Viyash Scientific Limited (512529) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '26 Viyash Scientific Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Ms. Zarna ]. Thank you, and over to you, ma'am.

Thank you, moderator. A very good evening to all of you, and thank you for joining us today for Viyash Scientific Limited's Earnings Conference Call for the third quarter and 9 months ended financial year 2026. Today, we have with us Dr. Hari Babu, Managing Director and Group CEO; Mr. Rajaram, Executive Director and CEO, Animal Health; and Mr. Ramakant, CFO of the company, to share the highlights of the business and financials of the quarter. I hope you have gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as the stock exchange website. The transcript of this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team. I now hand over the call to Dr. Hari Babu to make his opening remarks.

Thank you so much. Good morning, and good afternoon, everyone. Welcome to Viyash Scientific investor all. Thank you for taking the time to join us today. Today is an important milestone for all of us. This is the first time we are discussing quarterly results of the merged entity, Sequent and Viyash together, as one company. More than the numbers, it's a reflection of what we have built over the last few quarters, one integrated platform, one operating cadence and one team working towards the same outcomes. Let me structure my opening remarks around 3 broad themes, which, I believe, capture both what we have delivered and how we are thinking about the future. The number one, combined growth, balance sheet, and this is now a well-scaled company with all the right ingredients. Starting with the quarter's performance, Q3 FY '26 reflects steady progress on growth and a step change in profitability and balance sheet strength. Revenue from operations for Q3 FY '26 was INR 858 crores, grown up by 11% year-on-year. Adjusted EBITDA was INR 185 crores, grown by 64% year-over-year, with an EBITDA margin of 21%, an expansion of 390 basis points. Net debt to EBITDA has reduced to less than 0.4x, a significant strengthening versus the previous year. On a 9-month basis, the momentum is consistent. 9 months FY '26 revenue was INR 2,500 crores with 12% growth year-on-year. And adjusted EBITDA was INR 500-plus crores with 58% growth year-on-year. And most important, our margins for 9 months maintained at 20%-plus. Of course, we incurred onetime exceptional items largely related to merger execution this quarter, around INR 41 crores, which includes stamp duty as well as payment for advisers and consultants. In addition to INR 41 crores -- and recently, government announced a tax regime change, we are trying to convert our old tax regime to new tax regime, which impacted around INR 7.7 crores. Altogether it's onetime, it's gone up to INR 48 crores, INR 49 crores. If we combine this onetime with the PAT, what we have shown, it's a big growth quarter-on-quarter this quarter. So what gives me confidence is that this performance is not narrow-based. So we are seeing broad participation across segments and geographies. We are truly working as a one team. That's most important for the group. Equally important, the balance sheet is now a strategic asset. Over the past few quarters, we have consistently spoken about strengthening the financial base to create the headroom for sustained investments. The business has moved beyond consolidation, and post-correction, into a phase of accelerated growth. As we look at the merged platform today, the transformation is visible in the combined numbers and in the optionality the balance sheet gives us. We will use a stronger balance sheet to unlock both organic investment as well as selective mergers and acquisitions. Coming to the number two -- point two, now I'd like to take you through how we have improved our margins -- you can see quarter-on-quarter improvement margins last 8, 9 quarters, how we have improved with key actions in the last 12 to 18 months. The formulation animal health Europe, as you know, we have a strong foundation in Spain, manufacturing as well as front end. So last 12 to 18 months, we have taken many steps to improve business in Europe. A few of those are expansion of markets with direct field force in Spain and a few countries like Benelux, Sweden. And also, we added a few distribution agreements for other countries. And other few areas like -- we initiated development and promoting companion animal business, which is growing fast in Europe, and geo expansion for all our products since our site is approved by Europe, located in Spain and also the site located in Turkey is approved by Europe, we are able to extend products to Europe. We started commercializing. It's reflecting the numbers. And most important, establish a few more partnerships with other companies to distribute their products. We distribute -- as you know, we distribute a few products even for innovators. We distribute a few products [ of Axience ] for specialty companies. Coming to emerging markets. So Turkey and Brazil are the key market for us. Turkey turned around last couple of years, and you can see the large volume growth there this year. That shows our capability of expansion of Turkey. And Turkey also, as you know, it's a GMP approved by Europe, we started filing and started shipping to Europe. And Brazil shown strong performance this quarter. It's continuously showing strong performance. We are trying to expand from Brazil to Mexico and other related countries where we can do. With the Turkey and Brazil GMP facilities, now we are able to focus to expand markets like Mexico, Southeast Asia and a few other focused markets where we can do business from there. And coming to India, India animal health formulation, we expanded field force last year up to 200, and we started resulting the numbers. We started growing. And this is one of the key segment to grow further for animal health in India, especially farm animals. Then coming to the U.S. formulation, basically human health. Last 2, 3 years, post-COVID, as I explained earlier also, initially post-COVID, there's a lot of stock buildup. There was a lot of competition coming from India. But initially, we struggled a little bit on competing the cost from U.S. side. Last 2 years, we tried to change our strategy, moving all matured products to India and also started developing new products with a little more complex where we can differentiate. And also most important factor, to sustain U.S. business today is a fully vertical or backward-integrated for all our key products. We are done for almost all our key products. 