Supriya Lifescience Limited (SUPRIYA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '25 Earnings Conference Call of Supriya Lifescience Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prachi Ambre from Orient Capital. Thank you, and over to you, Ms. Ambre.

Thank you, Slok. Good afternoon, everyone. On behalf of Supriya Lifescience Limited, I extend a very warm welcome to all the participants. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, expectations as of today. These statements are not a guarantee of our future performance and involve unfortune risks and uncertainties. With this, I would like to hand over the call to Satish sir, Executive Chairman and Whole-time Director, for his opening remarks. Over to you, sir. Thank you.

Good afternoon, and warm welcome to all the participants. Thank you for joining us today to discuss the Q2 and H1 Financial Year '25 results of Supriya Lifescience Limited. To take us through the results and answers to your questions, along with me: Dr. Saloni Wagh, Managing Director; Mr. Krishna Raghunathan, Chief Financial Officer; and our Investor Relations team, Orient Capital. I hope everyone had an opportunity to go through the financial results and investor presentation, which we have uploaded on the stock exchange and on our company website. We are excited to share that Q2 financial year '25 has been another successful quarter for us. Revenues were 19% year-on-year to INR 166 crores. We have achieved an EBITDA margin of 39% and a PAT margin of 28%, underscoring our operational excellence and strong financial performance. Supriya Lifescience Limited is committed through strengthening its position as a strong API manufacturer. Our strategic focus remains on expanding our product portfolio with while enhancing our presence in regulated markets and maintaining robust margins. Over the year, Supriya has transformed from a generic OTC provider to an innovator within high margin regulated markets. Our export contribution has increased to 83% in Q2 financial year '25, up from 81% in Q2 financial year '24. LatAm has shown strong growth, with its share increasing to 19% this quarter from 13% in the same period last year. We have also seen positive momentum in other regions, including North America and Africa, further driving our global expansion. Our diverse customer base of 1,700-plus clients across 128 countries provides a strong foundation for our strategic shift. We have developed a promising pipeline of new products that exchange beyond our expertise in anti-stimulants, incorporating anesthetics, anti-anxiety medications, anti-diabetic and more. To further accelerate our CMO and CDMO business, the new formulation facility in Ambernath has already started commercial production from Q4 financial year '24. Additionally, the validation of Mode E is underway with commercial production anticipated by Q3 financial year '25. Upon successful completion of this capacity revamping our total production capacity will nearly double, reaching approximately 1,020 KL. We are confident in achieving our 20% plus revenue growth guidance maintaining strong margins. We expect this year to be our highest in terms of EBITDA and PAT margin compared to the previous years. Our goal is to double the revenue to INR 1,000 crores by financial year '27 focusing on high-margin niche markets. We remain committed to expanding exciting molecules in regulated markets and fast track the commercialization of new products. As we transition into a leading API manufacturer with exceptional capabilities, we are leveraging CMO, CDMO, opportunities to diversify and strengthen our revenue streams. I will now hand over to our CFO, Shri Krishna Raghunathan, to present the financial highlights of Q2 financial year '25.

Thank you, sir. Hello, everyone, and good afternoon. I will now share the operational performance of the quarter and following which, we will open the floor for questions and answers. In Q2 FY '25, our revenue from operations rose to INR 166 crores, reflecting a 19% year-on-year growth from INR 140 crores in Q2 FY '24. This momentum carried through the first half of financial year '25 with revenue reaching around INR 327 crores, a 20% increase over INR 272 crores in H1 FY '24. Our EBITDA performance was also impressive with Q2 FY '25 EBITDA doubling to INR 64.7 crores from INR 31.7 crores in the same quarter last year, resulting in an EBITDA margin of 39%, up from 23%. For H1 FY '25 EBITDA reached INR 127.3 crores, a 68% increase compared to INR 76 crores in H1 FY '24. On the bottom line, PAT nearly doubled in Q2 FY '25 reaching INR 46 crores compared to INR 24 crores in Q2 FY '24. Our PAT margin for the quarter improved significantly to 28%, up from 17% a year ago. For the first half of FY '25 PAT was INR 91 crores, a 73% increase from INR 52 crores in H1 FY '24 with PAT margins reaching 28% up from 19%. Our annualized asset turnover ratio has strengthened to 2.2 this quarter compared to 2.1 in the corresponding period last year. We continue to uphold a strong financial position with a debt-to-equity ratio of 0.01. Significantly, we have maintained a conservative approach to borrowing by utilizing only Letter of Credit and Bank Guarantees without tapping into working capital limits. Now we can open the floor for questions and answers. Thank you, all of you.

