Ladies and gentlemen, good day and welcome to the Ipca Laboratories Limited Corporate Announcement Call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Utsav Jaipuria from DAM Capital. Thank you, and over to Utsav. Thanks, Dolan. Good afternoon, everyone, and thank you for joining us for the conference call with Ipca Laboratories on the acquisition of a 33% stake in Unichem hosted by DAM Capital Advisors. On the call today, we have the management team of Ipca led by Mr. AK Jain, Mr. Pranay Godha, and Mr. Prashant Godha, Managing Directors, and Mr. Harish Kamath, Corporate Counsel and Company Secretary. I will now hand over the call to the management to make their opening comments, following which we will open the floor for questions. Over to you, sir. Thank you, everybody, for taking out time and joining us on this conference call. Thank Utsav and DAM Capital for arranging this call at a very short notice. This call and discussion may include some forward-looking statements based on our business expectations. Participants may use their own judgment before making any decision based on this call. All of you are now aware that the company has entered into SPA to acquire 33.38% of shareholding of Unichem Laboratories for INR 1,034 crore. Additionally, this acquisition has also triggered an offer for an additional 26% of the company's equity capital, aggregating to another INR 806 crore, presuming 100% response. These acquisition costs will be funded through the company's retained earnings. Needless to say that this acquisition is subject to approval of the Competition Commission of India and among others. Unichem has developed an excellent proven track record on regulatory compliances. This acquisition is in line with our stated strategy to enhance our product offering in the chosen growth market. Briefly, the synergies on mutual benefit to both the companies out of these acquisitions are: Ipca has a very strong API franchises with backward integration strength that will be immense value to Unichem in scaling up their global generics portfolio and also increase the market share with cost efficiency and competitiveness. Unichem has 76 ANDAs filing in the U.S. out of which 54 ANDAs are registered. 44 products are marketed in the United States. Few of these products are having good market share with further growth potential. Unichem has also filed around 78 API DMF in the U.S. market. Where Unichem is not meaningfully present, Ipca can increase its product offering on those markets through Unichem's developed generics through market extensions like markets like Europe, Austria, and New Zealand, where Ipca has very good presence. Ipca will also look forward to marketing some of the Unichem's branded formulations registered in various ROW markets. Giving briefly the rationales and strategies of this acquisition, I now open the floor for question and answer. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pankaj Tibrewal from Kotak Mutual Fund. Please go ahead. Yeah. Good afternoon. Good evening, everyone. I have a few questions. The first one is on the capital allocation. When I look at the past for the last five years, we have done different smaller acquisitions, maybe like Bayshore, Ramdev, Noble, Pisgah, and about INR 600-650 crores have already been invested. When I look at the execution on those have not been inspiring, and they have diluted our return ratios from where it was. Can you help us understand how, as investors, we should take that confidence with such a large amount being deployed, and any understanding on what the return ratios could be? On the headline basis, it looks that the company has made losses. Last three to four years, the company has not grown. Can you give us some kind of understanding, and how should we gain confidence on the execution? That's my first question, and I'll follow up with one more question going forward. Currently, a lot of companies are facing headwinds in the U.S. Unichem has a fantastic track record on regulatory compliances in the past. Looking at that and looking into the current business environment, it appears that we should be able to comfortably achieve almost around 15%-17% kind of growth in the next two, three years, very comfortably. They also have significant capacities which are available for executions and all. Unichem has, I do agree that Unichem has higher overheads. We will have to look into more critically on those and also critically see how can we optimize the operations, and cost optimizations can be done. As far as their API facilities are concerned, I think as far as their formulation facilities are concerned, their excellent facilities are there. As far as API facilities are concerned, their scales are smaller today, and the operating costs are higher because of lower scales and all. With some kind of modifications and all, it is possible to achieve a significant amount of better output from there and reduce the overall operating cost, and also efficiencies can be generated. Detailed work on that has been done by our API team on that account. Of course, it will require some kind of investment there, but that can be done on that basis. With that, the kind of growth which is expected because of current headwinds and also because of all these operational efficiencies which we can bring on tables, and also we have a lot of backward integrations, and some of those kind of intermediates and all can be made available to Unichem at a much lower cost and all, and which will also bring in the efficiencies and overall reduction in the cost of production. That will help Unichem in terms of increasing overall their profitability. Yeah. With all due regards, can you help us understand how the returns will be generated? What is the return expectation on this acquisition? Because almost you will be investing, if open over goes through successfully, almost more than INR 2,000 crores. On this kind of a number, the core business which was running well, and probably the expectation was that this year could have been a strong year, gets diluted. Just wanted to understand that in INR 2,000 crores, what kind of return ratios and what kind of improvement in profitability can we expect? Let's say overall investment is 100% of your acquisition goes on the acquisition open over shares are available, overall investment will be around INR 1,839.5 crores overall on that. It's lesser than around INR 2,000 crores. Overall, let's say current expectations of business are good. Their order positions are also very good. Their order has started increasing from their fourth quarter of the current financial year. Looking at overall the capacities which are available and utilizations, and some of our products can be transferred there, and with that, we can have better utilizations of the capacities of Unichem. Of course, we'll have to go through overall their detailed operating cost and rationalization of operating costs and all that. That can definitely bring in the returns there. Hopefully, I think over the next maybe around a period of two years or so, I think it's possible to go to then a kind of EBITDA margins of almost around INR 300 crores or so on Unichem overall working. Okay. That's helpful. The second question is that when I look upon most of the pharma companies which are listed on the exchanges today, they have a significant U.S. generics piece, and that market is going through its own challenges for the last four, five years. Many of the companies are either exiting, writing off their assets, whatever may be the thing. Here we go and acquire a U.S.