45% of our volume products we have done. Commercialization has just started. These are a few things to show the sustainable growth on U.S. business. Coming to API. As you know, API is our strongest core area for us. And we do continuous new products. And I think we are one of the fastest company to do product development as well as launch. And most important, our efficiency levels in operations are very good compared to market. So a few things like network optimization when we acquired a few companies. Where there is a strategic direction, we try to shut down a few companies and the continuous focus on the cost improvements with a focused team on the process as well as optimization at plant level. And since we have fully integrated sites, which are approved by FDA, we are able to integrate most of the projects backward integration. That's where it can show substantial improvement on the margins. And of course, markets also -- we try to move from low-end markets like India, Bangladesh, Pakistan. We started focusing more on expanding developed markets. And other new area last year, we initiated CDMO. It started working well. So that's continuously to grow on that because all our assets, infrastructure and resources are pretty well suitable for CDMO business, which can do with innovators. We have a great experience built now, and that momentum is growing up now. These initiatives worked out very well for us and contributed both improvement on the gross margins and EBITDA margins. And of course, these are the continuous activities to sustain the margins, both the gross margin as well as EBITDA. Then third most important of reaching a reasonable base with sustainable growth. So where do you want to grow? How do you want to grow? I want to touch upon what we are doing next and how we intend to compound this momentum. Our strategy is focused on few clear growth sectors. One of the sectors, as I explained last call also, companion animal. This is one of the most attractive long-term opportunity for us, supported by increasing pet ownership and also the genericization runway in animal health. If you can read our presentation, the few slides on companion animals, it clearly shows this is the fastest-growing area, both in developed markets as well as developing markets. And most important today, if you see genericization has happened only 15%, whereas comparatively, a little more on farm animals and big on human health, 85%, 90%. That's where we see the opportunity next couple of years since the volume and markets are growing. We are pretty confident the genericization will improve. That's where we can -- it can bring opportunity for us. And as you know, we have already signed an exclusive distribution agreement with Boehringer Ingelheim, which is one of the innovator company. I think it's the #3 top company in the animal health. We signed an exclusive agreement with them to distribute products in India. We are going to start distributing sometime in February. And this is one opportunity for expanding to entire companion animal business in India. That's one of the key focus area for us to expand companion animal business in India. Of course, we are focusing other countries, but India is going to be one of the key markets for us. And other markets, [ operating ] markets, and we are evaluating partnerships, which includes, of course, selective mergers and acquisitions, companion animals. We are exploring a few things while also building infrastructure in India over time. This is most important and critical part for the companion animals. We see there's a large opportunity to grow if you have capability to India, both R&D and manufacturing. That's where we see the differentiating factor for us. Farm animals, we have very strong position in a few countries. Like -- as I said, Spain and Turkey, we want to expand as much as possible from these countries to Europe. And we have a clear plan. We started filing last 2 years. We started commercializing. That's a continuous focus. And we have a large portfolio in farm animal business today, and we are also looking at whatever are the gaps to fill the pipeline to compete more and grow that. And the third area, farm animals, there are a few markets, important markets like Southeast Asia, Africa to expand as there's a large opportunity. We are exploring those things. This is the future next 5 years target for that. Human health formulation, as I explained, we already started leveraging India manufacturing for matured products. Our strategy is to maintain -- leverage India's low-cost manufacturing for large volume or matured products while keeping India sites to launch new products since we are going a little more complex products and new small high-value products and also keep open for -- to generate government business as much as possible. Coming to the last one, API and CDMO, it's a continuous focus. There is a meaningful opportunity set, both API patent cliff and a growing CDMO market. You can go through our investor deck, how the CDMO business is going. Of course, there the competition also is growing, how we