[Operator Instructions] Our first question comes from the line of [ Aditya Pal, ] MSA Capital Partners.

Congratulations to the management for the great set of results. So sir, I wanted to quickly understand from you that we got 15 products that are now backward integrated. They generate 72% of our revenues and this has sharply improved from 69% last quarter. I wanted to understand from you, is it -- is that the reason that our gross margins improved significantly? And a sub point to that would be that are all these backward integrated products that the 15 products that we've highlighted, are they all registered in regulated markets?

So yes, backward -- I would like to take that question. Yes, backward integration definitely helps in improving the margins because we do not outsource any advanced intermediates from outside. We make our own advanced intermediates right from the basic stage. So backward integration definitely helps in bringing the costs down. One of the other reasons also for the margin improvement is better penetration into regulated markets. If you see for most of the regulated markets like North America, Latin America, Europe, our sales has gone up. So penetration into regulated markets where the average selling prices for the products are higher also adds to the margin improvement. Yes, most of the products that we manufacture about this team we are fully backward integrated. And most of these are already present in regulated markets. However, we are still expecting U.S. DMF. We are also expecting registration of some of these products in markets like Japan, Europe. By hopefully, quarter 2 of next year, we should mostly have CEPs and U.S. DMFs for all the products. But yes, the 15 products are mainly into more regulated markets.

Okay. Saloni, I also wanted to know, so you all went for the CPHI in Milan conference, and I was seeing the banner of Supriya on LinkedIn also and phenomenal, I would say, the entire team that went with you. So wanted to know how was the trip -- what was the feedback that you received from the formulator, from the innovator that came there? Any new takeaways from the trip?

Yes. I think the show was a great opportunity to showcase all the new products that we have launched. We have had a very good presence in CPHI for over 20 years, and all our customers have also seen the growth happening in the company. We had a lot of new products coming up in our portfolio from anesthetic, antidiabetic categories plus the launch of our new Ambernath site, which is focused on contract manufacturing for finished formulation. So a lot of new opportunities are on the card. We have been approached by a lot of new companies for the newer products as well as for some of our existing products, we are seeing great traction in regulated markets. All in all, I would say that the show was a very successful one for us, and you can see the commercial implications of the show happening in the next coming quarters.

The next question is from the line of Pritesh Chheda from Lucky Investment.

I have few questions. If you could tell us the capacity utilization pre and post this expansion that is being undertaken. My second question is whether the cost of these -- of the expanded capacity, 1,020 kiloliters, is it a part of P&L? Or is it going to be a part of P&L?

So I'll answer the first part of the question. Before Module E got introduced, we were at almost 550 KL capacity and our capacity utilization was upwards of 76%, which is the optimized capacity utilization considering that it is a multipurpose facility. The Module E has just been added. We have completed the validation. We are expecting to start the commercial production in quarter 3. So once that is done, it would take us at least 1.5 to 2 years to have maximum utilization of this new added capacity. And for the second half, Krishna will answer.

See basically, when it comes to the cost of Module E, there could be another couple of crores, which can get added up to the P&L. As of now, there would be a you call around 30, 40 personnel, which we might add and the power costs, which will increase. Basically, we also see a saving in power costs overall because we have already initialized solar power for the plant. And that will give us some bit of a saving, which has already started. So to answer your question, yes, might be a couple of crores on the OpEx front can get added up apart from EBITDA on the power side.

Couple of crores per month, a couple of crores per quarter?

