have got their drivers in place, and we are also working on till the last dollars to make it happen. and that's what we are focusing on, and we should be able to get to that growth trajectory reason. .

Just double clicking on this. So to maintain the [indiscernible], we have either not launched as many products or you have let go of a few. So this increased competition or pricing pressure is coming from the the peer Indian players who are doing this .

There are a lot of peer players, [indiscernible] also. We have explained it in the previous quarter also, like there has been intense competition in few of the molecules. But the most important part . Pratik you should know is that we still have leading positions in [indiscernible] products, right? The market leading position in [indiscernible]. All of this plays out. And I think we should be there. It's not a very difficult situation. The only thing is we'll have to focus on a few things and we've got 8 quarters to make it up.

Sorry To interrupt you. May we request you to please rejoin the queue. Mr. Kothari, we have other participants meeting for the term. The next question is from the line of Dhaval Shah from Girik Capital.

Yes. So my question is related to the flu season. So our [indiscernible] company so [indiscernible]. So this -- our [indiscernible] that given more when the patient is in the hospital or at home? How is the prescription - how does the prescription work for us? Can you tell us [indiscernible] reading on net that we -- in terms of retail authorization were per higher since 2010, '11 few season in the U.S. and while towards February, March, the cases in [indiscernible] a lot. So one is exactly impacting our growth for this related drugs.

Yes, sure. So from your perspective, what digits very thing. From what we need to see is a portfolio right? Our portfolio, usually, it adds quite well in the H2 and that has been the past trend for the last 3 years. and some of this year because of the better discipline in sales and all of the sales are still able to -- the demand uptick did not happen. It's not that it can come back FCL also. We don't move. But what we can say is that definitely, the uptick which happens with [indiscernible] what we have seen in the last 3 to 4 years did not happen in the current year. And that's what usually if you really see that the entire -- the 100% is divided into 45% in the first quarter [indiscernible] the second quarter. But as you all see, this year, it's more or less it's 50-50 from that standard.

Yes. And sir, the second question is on the controlled substances. Now can you help me understand a bit about this product, again, through my limited research, I could understand -- it's a difficult business to do and also, at the same time, has a very strong EBITDA margins. So can you throw some light how should I look at this business? And from from your plan for the next 2, 3 years perspective, how do you plan to scale this up?

Yes. So as far as the controlled substances is concerned, it is an in U.S. for U.S. strategy for us. And we have launched 4 packs in control substances, and one of the important things you should know is that it's a very -- it has got a stringent regulatory process. First is here on Slide 4 Quota. That's the first step. Once you get a quota for getting a quota, you have to demonstrate your past history in the sense like if you have been selling controlled substances in the past, the [indiscernible] will be restricted to the [indiscernible] Right. For a company which is entering newly controlled success, it takes at least 1 to 1.5, years to settle down and display that past history. Right? So last year was the first year we had a full year of controlled substances. Then what we do is once we get the -- once we demonstrate the sale, we go back to the DEA again. and apply for an additional quota because we don't want to be making sure that you are able to deliver what you take. And based on this and if you are able to give that what to say, assurance, then you get more quota. That's how it works. So then we ate the APR and then we'd have to the Palo to produce then you go to come and then go back to the DEA. So this is the entire process. So what the control comes has started somewhere in in the year of 24, 25 in the second half of the third quarter. It's almost about 18 months or 19 months, we have in control substances. And last year, of the first year, we had a full year. And we will go back to request for additional quota, and that should drive future growth for us.

Got it. And sir, on the profitability front, you're going to significantly influence our margin trajectory going forward the 20% size .

It's more or less similar, okay, it depends on the product, but I don't think so the profitability is going to change dramatically because of controlled substances. That's for sure.

Got it. So overall scheme of things, you should look at Stride as a operating leverage play going forward to improve the margin? Or it's going to be a mix of product mix as well .

Yes. I covered that in my speech, like our long-term aspiration is to get to an EBITDA was of 20% and also staying 58% to 60% in a gross margin range. And that's what we've been working internally, and we have been working relentlessly on various line items together.

The next question is from the line of [indiscernible] from Financial Consulting.

Sir, I hope I'm audible.

Yes.

Sir, you mentioned target $600 million, $700 million market opportunity wise, and we are planning to launch 3 products this year. So how much of that market are we tapping in the first year?

I think -- I do not refer anything on the $600 million and $700 million .

I think in some previous calls or communicate?

No, I don't think so. We have not communicated -- we have stayed completely to the same team in the last 2, 3 quarters. I don't think so we have communicated in early forum at least side as far as I remember in the recent past.

Okay. So is it possible to disclose what kind of market size are we trying to target?