are going to differentiate based on our quality of the assets, quality of the resources. Our focus is to pursue CDMO opportunities. We are exploring both. While expanding internally, we are also looking at some M&A opportunities if we get. At the core of all of these actions is our one R&D platform and a scaled innovation engine. We are an R&D-first organization to launch new products that is genuinely scaled and capable. Roughly, we have 200-plus scientists, including 20-plus doctorates, and we have dedicated support team for CDMO and also CMO partners, and having specialized capabilities such as cytotoxic handling and process safety infrastructure. This is consistent with what we have emphasized earlier as well that our core strengths are anchored in R&D, manufacture and intellectual property. And that -- this is what allows us to move the portfolio to the value curve. Across all of this, our actions and capital allocation approach remains clear: prioritize synergy capture and integration discipline over the next 12 months, maintain balance sheet strength, which is very important, of course, invest in growth opportunities that fit into our strategic direction and return thresholds. This is consistent with what we have said previously. A stronger balance sheet provides the headroom to invest in portfolio expansion, especially companion animals, while continuing improving the returns. Now I'll take you through the integration status, where we are. So as you know, all legal procedural things we completed now, except working with the clients to work with the regulatory -- external regulatory bodies. So that may take a couple of months. But other than that, all India legal statutory actions completed, we are able to integrate fully now. Even though we have not done official, as I explained in the last call also, last 12 months when we announced, we started working as one team, like a few things, R&D already -- R&D fully integrated as one R&D, both animal health and human health, of course. And a couple of new products already is developed in animal health. We validated last 12 months, 4 new products for animal health and validated. And a couple of projects, cost improvements have taken, and it's working well. It's pre-filed regulatory. Some of those things will start getting approval in next few months. But as I explained last call also, it takes 12 to 18 months. We are fully on track on that. Manufacturing, again, we relooked at network optimization, how can we utilize efficiently the complete infrastructure. Whatever products we are trying to -- we are getting from outside companies, we move to internal. That's basically to improve the capacity utilization, but also to provide more comfort to the clients actually for the supply reliability. 6 of the intermediates already we completed. And one of the most important area, we completed one of the new production line to accommodate -- this is basically albendazole product. Albendazole goes for human health as well as animal health. Everything till today, we were manufacturing at one site. We are trying to segregate into 2 sites. So we segregated human health and built a new site at Viyash. It's validated, and we filed the regulatory. Fortunately, one of the approval in Europe, which is very important for the product, we received approval in 30 days. That shows our strength of regulatory. Other approvals, we are waiting, but most of the market goes from Europe. Now we are working with the customers, how can we commercialize quickly on that. Of course, a few markets where we are able to do immediately, we started doing. And incidentally, we are seeing the huge volume growth also for the albendazole. We can see the good growth this year. And one of the things I would like to highlight as you must have seen Sequent API business last maybe 5, 6 years. I think this is the first year after 2022, we are crossing INR 400 crores. Okay? It's a great teamwork, both Viyash and Sequent contributed. I think it's so quick doing this INR 100 crores per quarter, we were struggling last 2, 3 years now. It streamlined, established at INR 100 crores minimum base. And you can see FY '27, first 3 years, after a long time, it's going to grow double-digit and with a good profitability with all our actions. And sales, as I said, it's cross-selling both. We started interacting last 12 months. A few things are getting materialized. But the products -- you know the regulatory scenario takes its own time, 18 months, 24 months, but we see the positive momentum on that. And coming to the corporate functions, all shared service, whatever, we have fully integrated. We have a clear plan, who is going to do what, which function is going to move here or there. But all are established. It's working as one team, we see that. And also one of the things we mentioned, one of the sites we are going to divest, that's at Mangalore. We completed the transaction. That's basically a testing site for internal as well as external clients. We were able to close on December 31, moved all activities internal. That's where we are going to save at least $1 million in next year. That's one of the strategic initiatives. With this, to close, Q3 FY '26 is a milestone quarter, not only because it's the first reported quarter of the merged entity, but because it demonstrates that the last several quarters of execution are translating into sustained performance, steady growth, structurally higher margins and much stronger balance sheet. We have our strategy and actions well defined. And with the strong foundation we have built, we have no doubt we'll achieve great outcomes for the stakeholders. With that, I will now hand over to Ramakant, our CFO, to take you through the detailed financials. After that, which -- we'll be happy to open the floor for any questions and answers. Thank you. I'll hand it over to Ramakant.