Not per month. Yes. Not per month, it would be per quarter.

Per quarter, okay. So in your last call, you had mentioned that your H2 will be better than H1. So are you sticking to that thought process? Or there any change there?

On the top line, yes, of course, we will have an improvement in the -- when compared to H1.

And what about margins?

Margins?

On the margin front, also, definitely, we think, like our Chairman said in speech also in terms of the absolute EBITDA value and the PAT value, we definitely think that this would be our best year so far.

Okay. So basically, H2 should be better than H1 on an overall basis?

Yes.

Okay. And my last question is when you look at the half yearly margin number and when you look at your commentary for H2, versus that you guys have given a guidance of 30% only in the EBITDA margin. So how should we read both these statements?

So we have also informed this after our first quarter results that we are definitely expecting better margin profile for the rest of the year. Quarter-on-quarter margin variation will be there because it is the earlier function of product mix and geographic mix. But like I said, if you look at the annualized number in terms of the absolute EBITDA and PAT value, it will definitely be our highest so far.

Okay. And this expanded capacity of 500 KL, can you help us with the utilization ramp-up possibility year 1, year 2, year 3? And what is the total revenue potential out of this capacity?

So revenue potential at this point, I will not be able to say because it depends on the product which -- that we are going to put in this plant. But it will take us at least 2 years to get to complete utilization of this new module. It will start -- the commercial production will start in quarter 3.

So 2 years means, should we say FY '27 where you reach the full utilization?

Yes.

On an exit quarterly basis '27 or a full year basis '27.

Two year basis by FY '27. By end of FY '27, we'll be able to utilize full capacity of this new block.

So that means, exit quarterly basis. The exit quarterly FY '27 will be a full year -- full utilization.

Yes.

The next question is from the line of Nirali Shah, from Ashika Stock Broking.

Congratulations on this great set of numbers. I have 2 very quick questions. First one is on the Brazil. We have -- we were registering some 8 products in the Brazil geography. So any update on that registration status? And if you could add on -- any color on the market opportunity for these products [indiscernible] or quantitative terms?

Yes. So like we have mentioned in the past also, the Latin American market is one of our focused markets, and we have done extensive registration in Brazil for at least 9 of our products. We even cleared the ANVISA audit without 0 observations beginning of this year. And you can see the revenue growth happening in the Latin American market. It has gone up from 9% to almost 19% in this quarter. And you can expect a similar trend moving forward also when some of the other products also start getting traction.

Okay. And just one more on the cancer detection kit. So any progress on the clinical trial? And I guess we had an identified partner also, so any progress on that?

So yes, in the -- at the moment, we are in the process of filing all our international patents. So we have already selected a first cut of countries like Korea, Thailand, Indonesia, Philippines, where we are now filing the patent in those respective countries. So we expect that this activity would be completed in the next 2 or 3 months after which we will start with the clinical trials and all the other related information. So in the next 2 to 3 years, you can expect the commercialization of the project. But yes, it is very much on track, and the filing of the patent has already started in a lot of other markets other than India as well.

The next question is from the line of Aditya Pal from MSA Capital Partners.

Saloni, I was trying to reconcile the capacity that is there in the presentation as well that you're discussing that capacity will be increased to 1,020 KL per day. So I'm not able to reconcile, can you help give the numbers?

So it is approximately 550, currently, our capacity out of the A,B,C, D blocks where we are operating. It is approximately 540 KL. And then we are adding about 400-odd KL capacity with the new Module E, which is coming in. And then we are also adding the Ambernath site, which is about 70 KL. So all in all, put together, it would be about 1,020 KL in terms of capacity.

I'm reading 1,000 with all numbers that I have. All right, I'll take this offline with you. So that's not an issue. Just another data point that I wanted was that -- so 83% from exports, if I were to bifurcate it between regulated and semi-regulated market, what would be split?

So for us, approximately 50% to 51% would be a regulated market, and then the balance would be the semi-regulated markets and a little bit of the domestic market. But over 50% -- I think about 52% or 53% is regulated.