No, no. See, we have given the overall guidance, overall outlook, how we are looking at the business for the next 2 years, right? That's -- you have to say with that.

Are you talking about specifically controlled substances it?

Yes, nasal spray market, sir, specifically.

We have not specifically -- beyond FY '25 strategy for us. The market has to fall we just filed 1 product last year. We filed on board this year. And we are building capabilities in our [indiscernible] plant. And at least it is another 12 months away from commercialization. And once we get a better clarity, we'll come back to you.

So FY '28 is when we will see the impact of this.

Yes.

Understood, sir. understood. Sir, would it be possible to disclose capacity utilization across different manufacturing plants .

So the capacity utilization of -- we have got enough capacities to cover the next 2 years. They have been driving operational efficiencies but it's always good to have some stat capacity because to meet any emergencies. And we have been operating at a fare level typical of any pharma company which will operate in this space. All I can say is that we don't need additional too much capacities for us for the next 1 or 2 years, accepting for the incremental CapEx, which will give us incremental growth. .

[Operator Instructions]The next question is from the line of [indiscernible] from Edelweiss public alternators. .

So Badree, just wanted to understand a little bit more on the U.S. business, right, the $70 million run rate right? So I mean, 1 of the things that I wanted to double click on was that apart from the controlled substance launches, which were delayed because of the reasons that you explained, Were there any other launches, which were also delayed most competition, the reason there? Or because you mentioned you had some plans to launch but did not. So was that coming specifically for controlled substance for or was it for outside the control sustain as well? And and a question related to that would be, what are you expecting in next 2 quarters for you to you know you say that the recovery or growth will start happening in H2.Why would Q1, Q2 will still be on a weaker side, right? What are the reasons that you are seeing in the next 2 quarters for you to say that the growth rates start happening only in H2 of FY '27. So that's my first question. .

Yes. So what I want to say is I want to correct you here. Like if you really see, my comment was not limited to controlled substances. That is number one. And second thing is we also have 150 products in our portfolio, right? And price policy has been to the launch when the market actually gives an opportunity. We are not in a hiring to launch. There are hosts of products which are there, which are available for us to launch at any point time. And that's what we will do. We wait for the market disruption to happen, be it our API or the intern player coming -- being 80 players going out and that's been a practice because that helps us to maintain the overall company level gross margins. As far as your 2 quarters is concerned, I'm only saying that the full potential of the growth you will start to see from H2 onwards. It's not just that it's muted, it's not like that. there will definitely be a growth. But it's all we have to look at it from a long-term perspective. Some things take a 16 to 18 months sorry, 18 to 24 months to solve right? . So while the quarter-on-quarter there be growth, the full potential of the growth with more launches, you will see the impact of it more in the H2 on those. .

That's fair. The second question would be on the margins, right? On the controlled substance side, you mentioned that they would be similar to our existing U.S. business. But 1 would have thought that because this is more specialized, the margins would be higher, right? And so where is that understanding wrong -- and in that context, right, while right now, you are seeing the convergence of non-U.S. and U.S. margins, but over the period of time, 1 controlled substance and pay and some of the new products become a decent part of our U.S. revenue. Don't you think that U.S. revenue are structurally, I mean, pointing towards a higher than the company average or the non-U.S. part .

Yes. So as for controlled substances are concerned, I just want to say that it's a mean in U.S. for U.S. strategy. See, you have to understand that we are in new iron to control substances, right? -- we have just had 1.5 years of experience, 1.5 last 7 quarters, we have been on cherie have been in the business of controlled substances. So we have to see how good panel because we -- at the end of the day, our end over is to improve the margins. And we all know that U.S. margins are at a higher compared to the gross margins are much higher compared to the company level margins. And the good part is that once the history is established, we should be able to -- once we come to a reasonable size, our ability to do many things in that because becomes much more stronger. So from a mere perspective, it's just at least another 1 year a week for us to launch -- and our endeavor is to see how much we can gain market share at the time of launch. And if you really see the overall context, the U.S. business has to be understood because we are also purely investing in R&D. So that's also a very important factor we need to take into consideration. Overall, I think your observation is right. But it is the control successes will take its time to build the profitability and the operating leverage that we ended.

The next question is from the line of Sarvesh Gupta from Maximum Capital Private Limited. .

Yes. So first question is on this -- you described the tangible, intangible investments to that around INR 350 crore plus. So what is the broad run rate, let's say, for the next 2 years in these 2 buckets?

Yes. As far as the is in still be around INR 300 crores is what I think because the tangible portion is almost coming to an end from a factor . But there will also be some intangible global rights, which we may acquire to fast track the growth. I think it should be about INR 300 crores is what I think .