Thank you, doctor. Good evening, everyone, and thanks for joining us. Pleasure to share insights on our strong Q3 and 9-month FY '26 financial performance. Starting with Q3 FY '26...

I'm sorry to interrupt, sir, I just request you to speak a little louder, please.

I guess it's better now.

Yes, sir. Go ahead.

I'll start from the beginning. Good evening, everyone, and thanks for joining us. Pleasure to share insights on our strong Q3 and 9-month FY '26 financial performance. Starting with Q3 FY '26 financial highlights. Total revenue reached INR 8.5 billion, up 10.9% year-on-year. Formulations revenue grew 20% to INR 4.8 billion, while API revenue rose 2.9% to INR 3.6 billion. Gross margins improved 316 basis points to 54.5% from 51.3%. Adjusted EBITDA surged 64.4% to INR 1.8 billion and margins expanded 700 basis points to 21.6%. Profit before tax for the quarter is at INR 731 million, and this is after accounting for onetime merger-related expenses of INR 413 million. This shows a multifold improvement compared to INR 245 million in Q3 FY '25. Profit after tax for the quarter was INR 485 million. This is again after accounting for onetime merger expenses of INR 413 million and a onetime charge on account of MAT credit reversal of INR 77 million. Profit after tax in Q3 FY '25 was INR 420 million, which actually included a tax benefit accounted for certain accumulated losses in erstwhile Viyash subsidiaries. Consistent performance in the last few quarters demonstrates strength and stability of our revenues as well as earnings. Now I move on to the 9-month FY '26 performance. Total revenue climbed 11.9% to INR 25 billion. Formulations revenue expanded 14.5% to INR 13.6 billion and API revenue grew 9.6% to INR 11 billion. Gross margins rose 350 basis points to 54% from 50.5% in the previous year. Adjusted EBITDA jumped 58% to INR 5 billion, margins up 580 basis points to 20.1%. Profit before tax clocked 3.5x increase from INR 498 million to INR 2.2 billion on account of strong operational performance. Profit after tax more than tripled to INR 1.5 billion from INR 480 million in the previous year same period. Our focus on product and service mix, expanding geographically and enhancing operational efficiency has driven higher margins and a stronger financial performance. The merged entity financial position provides solid stability with low debt levels and improved efficiency in leveraging assets for stronger returns. Looking ahead, we continue to prioritize realizing merger synergies, maintaining steady profitability, further reducing debt and maximizing cash flow generation. With this, I end my opening remarks. Thank you for your attention. I now request the moderator to open the forum for Q&A session.

[Operator Instructions] First question is from the line of [ Trisha ], an individual investor.

Congratulations for a good set of results. Now that this is a merged result, have the synergies been fully captured? Or is there much more to come? Is this EBITDA margin of 20% sustainable? Secondly, this quarter, there seems to be some exceptional items. Are these onetime? Or could you please explain a bit more on these? And thirdly, the ESOP costs, are these going to continue? How should we look at it for the future?

Okay. Thanks for your questions, I think, [ Trisha ]. First one is this 20% margins are going to sustain? Yes, it's going to 100% sustain because now you see we have 4 segments. So even if there is small issue in one segment, the other segment is able to absorb those things. We are very confident to sustain these things. Earlier, we indicated, of course, FY '27, we are going to achieve close to 20%. But because of our initiatives last 3, 4 quarters, we are able to achieve now, and we are very confident to maintain that 20%. And also, you mentioned that the synergies. Synergies are not factored much at this level, okay? As I said, synergies mostly takes 18, 24 months. There is operational synergies, which requires regulatory approvals. There are a few things like when I said we shut down one analytical site, which is going to give synergies around INR 7 crores. That's going to reflect slightly this quarter, but mostly from next quarter onwards. So most of the synergies are not at all factored, but it's going to come in '27. Then the onetime costs. There are 3 onetime costs. One is this merger-related asset transfer stamp duty. That's purely onetime. There's no change on that, the INR 29 crores. Then the second one is advisers' success fee, consultants also purely merger-related like INR 10 crores, INR 11 crores. That's purely onetime. The third thing is the tax, tax return of INR 7.7 crores MAT credit, whatever we've written. So recently, government has issued -- during the budget, they came up with something. That's also purely onetime, but we may have positive -- next quarter, if they change the government policy, next quarter, it may end up positive on that. So purely, all these are onetime. There's no chance of coming to that. Coming to ESOP, there are 2 ESOP scheme. One, existing ESOP, you must have seen come down this quarter. It's going to continue next few quarters. And yesterday, Board approved a new ESOP scheme for old Viyash scheme -- convert into new scheme. That, we are working out the numbers, but that's going to continue next 1, 2 years on that. Other than these things, we don't see any onetime expenses. Hope I clarified all 3 questions what you asked.