Understood. One last question that I had was trying to understand the raw material status of Supriya. So which would be that one key raw material that Supriya requires to start because we are backward integrated. So we are not really relied -- we're not really reliant on the inputs. But if I were to say, which is that one key raw material that you need to start production?

No. So for us, if you look at our product portfolio, and it is also one of our key strengths. It is very diverse in terms of the processes we are able to handle in-house. There is no one common raw material that there is a high dependence. Each product has its own starting raw material. And we are backward integrated up to the basic chemical stage. And more -- I mean, mostly, these are -- these basic chemicals are available across different industries. They are not very specific to pharma as well. So they are cheaply and widely available across the globe. So as such, I would not say there is any dependence on any key starting material for us.

[Operator Instructions] The next question is from the line of Richa from Equitymaster.

Sir, my question is if you could share some updates on how CDMO and CMO opportunities are shaping up. I think you had earlier mentioned that there would be some revenue contribution from third quarter. So what kind of visibility do we have for this year and maybe for the next 2, 3 years from this CDMO, CMO space?

So this CMO, CDMO opportunities are moving fairly well. We already have started seeing some contribution from one of our European CMO opportunities, which will get reflected in quarter 3 of this year. So overall, they are moving well. The full effect of the CMO, CDMO, you will be able to see in the next 2 years, our anticipation is that in the next 3 years, it should contribute closer to 20% of the total revenue.

Okay. And my second question is that your guidance for EBITDA margin has been in the range of 28% to 30%. And that is conservative as compared to what we have seen in the recent quarters. Is it because you expect the share from regulated markets to come down over the next 2 to 3 years? Or what is the reason for that conservative guidance?

No. Actually, we have -- after the first quarter's earnings call, we have already said that we would like to revise our margin guidance. It will definitely be higher than 28% to 30%. Like I said, in what range of 30s, it would be, it completely depends in that quarter on the product mix and the geographic mix. But what we would like to say is that in terms of the absolute EBITDA and the absolute PAT value, you will definitely see a growth from this year onwards.

Okay. And can you also share after this year, what is the plan for CapEx if there is any meaningful CapEx planned by the company or budget so far?

See, the current year, we will be closing the Module E and the Ambernath facility. And I think beyond which we might have to take up the Module A,B,C for our repairs, I think which would be to the tune of around INR 100 crores, which we will be taking it over phases. I think that is something which we are planning at this stage. And rest of it would be the normal CapEx, which would be the maintenance CapEx for the existing modules, that's all. Other than that, we don't anticipate. The next wave if at all, if it has to come, it would be the next level of expansion in Patalganga, that will be something, which we would be looking at this year. It's around 2.5 years to 3 years down the line is what we are thinking.

Okay. Okay. And sir, my last question is that for FY '27, you shared a guidance of INR 1,000 crores. Does it include any contribution from oral cancer detection kit and [ scar-free gel ]? And if not, I mean, what -- how is that shaping up both these areas? And by what year can we expect any kind of significant breakthrough or developments in this regard?

So no, it does not include any projections from the oral cancer kits. As of now, we don't have any projections in hand because this is still in clinical trials. But definitely, the overall global market for cancer detection kits is very, very large. So we can expect some commercial revenue to start coming in the next 3 years' time. And right now, we will not be having any number to give you. But it will take at least 3 years for this product to commercialize.

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

I have one question. So when we say backward integrated, I mean, how do we define that or how backward integrated are we? And where do we start when it comes to any molecule that we do?