Okay. Understood. And secondly, sir, just sorry to harp on this point again, but the U.S. guidance for FY '20 of now earlier, we were seeing $400 million. Now we're saying $375 million to $400 million. But is it an exit run rate sort of a guidance? Or is it what we want to achieve in FY '28 number? And secondly, this translates broadly to 15% to 20% eager from the current base. So does it look achievable in the context of the kind of growth we are seeing currently? .

Yes. So the -- I just want to give you a perspective of this $400 million. This $400 million stayed for the last 2 to 3 years, right? And post that, we had a merger of our [indiscernible] business. That's number one, but we did not change this $400 million because we want to chase an operation. And we believe that we can be between $375 million to $400 million at this point of time, right? And we are working towards it. And what is more important is that half on U.S. business, but there is also another regulated markets, which is also going at a very [indiscernible] rate, and is growing much faster than -- much faster than the U.S. market. So from our perspective, we look at the overall company under our basket. And together, we should be able to give the economic long-term reserve. That's the way I look at it.

But presently, this is a target for full year of FY '28, right?

Yes, that is correct. We have not taken any -- we have not taken any exit run rate and all that. The reason why we are saying is that we have got other 8 quarters to go, we want to try to reach as close to the EUR 400 million as possible.

The next question is from the line of Sanjay Shah from ASK Securities.

Badri, your opening remarks are really helpful to understand company and congrats to Mr. [indiscernible]. Sir, my question was regarding our top 37 products contribute around 25% of U.S. revenue. How vulnerable are these products? Can you highlight upon it is the pricing erosion, competition side, and even customer concentration side?

Yes. So one of the things I just want to highlight here is, Sanjay, thanks for your question. And as far as the 3 products is concerned, there is no -- it's widely spread across the entire U.S. revenue. That's the first thing. There is no great customer concentration. So second, in terms of the pricing pressure, we have had marginal pricing pressures, but it has been offset by most of the other measures slide. We have some core improvements. And that's the reason we are able to keep the gross margin between that 58% to 60% range. And in fact, if you really see the last 3 years [indiscernible] approach as industry improved gross margins by more than 800 basis points. and as well as the EBITDA margins by almost 400 basis points when we started on source adjust for [indiscernible] 15% to almost 19%. As far as the customer is concerned, I just want to say that we have got a very wide customer base. In fact, the big customers contribute almost a reasonable portion, but there are also a lot of many customers which contribute to give the portfolio great support because these are the customers where we don't see price erosions much. And we are able to maintain it within range. . And I think, overall, to answer your question, the vulnerability is not there from a customer product -- customer or a product perspective. Second thing is the objective has been to maintain the gross margins. And that's what we have consistently, you can see all the 8 quarters, we have demonstrated the gross margins between that 58% to 60%, and we will continue to work on it to get to that range.

So we are investing heavily on complex generated like [indiscernible] films, so what are the execution capabilities still need to be built internally? And what time line can be expect before meaningful commercialization of the [indiscernible]

Yes. So as far as the nasal spray is concerned, is one of the strategic acquisitions we made some many years back was from end to Cesaratto, that facility has got the capabilities to manufacture films patches as -- sorry, as far as the nasal space. and not the patches and films, can't control substances. So I repeat again, the just enter just got a capacity to manufacture is space and controlled substances. As far as the R&D is concerned, we have got a combination of the third-party manufacturer as well as the nose manufacturer. And we are -- these all should contribute meaningfully beyond '28 -- for FY '28 and beyond. That's what we are expecting. While 1 or 2 nasal products can be commercialized much earlier, which we believe we can, if everything goes right. But you will see bulk of the revenues coming in '28 and FY '29 onwards. . Congratulations to that.

The next question is from the line of Nitin Agarwal from DAM Capital.

Badree, two things on is, a, on the newer sort of growth in [indiscernible]. The talk about the instacart to [indiscernible] of them they begin to contribute '29. There are some other moderate which you mentioned in the presentation. Can you give us a little more color on what are the time lines for those modalities.

Yes. These are all -- again, it is a '28 beyond. It's not going to contribute anything much to '28. We already started all the programs. It's all going in full swing. So we will start filing in the next 18 months. And then it will be beyond '28 for us.

And so [indiscernible] apart from [indiscernible] is the second sort of -- second one would at probably start to become in commercial for us?

Patches and an files. These are the 2 areas of domains we have identified. We have already -- the R&D is in full swing. We should be able to file for that in the next 12 -- 12 to 18 months. And then formalization data.

And on the nasal spray, so control product, you say that you mentioned earlier, what our total pipeline that you probably are looking at, say, from a 2, 3-year filing perspective?