Yes, sir.

[Operator Instructions] The next question is from the line of [ Ishika ], an individual investor.

First of all, congratulations on the great set of numbers. I have a couple of questions. Going ahead, what are the shifts that the company will do to keep the growth going? Could you please share a bit on the future priorities?

Okay. Thank you, [ Ishika ]. Thank you. Future, of course, I explained a few segments where we are going to focus. Companion animal is a big segment to grow. And other things, CDMO and also integrated play for merger entity. These are the things we are looking for both organic as well as inorganic growth. Since our balance sheet is very strong now, we can leverage the balance sheet. We are working on a few areas to grow on that.

Okay. Understood. That was really helpful. Also, you had indicated CDMO opportunities. Is it for human or animal health as well? And when can we see this materializing?

It's both. In fact, animal health, 80%, we do business with innovators. It's a kind of CDMO, even though we didn't define that. But we are accelerating that growth in animal health, based on last 6, 8 months, our performance with them. Now we are getting new inquiries, new RFQs for the new products. And we see the momentum growing in animal health future. That's where we see the good opportunity. That's one of the reasons I also mentioned this year, after 4, 5 years, animal health API is going to grow. CDMO focus is that. And second, human health, we focused last 1 year, and it's -- we've done reasonably well. Of course, it's material, and it's going to continue. So both animal health as well as human API is going to continue CDMO. And we can see it's a reasonable number even today also, if I put all together, but it's going to grow maybe after 2, 3 years, big numbers.

Okay. Understood. Just one last one. You had given a guidance of INR 4,000 crores and 20% EBITDA in 2028. Would you still be achieving these targets?

So if you see our current run rate, you know the answer. So when we say INR 185 crores this quarter, INR 187 crores last quarter and also the top line is going to close to INR 900 crores, INR 860 crores odd, even if you take 15% growth, we are pretty comfortable to reach that level.

In FY '27.

Not even '28. '27 -- that one, whatever. Of course, this fee, ESOP, for all those things, but we are comfortable to achieve that. We are very confident to maintain the 20% EBITDA levels now.

The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

Congratulations for a good set of numbers. Sir, first question is, first and foremost, sir, a very good presentation. It was really quite in detail to understand what has been achieved and what is the focus going ahead. Second, sir, I would like to understand, this quarter, the growth on the API side has been low single-digit. So is there anything to read over here? Or is it just a one-off quarter kind of thing?

Thank you for your comments and question. API, one of the reason is a little bit timing issue. Last quarter, we had a few CDMO contracts. Okay? That's pushed to next quarter. This quarter, it was less. But it's a simple timing issue, but we are growing constantly on that. We don't see anything. It's the only quarter -- small timing issue.

Right. Secondly, sir, on the CDMO, like the previous participant also said, is it possible to give a number as to what percent it would be of total revenue?

So maybe I can give a rough math. This year, whatever we initiate -- because there are 3 segments in CDMO. One is animal health, what we are doing out of INR 400 crores, 80% goes to innovator. We can consider CDMO our innovator business. Purely what we initiated we had CDMO last 12 months, this year, we'll end up doing INR 70 crores to INR 90 crores on CDMO. It's either CDMO or CMO for big players. This year, it's going to go INR 70 crores, INR 90 crores. And a few projects, whatever we supplied validation with innovators, it's going to start to commercialize next year. These are the life cycle management products with innovators, a few products we are working. Those products are going to start commercialization next year. This year, whatever we supplied, these are the launches that's coming to mostly 2030 onwards. So that's today, INR 70 crores, INR 90 crores, and we see growing continuously from next year onwards.

Okay, okay. So, should we expect this part of the business, as in the CDMO side, to be growing much more faster than the overall growth in the business?

But that will grow much faster after 3 years, I can say. So these things will take 3, 4 years. One is, once you supply validation -- innovator generally, whatever product, even life cycle management, it takes 3 to 4 years to get it commercialized. One of the products we initiated 1.5 years back, the first commercial supply is going to start after 2.5, 3 years. Full commercialization will come from fourth year. So since we initiated 12 months, but most -- if we are lucky, we can get something next 1, 2 years substantial, but most of the growth will come from maybe after 2, 3 years. Till that time, next 2 years, our existing business growth will continue. And most important here, you should note, animal health APIs are going to grow very fast next year. Whatever we set up infrastructure, what we did, process improvements and improved credibility to the current clients, it's going to improve drastically. Okay? You can see the very good growth next year.

The next question is from the line of Sajal Kapoor from Antifragile Thinking.