So backward integration means that we do not rely on any advanced intermediate outsourcing from outside. In API's, usually N-1 is equivalent to a final product. Most of the API manufacturing companies before COVID they were outsourcing N-1 or N-2 and then only doing 1 or 2 stages in-house. Once you are getting the N-2, N-1, it is as good as you're getting the final product and just doing the powder processing, which is the final step. In this case, you have very little control on the costing of the product. In our case, we are backward integrated all the way up to the key starting raw material levels. So in many products, we manufacture in-house as much as 8, 9 steps. So basic raw materials, which are the basic inputs in our products, these are available cheaply and widely. And these are the basic chemicals, not only restricted to the pharma industry. So as such, there is no scarcity, shortage or dependence on any one country for availability of these key starting raw materials. When you get these, usually the contribution of these key starting raw materials to the final price of the API is also not very high. So that is how you get a complete grip on the costing of your product, and it helps to bring the cost down. So this is why since the inception of the company, our Chairman and our philosophy has been focusing on backward integration. Not only does it help with the cost angle, it also definitely helps in the supply chain continuity. Also impurity profiling as far as regulatory is concerned, you have a far better grip as compared to when you are getting advanced intermediates from outside.

Correct. And in terms of, say, identifying new products or getting into something new. This would also be a key criteria for us before we develop a new product.

Yes. So eventually, when we launch a new product, we try to scale up that product in semi-regulated market. And once it has reached a certain size then we start focusing on backward integration. Since we take the product, the eventual plan is that, yes, we want to be fully backward integrated, but we do it in a phase-wise manner.

Correct. Correct. And then for the last 3, 4 years, our gross margins used to be in 60s and for past 2 quarters, at least, we are in 70s. So this is just a function of we shifting our focus to regulated markets? Or is this something else to?

Yes, it is only us focusing on more regulated market. Most of the products that we have in the current portfolio, they are mature products where we already have backward integration, where we have already got all the regulatory approvals. Also these products are doing really well in regulated markets, and that is why you see the improvement in the gross margins as well as in the EBITDA. What will happen is that in the quarter 3, quarter 4, when we start adding new products into the product mix, there will be some level of margin dilution, which will happen because new products usually scale up first in semi-regulated markets. And then they mature into more regulated markets. So that's why we believe that there would be some slight margin dilution. But of course, we will grow in terms of revenue, 20% plus year-on-year. And with that, definitely there will be an improvement in absolute EBITDA and the PAT numbers.

Correct. Correct. And then last on the LatAm opportunity, I mean you did -- I mean, we are seeing that in numbers, too, right? I mean it -- a proportion is increasing very quickly. So one -- I mean, one factor, which was playing in our favor was the Chinese players did not have this GMP compliance and that is where we came in. So how hard is it for them to get the GMP compliance? And then are you seeing any changes on their side that they have started taking this to kind of compete with us?

See, basically, if you see in China, nobody bothers for GMP at all because so far a couple of years, everybody was ready to buy from China and get the profits on a more higher side. In our case, we have decided that we will do everything at our aid because we have GMP, cGMP, U.S. FDA, EUGMP, all that factors in our favor. So we consider our own policy and our things that we will manufacture rather than going to buy from China. So we don't worry China. And even if you say and go to them and put GMP, they will not get GMP for another 10 years. That much we know because we have been going to China for at least not less than 25 years.

The next question is from the line of Aashish Upganlawar from InvesQ PMS.

Most of my questions have been answered, but just to understand, sir, historically, your margins have been kind of high, but there has been volatility across the years. The last instance was because of Chinese customers, I think there was a drop. So we had bit jolt on margin. So now that you've recovered to around close to 40%, how do you read -- how do we read this actually? Because today, everything is going well. Probably demand side is strong and also there are issues with GMP, as you mentioned now for the Chinese players. So is there any threat to these margins again being volatile over the years, any inventory situation on customers or anything else that you would like to highlight? Or this is going to be stable at these kind of margins?

So like I said before also, see, quarter-on-quarter, there will be some volatility in the margins because it depends on which product is going in which geography. And most of our products, some of them have already matured in regulated markets. Some are still under registration. We will also be launching a lot of new products, which will first scale up in semi-regulated markets. So depending on the product and geographic mix, you can expect that quarter-on-quarter, there will still be a little bit of volatility in the margins. But what we would like to highlight here is on that annualized basis, we are expecting our margin trend to be somewhere between that 32% to 34% moving forward. And year-on-year, definitely, you will see that in terms of the actual growth in the EBITDA number and the PAT number that you will be able to see very clearly. Quarter-on-quarter guidance, we will not like to give. But annualized basis like I said, 32% to 34% is something. Moving forward also, we are confident that we will be able to maintain.