There are a few items we have added. In fact, there are some third-party programs. We have added at least another 6 of 10. I don't know the exact number. But definitely, there is a portfolio that's being built [indiscernible] domain because we are completely backward integrated in terms of tester catering to those business.

So this will be all controlled product in this space.

Yes. Controlled as well as other basin space also.

Okay. And with all of this going on, how do you visualize the R&D spend going forward now?

Yes. So the R&D spend will be weak last year also that R&D spend is going to be higher. It will be upwards of $25 million, $20 million to $25 million for sure in the coming 2 years. And we believe that we have got the enough growth engines to invest on the R&D and also the scale up of the business. .

And at for second one, on the growth market, if you can just let us know about how should we think about the Sandoz transaction and the impact it makes for the growth markets. And overall, any update on how the growth market businesses are open. I mean any positives to call for the growth market growth for this year?

Yes. So as far as the standard transaction is concerned, it's expected to fructify in the second half of FY '27, that is between October and March. The next year, it should contribute meaningfully to the growth. The third thing is in terms of overall the branded portfolio will definitely technically double for us more than 1.5x as with this portfolio. And we think that over the long term, we should be able to build a good brand portfolio as a part of the overall revenue of the company, and it's growing quite well. So so far in the last few or 2 quarters, we have faster than the market. And our brand was more related to the [indiscernible]. And we have done quite well. And with the Sandoz portfolio, we get a much more broader process in in Africa. And we think this will add very meaningfully to the margin bps you know the brands have higher margins compared to generics.

And then lastly, how should we think about this quarter, GN expense spike? And should we look at annualized proposition, the base analyzing model next year?

Yes, it will be in that range. But the -- because last quarter was a sudden increase in the Fit cost, and we are watching the geopolitical situation very closely. And I covered it in the recent -- in my opening speech also, there has been increase in prices and we are working very closely with the customers how much to pass on. And we are working on multiple strategies to maintain the gross margins within that 58% to 60% range. And if we're able to do that, the operating leverage automatically plays out. But having said that, the logistics costs have increased. Maybe you can put some discounting factor on the Q4 and then maybe you should take [indiscernible].

The next question is from the line of Shilpa Sabu an Individual Investor.

I'll be asking on behalf of Shilpa Sabu. First question on the controlled substances. So sir, previous con call, now we have completed 1 year in controlled substances. So are we eligible for higher quota allocation for the U.S. market? And if yes, then what is the revenue potential?

Yes. So we don't want to give a very specific revenue potential on control substances. All we can say is that this will be an engine of growth and completed a full year. And because it's pretty difficult to commit without getting the quota, right? So it's a chicken and export, but all we can say is that the last 1 year, we have demonstrated whatever the quota we have received, we have been able to sell and we are able to demonstrate and we'll go back to the -- and here is anything additional quota, it will anyway gets reflected in the growth as we go along. .

Okay. And second question is on do Pfizer [indiscernible]. So for [indiscernible], we had around 8 to 9 products in pipeline, so will be 3 to 4 commercial is this year? And what will be the market size?

We have not had any price of IP as far as -- I don't think so it is maybe verify it and come back.

So what will be the market size?

So look, we don't have don't have at all. .

The next question is from the line of [indiscernible] from [indiscernible] Investment.

Sir, I wanted to confirm that you mentioned that there will be a Q-on-Q growth. So like last year when you guided at this site of effort that sequentially there will be a growth. So this year also, you can expect the same.

Yes, of course.

Essentially, there will be [indiscernible] Q4 to Q1.

Last quarter, right, in Q4, we have grown at 11%. If you adjust for institutional [indiscernible] 14%.

Okay. Okay. . And the margins will also reverse since you have seen that.

I have clearly said that margins will be between the 30% to 20% range. The endeavor is to get to on the long-term margins of [indiscernible]

And sir, as you mentioned in last Q3 of some call it from Q1 also, you will see some uptick. So are we online on that or still not decided until this quarter, [indiscernible]

The quarter at it to go back to the at this point of time. So once we go back once we get an additional quota and then if it gets into a commercial revenue anyway, it gets into the growth, right? So that's what we are working on. And we are very happy with what we have done in the last 1 year with the quota that we received. And we have gone back to [indiscernible]

We have already done that. So results will be out in quota that in this quarter or next? .

Yes. [indiscernible] come anytime soon. There's no specific time line to this, but we have gone.

Ladies and gentlemen, due to time constraints, that was the last question for today. I'd now like to hand the conference over to management for closing comments. .

Thank you very much for all questions. And should you require any more follow-ups, we are there available or the Investor Relations team, along with me and Vikesh, we'll be able to clarify all the queries you have in the near future. Thank you. .

Thank you. Ladies and gentlemen, on behalf of Strides Pharma Science Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.