Good to see sustaining healthy gross margins, Dr. Hari Babu. That's a very welcome sign. I've got a few questions. In an increasingly crowded CDMO market, what are the 2, 3 capabilities you believe are genuinely hard to replicate by others, and which CDMO segments or technologies you have explicitly chosen not to pursue?

CDMO, as explained last call also, there are a few areas. One is a few companies to do for innovators for the new products, NCE products. That's where they start developing for -- at Phase I or Phase III level. Once the innovator product approach, they continue commercialization at this company. Second thing is that a lot of innovator companies, if you see next -- even next 3 years, many blockbuster products are coming out of patents from innovators. So last 3, 4 years, innovators started looking at alternate low-cost area to improve their life cycle management. That's the second one. That's where we are focusing. We are doing good, both animal health and also human health, whatever we started targeting life cycle management. But this requires 2 areas, very strong. One is EHS sustainability and the second is quality credibility. And we believe, since we focus from beginning of the establishment, always are focused on EHS and quality. And also most important, it's tested by various innovators. We have proven we are much capable to do business with them, all ethical things, be it sustainability -- all. It's pretty established with innovators. That's where we see. And most important, we are very efficient and speed is very fast compared to whoever is actually large CDMO players. One of the innovator companies we are working with additional site recently for albendazole, normally, they take 2, 3 years even to initiate and do that. And when they see our new site and capability, EHS status, they want to do more than what we anticipated. We thought it takes 18, 24 months, they are going to close in 12 months. So the life cycle management, we see the good growth opportunity for us next 2, 3 years. The first thing, we are not -- that's where we are building new products next 2, 3 years. That's what I said, building separate CDMO infrastructure and also people. The third thing is where companies are looking at. There are a large number of specialty companies, especially in Europe. And also, there's big generic companies, they're able to develop new products -- complex products, but they're not able to scale up internally. That's where they are looking at the quality manufacturers, which sustain the compliance. And we see the large number of opportunities. You see, last 12, 18 months, whatever we generated, INR 70 crores, INR 80 crores revenue, that's come from many complex new products, especially onco facility. Onco, very few quality facilities are available in India. That's -- we are the first choice, it looks like. Many products are coming. Every month, it comes out. These are the -- most of the products are first to file where day 1 launch happens, either they get exclusivity -- even if they get 10%, 20% exclusivity, that's good enough for us. And most important is locking with the customer. When they work with us, tech transfer and contract manufacturing with some optimization, so they locked with us, they cannot go with others. So we see these 3 opportunities. Second and third, we are very active. And with our speed, quality, EHS, we are able to differentiate. Third -- first one, where the new products like [indiscernible], they do, NCE products, we are gearing up for future. It's all -- differentiation is basically speed, quality, EHS. Those are the differentiating factors. And hardly -- from my experience, hardly we can see very few companies capable to do that. Of course, everybody claims CDMO, CMO, even solvent recovery guys, but we see very few companies are able to do that.

Absolutely. Thank you for detailing all of that. Just one clarification. So we are not -- today, we are not ignoring NCE or patent-protected CDMO, but we'll look -- we'll go after that space maybe more aggressively in another 2, 3 years because, at the moment, the life cycle management, our relationship with the innovators is giving us a lot to chew already. Is that correct?

Yes, yes. We are building what is required, what is to differentiate now. We are starting this year. This year, if you ask me to focus FY '27, the top focus is companion animals as every -- entire world is looking at. So we were surprised at a few data points when I started looking at U.S. You will be surprised, there are 9.4 crores of dogs and 9.2 crores cats. And when I visited Italy last month, when I was looking at the data, they said -- when I was talking how it can possible, the dogs and cats, [Foreign Language] it's a completely different world. You can see Italy cats, at least 1:1 of the people. So that kind of market we are talking. And most important, that market has started genericizing because once the growth starts, volume growth, everybody looks for cost efficient thing. That's the great opportunity we see. These are the 2 top focus areas for us.

Yes, yes. And the generic penetration in animal -- companion animal, that is only about 15%, 16% today versus human. That gives us a lot of headroom to grow the animal -- companion animal, the cats and dogs.