Yes, my point was mostly related to how do we look on an annualized basis? So if I have to take a view as to going 2 years ahead, will this margin suffice? So you say that base would be 32% to 34%, but one cannot say whether this 39% will stay stable or is it going to go down or up. That's what the reading is. Am I right here?

Yes. So 32% to 34% would be stabilized because what will also happen is that we are introducing a lot of new products in the portfolio. Currently, what revenue you're looking at is mainly our existing mature products in regulated markets. But as we grow, our revenue base is also going to grow. The products which we are going to add, it will be more diverse portfolio. So with us growing much larger in top line, there will definitely be some dilution in the margin. But if you look at the absolute number of EBITDA, what we are doing today and what we will do in the next 2 years, you will see a significant growth.

I would like to add on this one more. I will tell you the Supriya's ideology. See, we don't manufacture any products, which are being manufactured in India, and we fight with Indian manufacturers. This is very clear. What we are going to manufacture and what we are going to do is the products, which are being catered from China to whole of the world. Now you understand. All over the world where it is being supplied, the plants are non-GMP plants. But there is no manufacturer who is having the GMP, cGMP with the supply buyers, that is why people are continuing to buy. Now you have seen Latin America, there is a massive change that without GMP, they will not buy. Similarly, there are more and more other countries, which are coming, and we will be doing only chemistry based on the products, which will hit China. There, we are confident that we are telling our customers please don't ask for any reduction in the price. This is our ideology because you should be happy that rather than the non-GMP plant, you are buying the material, even intermediate API from U.S. FDA plant. And that is being given a green signal to many of the multinationals and many manufacturers that they feel very much secured. We give end-to-end solutions. We don't buy N-2, N-3, N-4. We go for the basic where people use cyanide -- we'll use cyanide. We'll not avoid cyanide, and we will give the confidence. This is our ideology. So I'm sure we will definitely get a better EBITDA and better margins. And securities, sustainability to the business because people in the world expect that a good manufacturing U.S. FDA plant is giving all these to them.

Okay. Okay. Sir, continuing on this, I just wanted to ask is for our set of products, which typically would be small niches that we always target. Would there be competition when you are bidding for -- where you are kind of convincing the clients to move from Chinese to your supply? Is there competition for that same pie? Or we are -- we have a very good right to win over there and less competition over there?

Sir, why should we say like this. Any buyer is being forced to buy because he has no alternative. Correct? Everybody in the world is talking about GMP, cGMP. Impurity profiles are going down. That means everybody is curious and wants a good quality product. So in this case, if some qualified good manufacturers with all these things, with this facility comes, we will have some few days, but it will definitely change.

Okay. Okay. Okay. And sir, we've heard this -- with what you said right now, I think, for the last 3, 4 quarters. So how much of a maybe or business that we would have won on this logic of ours until now? Or is it still we are work in progress? Or we have seen initial success in this endeavor of ours?

So this is still work in progress. For some of our existing products, yes, we have seen good traction in Europe and Latin American markets. But this philosophy and this will come in play in a very large way with some of the new products that we are launching, which you will be able to see hopefully from quarter 4 of this year. But the full effect of the new products, we'll be able to see in quarter 3 of next financial year.

Okay. Okay. And ex of CDMO, the new products that we are launching now, what can be the contribution? I mean I understand it's very difficult to say, but what can be the contribution, maybe 2 years out from these products on the top line at least? Is that a way to match that? Would you like to share that?

I think it's very, very difficult to quantify, but we believe that it should be in the range of around, say, 15%, is something which is possible number to cap.

Okay. So it's a material addition that new products will do to our top line?

Of course, yes, of course, of course.

Because most of these new products that we are launching, like our Chairman said the global volumes of these products are extremely high. And there is a lot of dependence on a single manufacturer for these products. So definitely, we can expect to get very good volume traction as soon as we launch these products.

Great. And lastly, given the revenues that we have achieved in the first half, I think INR 325-odd crores, it looks likely that with H2 being heavy, we might be around INR 700-odd crores in this year. So the guidance of say INR 1,000 crores for FY '27, the growth seems to be maybe in the range of [ 15-odd ] percent. So is that really the picture that you would like to give us? Or is there a possibility of few things getting added here on the driver, and this is a very conservative estimate that we are talking about?

Yes. This is definitely a very conservative estimate based on whatever projects are already in hand and the volumes where we have very clear visibility. But definitely, with the Ambernath facility getting launched with the Module E coming in full effect and the new products also gaining traction in regulated markets, there is definitely a very positive upside to this number that we have communicated.

Okay. So can we talk on a base case rather on a very conservative case, maybe INR 1,200 crores of top line, which we used to talk maybe around IPO that we intend to achieve this INR 1,200 crore mark that was the statement then. So is that something in light maybe in '27 or FY '27? Would not like to maybe share any thoughts on that?

As of now, the base case is what we are looking at this INR 1,000 crore number, yes, I think there could be a lot of upside like what Dr. Saloni has said. The higher utilization from Ambernath, the higher utilization from Module E. See, as of now, we haven't factored some of these numbers, most probably during this year's budget. In fact, that is what I was just talking to the Managing Director as well as Chairman today morning in our Board meeting that we will start this process now, and we will try and finalize this number. See, there could be a lot of upside to this. The number of INR 1,000 crores, what you are seeing is base case, that is the base case number we are talking about.

So what are the drivers for this additional that might come?

Like I said, this is our existing portfolio growing in regulated market. Some of the newer products getting traction in semi-regulated as well as regulated market. And then contributing to revenue. And of course, the CMO, CDMO opportunities that we have, both on the advanced intermediate API front as well as the CMO opportunities that we have on formulations from Ambernath. So these are going to be the 4, 5 major growth drivers. And of course, Module E, what we have added, that is only going to facilitate the growth from API and the new products.

It might be in a new therapeutic segment also. This is I can tell you.

Yes, sir. So I mean, my point was that you are a pretty R&D-focused company and your focus is very -- I mean, very, very sharp on what you want to -- what kind of business that you want to do on which products and stuff? That's why I thought if there are opportunities, which are beyond the almost INR 1,000 crores, I should know, that was the only purpose. Anyway, maybe we'll catch up one-on-one and try to understand more on where you're headed.

[Operator Instructions] The next question comes from the line of Shubham Harne from Purnartha Investment Advisers.

Congratulations on good set of numbers. Just want to know the margin profile in LatAm market versus European market?

So we will not be able to give you numbers on country or region-specific margin profile.

Okay. And do you treat LatAm as a semi-regulated market or a regulated market?

So LatAm, we considered as a regulated market because going by our experience because we recently also had a ANVISA Brazil audit, and we have done 9 product registration with ANVISA. So given our experience, we feel the regulatory standards of Brazil and the Latin American markets are as stringent as U.S. FDA or Health Canada or EDQM. So we classify that as a regulated market.

Okay. And what's the status of the U.S. FDA audit, which you have mentioned earlier in one of the call?

So we had our U.S. FDA in FY '20. And after that, we have not had any U.S. FDA audit. But beginning of this year, in February, we actually had a desktop EDQM and Health Canada audit, which we have cleared. So we are not anticipating any U.S. FDA audit happening immediately. We do have a China NMPA audit in December. But other than that, we don't have any major upcoming regulatory audits.

The next question is from the line of Tushar Bohra from MKVentures.

Congratulations to the management for a good set of numbers. First, a quick clarification on the previous participants question, while we may not have specific numbers for LatAm. But is it safe to assume that LatAm margins are similar or maybe slightly better than the corporate average because the higher contribution from LatAm has not prevented the margin profile from being strong?

Yes. So like I said, the regulated margin profile is higher as compared to the others and we consider LatAm to be a regulated market. So it would be similar.