That's where we are going to invest both R&D and also one of the manufacturing infrastructure, either acquisition or organic, in India and expanding front end with products where the markets are strong. Like Europe, there are 4, 5 markets like Italy, Germany, France and U.K., other than Spain. Spain, we have a very strong presence. These are the markets we are exploring how fast we can penetrate either through organic or looking for some acquisitions. And India, it's a fast-growing market. Since middle class is moving to above middle class, everybody started liking pets. This also is the highest focus area through BI. This is where we had opportunity to build a very strong presence in India. And companion animals, if you ask me today, API, we are the largest portfolio company in companion animal API, okay? We have almost 60% of the total portfolio. And we started developing products, even the patent expiry for 2032, '34 thing. That's exactly similar to how we used to do for humans. These are the things we see we can grow long-term reasonably. Thank you for that question.

Yes, just one last, if I can squeeze. On the distribution side, we are very active on the distribution, not only in India, but even outside India, right? So we have got active presence in Brazil and other economies, even in Europe. That should also help us scale up faster in companion animal, right?

Yes, we have very strong distribution chain in a few countries like -- Spain, we are very strong. We distribute many other companies, innovators, even for others also. Okay? Benelux, we have our own distribution channel now. Turkey, we have very strong field force -- Brazil. We started building a few other countries. Italy, we started building field force for companion animals. And also more than companion animals, since we have production animals approved by Europe, we are extending those distribution chains also for other countries. So we have experience of distributing even innovator products like India, we do distribute with Zoetis long term, now with BI and Spain, we do. So we have a very strong distribution chain on that. That can accelerate.

The next question is from the line of Kaustav from BMSPL Capital.

So correct me if I'm wrong, but before the merger, the Animal Health business did not have Sequent, which was -- did not have any exposure on the formulation side to North America. So now, post this merger, is there a case for Sequent business, the Animal Health business, growing its formulation business in North America since that's a big market?

Yes. Again, thanks for the question. We are exploring. We are going step by step. First midterm, where we want to grow, like emerging markets and Europe since we have established distribution, we have full understanding on the products. We want to target first phase to grow these markets. The next phase is definitely, yes, U.S. also, we are exploring. We are exploring 2 options, whether organic or inorganic. U.S., one important thing required still: supply chain. Okay, maturing supply chain, it may take some time. We are studying the supply chain, how it works compared to human health. And Europe markets, we know very well, supply chain animal health. U.S., still we are studying. The 2 things are required: supply chain strength and also the basket of products, which takes some time to develop or approve. So parallelly, we are looking at alternatives. Is there any M&A available for that? So we have opened that. But the first top priority is how fast we can go for emerging markets, which includes India and Europe, for these things. Yes, we are going to explore, and we'll be there. Only timing still, we are not yet decided.

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

Hair Babu and Rajaramji, thank you very much for excellent number and opportunity to be with our company. Sir, I have just -- I mean since I understand that our CDMO lever will start playing out bigger way after 2, 3 years, but meanwhile, we are expanding the way geographically as well as product basket, either our own or distribution as well as API. So how do we -- and now that will also require good amount of investment. So if I have to build, I mean, how do we really want to play growth in sustaining the margin? Is there other room for improving some margin, say, INR 4,000 crores is taken in FY '27. Beyond that, how do we think about it? And what is our aspiration?

Okay. Thank you. So it's a detailed question. Let me try what our best. So you know our actions last 2, 3 years. First action is how to build a sustainable company. The balance sheet should be strong, whatever our actions are there. A few years, we reached to that. We never focused on the only top line, top line. We could have grown top line much more than that, but we never thought of that. Most important is the right balance sheet, right margin, sustainable, so that's where you can take it to next level. So after 2, 3 years, both companies, and most important last 12 months, understanding both companies -- each other. Now you reach to the scale at sustainable level. You can see the jump from INR 120-odd crores to INR 180 crores base -- EBITDA base. Now we are focusing on 2, 3 things -- areas. So you asked the question actually how we are going to support these expansions of that. You see that our debt has come down drastically.

And of course, I mean, growing at a better speed than whatever you have done.

We are going to generate good free cash flow next year. Looking at our current debt, INR 200-odd crores is nothing actually for this company. Then, even if you look at INR 800 crores EBITDA, there's a lot of free cash generated. We don't need much CapEx for the existing business, whatever API. So that can take care of some extent. And also, there will be something that comes up, warrants -- it's going to come. I put money, 25% remaining, I'm going to do 12 months. So all this is going to come. It's a reasonable size to do entire organic and also some acquisitions. And most important, when you reach to INR 4,000 crores, INR 800 crores-odd crores EBITDA, you can leverage actually debt also to do if there's any good acquisition. So all [ things ] to leverage debt to some extent if required, or we can do something, share swap, whatever it is, but it's all purely based on the long-term sustainable. We don't do this to show top line numbers. So we are very comfortable with this current debt position, free cash, whatever we are looking -- cash generation in next 12 to 18 months. We can do a lot. That's what we mean. But we don't want to do everything overnight. That's the thing. It's not the case.