Second, despite a very, very strong gross margin performance, 72%, with -- the EBITDA margins are in line with last quarter primarily because of significantly higher operating costs. Should we assume that this is due to some of the buildup that we've had in anticipation for no new product development either on research side or maybe operating cost with the new facilities have already started coming in from this quarter?

Yes. I think some of the formulation and also some of the R&D recruitments have already started Tushar, yes, you are right.

The new plant, even validations and all are going on because before launching any API, we have to do all validations. So those things are going on.

Got it, sir. Third, just quickly, on the CMO project, which I think in the previous call, you mentioned that DSM. Do we assume that this INR 50 crore per year starting FY '27, we have been conservative on the maximum annual potential and also on the launch guidelines? Because I believe we've already launched this product or are going to the launch, right?

So the project with DSM is getting launched in 3 phases. We have already launched because it's a vitamin product. It has applications across food, feed and pharma. So what we have currently launched is the feed application where you don't need any kind of regulatory approvals. But for the food you need the FSSAI approval, which we have just got last week. So next year, you will see the feed and the food volumes coming in. For the pharma volumes, we still have to wait for 2 years because these are mainly targeting extremely regulated markets like Japan, U.S., Europe. So once the CEP, the U.S. DMF number and the Japanese DMF number comes, then only we can start seeing the volumes from pharma. So it will take us 3 years to reach that peak volume. After that, yes, there is a possibility that the number could be higher because both the companies, DSM as well as Supriya are aggressively looking at marketing this product. So there is definitely a potential for this number to be higher than the INR 50 crores, INR 60 crores what we have indicated.

Then are we also looking at other food products with DSM potentially?

Yes, I mean there is always a possibility because most of the multinationals like Chairman said, they have been given a mandate to consolidate portfolios with good manufacturers who have all the GMP and the regulatory requirements. So once we have established the confidence with DSM on this one project, there could definitely be larger opportunities there.

As you also know that they have already sold off their API plants. They are sitting with the cash and they want to concentrate on vitamin sector only. So there will be a possibility that once we complete this project, another projects will come from their end. That's a preliminary discussion has been taken place.

Fantastic. Also, H2 revenues, we are looking at higher than H1. Should we assume that the DSM contract coming through, there's a CMO opportunity you had highlighted earlier in hospitals, some hospitals in these products, as well as the whey protein opportunity. Some of these could start contributing in H2 and therefore, we expect a significant bump up in revenue going forward?

Yes. So definitely, some volumes from DSM will be added in the H2 number. Also some of the new products that we are launching in quarter 3, we are expecting them also to get some traction in the nonregulated market. For the whey protein project, we are just waiting for our licenses to come. We are waiting on our FSSAI license, which also we are expecting should happen by end of quarter 3. So with all these other products also contributing, we are expecting the revenue to be slightly higher as compared to H1.

One last question, if I may. Just want to qualitatively understand some of the CDMO, CMO opportunities we are pursuing going forward, which -- where you may be some -- if you can give some color on the kind of opportunities we are pursuing. And if you can confirm that these will be in line with our margin guidance or higher in terms of the profitability potential for us. Also, if you can -- Dr. Wagh mentioned, some new therapeutic area, if you can share a bit more details on that, please?

So definitely, most of the contract manufacturing opportunities that we have on hand, are in line with the margin profile that we are currently doing. In fact, on the formulation and in contract manufacturing, we expect the margins would be even better than what we are currently doing. Also, definitely, that aspect is taken care of. On the API advanced intermediate front, we have at least 3 or 4 opportunities, which can start giving commercial revenue from quarter 4 or quarter 1 of next financial year. And on the Ambernath side, definitely once the validation is completed because Ambernath side on formulation is also going to be only a contract manufacturing site. We are not certainly planning on coming up with our own label. It would just be for contract manufacturing formulation. So definitely, from quarter 4 of this year or quarter 1 of next year, we can start seeing some revenue generating from there. But all would be in line with the current margin, what we are doing.

In the interest of time, that was the last question for today's conference call. On behalf of Supriya Lifescience conclude that conference. Thank you for joining. You may now disconnect your lines.