No, no, I do understand. But what are the aspirations for improving further lever? Some of the points you said, that looks like that will also help us in going beyond 20% EBITDA margin.

Yes. First, my aspiration is we want to become one of the leading animal company -- animal health company. So you can understand if I want to be top 10 animal generic, I'll not compare innovator actually, [ that itself ] is the thing, at a reasonable size. Of course, aspiration, I feel practically, 5 years, 15%, 20% CAGR is one thing. But when you see the spike, it can grow 1 year actually -- like you have seen our EBITDA growth, 50%, 60% this quarter and 9 months. We cannot expect 50%, 60% EBITDA growth every year like that. We can see that spikes while doing acquisition when there is an opportunity. But we are confident, and we are targeting a minimum of 15%, 20% EBITDA growth. That's what we look at.

The next question is from the line of Aditya from Sowilo Investment Managers.

I had a couple of questions. One is now that the merger is completed, so what kind of KPIs do you -- I mean, internally also, would you be tracking to see whether the synergies that you are expecting from this merger, whether you are able to achieve that? And what kind of CapEx would you want to commit for this merged entity?

So a few things will define integration activities, of course. R&D synergies, it may not reflect directly, but there's a lot of improvement on the business expansion and improvement, okay? That quantification will take a couple of years on that. When it comes to network synergies, that's one of the key things. We also explained INR 50 crores, INR 60 crores, it takes 12, 18 months. It's tracking very well. That INR 50 crores, INR 60 crores, 18 months start from maybe now 3 months over another 15 months, we are well on track on that INR 50 crores, INR 60 crores synergies and network operations, which includes, of course, corporate functions, restructure. So our intention is not to reduce people. Our intention is more improve the business. And third thing is, since the debt is going to go down drastically in addition to INR 50 crores, INR 60 crores, we can see the improvement on interest payment. Already, we started repaying a little bit high-debt loans. But definitely, you can see good improvement on the interest burden. The other thing is, since we are very strong in R&D, so this is differentiating animal health new products, that's going to be a great improvement in next 3, 4 years. So coming to the straight point, INR 50 crores, INR 60-odd crores, 12 -- 15, 18 months, it's going to happen. So that's first phase. Second phase is going to be the long-term synergies that can show the good growth in both top line and bottom line on that.

Understood. And then, if you look at the 3 to 5-years kind of a time line, so what kind of target revenue mix you will be seeing between, say, Animal Health and API, CDMO? Like what kind of -- ideally, where you would want -- how would you want your business to...

Today, we see our mix close to 55% formulation and 45% around API. I'm just telling you guys rough figures, okay? But going forward, we see we'll maintain the same ratio because we have intention and aspiration to grow a lot in the animal health formulation business. Formulation also complex thing. We see, going forward, including CDMO, it will maintain the same ratio, okay? API -- regular APIs after reaching to a certain level, grow from there, it's not easy like formulation. But since that is going to compensate by CDMO, we can expect a similar growth from both areas.

Got it. And just a final question, this is a small clarification. Like last year, around September, there was this news item that -- especially in India that there was some kind of ban on antibiotics and anti-protozoans for treatment of livestock. I just want to understand, would that have any impact on us?

Raja, can you answer this?

Yes. So there was -- it's not a general ban across all antibiotics and protozoans. There were 1 or 2 products very specifically, which were identified by the government. And those are products which almost everybody had. But for us, it was a very small amount, and it doesn't sort of impact us. I think the other thing for us is that the antibiotics more and more internationally are being delivered in the injectable format rather, and that is one thing which we have because, for veterinarian prescriptions, injectables are required. And we have a fast-growing injectable operation in most of the animal health products which we make out of Turkey. So to that extent, I think we are well covered of that. But having said that, there are continuously new products which are getting launched, and those are available to our -- they're getting genericized and we are sort of launching them as well.

Ladies and gentlemen, due to the time constraint, as that was the last question, I would now hand the conference over to the management for closing comments. Over to you, sir.

Thank you, guys. First of all, thank you, everyone, supporting us for this merger, okay? So we'll do whatever best, but we are very transparent, and we are very open. Whoever want to understand better, you can reach out to the people mentioned in the investor presentation. And if anybody wants to have a different discussion with me also, I'm always available. So we run very transparent, very compliant way. Thank you so much for your support. Thank you.

Thank you. On behalf of Viyash Scientific Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.