-based company, largely U.S.-centric company, with giving a premium. Can you help us understand the rationale of where the markets are ascribing either a negligible or a negative value? We are giving a premium over and above the listed price. What is that so special in Unichem, apart from the product portfolio which you've there, that we are paying 2.5 times sales on the acquisition cost? Just wanted to understand some thought process which is there behind it. Thank you. If you look at overall assets of the company in the books itself, the assets are almost around INR 1,400 crores of Unichem. If you look at net working capital, there is almost around INR 950 crores of net working capital available. Almost around INR 2,500-2,600 crores kind of assets are available with Unichem currently. Of course, their sales are low, but the business expectations next two years are significantly higher because they have put the additional capacities which can be utilized. Currently, what we are seeing because of all those discrepancies which are there in the U.S. market, it's possible to achieve that good turnover from those kind of businesses. On the product side, they have almost around 10-12 products. They have a very significant market share in the U.S., and that can be further scaled up with further cost efficiencies which we will have to build on Unichem's operations here. Okay. I'll follow up in quick. Just wanted to place on record that somehow we have been negatively surprised by this large capital allocation for a U.S. asset. I hope we deliver and execute better on this. Thank you. Yes. Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead. Thanks. Thanks for the effort. Sir, just on the product pipeline, at least on Unichem side, if you could share, it could be a good product for the next 12 to 15 months. Secondly, what are the products which, if at all, we can do site transfer to Unichem from Ipca given that Ipca site has regulatory issues? That's my first question. I understand the question. There's too much of it. I'm sorry. Can you please repeat that question again, Tushar? I think your voice is slightly. Is it better now? Slightly better, but not absolutely clear. Sir, what I'm trying to ask is if you could share any good product pipeline from Unichem's portfolio which can come up for approval over the next 12-15 months which can help grow the sales, or is it more of a market share gain from the existing products? Secondly, what are the products? Existing products, as well as they are going to launch a few more products for which they already got registration. They also have a future pipeline for U.S. business. Around 17, 18, 19, they have filed. 54 are approved. About 40, they are currently marketing. Another 10-12 products, they will market in due course of time. Right. Any product under development which could be niche where you could have within five years in the market? Most of them are all me-too generic products. I don't think anything first to file and such other products. They are all me-too. Secondly, any products which we can think of transferring from Ipca side to Unichem? That possibility is always there, and vice versa also. Ipca, Unichem to Ipca, anything can happen. Those possibilities are always there in this acquisition, and that is also one of the synergies we looked at. Sir, secondly, if you could also share any update on Ipca side from USFDA. Nothing. There is status quo. Let us hope inspection will happen soon, and we are through. As we speak, there is status quo. No development. If, let's say, the inspection happens also, and that is successful, then we'll have the capacity of Unichem to fill as well as Ipca's facility to fill up. Ipca has its own product range, and Unichem has their own product range. Okay. Just lastly, out of this current Unichem's business to U.S., the top three or top five products business would be how much of the U.S. sales? Maybe top 10 products may be contributing nearly 70%-75% of their business, in which product they have a very good market share, and they say it can be further scaled. Okay. Thank you. Thank you. We have the next question from the line of Chirag Dagli from DSP Mutual Fund. Please go ahead. Yes, sir. Thank you for the opportunity. Sir, I understand the rationale or the intent behind trying to scale up in the U.S. What I don't get is that was this absolutely the best deal possible given that the market has been in such a big distress over the last couple of years? Could we not have had any other asset to increase our presence in the U.S.? The structure of the deal as well, as in we are providing exit to the promoters, and what is the end game eventually? That structure itself is also slightly inferior versus a clean merger. Just your thoughts on both these aspects. Was it the absolute best deal? Could we not have waited for a better deal? It seems like while the business will scale up, but maybe there could have been better assets available in the market. Why not just wait till a good deal comes across? This is Pranay again. Let me answer that in one simple sentence that it was better than most of the deals that have come on our table in the last five years. There are reasons. The synergies were much more than what we had seen in the past. About INR 300 crores EBITDA in two years from now. On that, we've paid about 10x EBITDA today, Pranay. Seems a bit steep. Is there a much larger game plan beyond that INR 300 crores that we achieve in two years? Do you see this entity being like $400 million-$500 million in the U.S.? Beyond that INR 300 crores, beyond that $40 million-$50 million EBITDA, this entity will have to be much larger in the U.S. for your payouts to happen. The aims and the efforts will be put in exactly that direction itself. There is a game plan in place without getting too much specific onto the exact number or so. We have set ourselves an immediate challenge of achieving the INR 300 crores. Once we do that, we will have to continue to work upwards from there on. Understood. This INR 300 crore EBITDA number that you talked about two years out, does that include synergy benefits as well, or is this just a way business I mean, is there a large synergy here? It does include synergy benefits. Without that, this number would otherwise be a bit of a challenge. Understood. Understood. Just a last question. Was there a number two? I mean, I am imagining that this would have been a well-built kind of asset as in a process would have been done, and you guys won the process. What was the number two bid, if you can share, sir? I'm not aware of it. I'm so sorry. Okay, sir. Thank you so much. Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah. Thanks for the opportunity. Good evening. A couple of clarifications. I mean, the first one is on the rationale of the business is to gain the portfolio and the facilities for the exports. If you could just help us understand the Ipca capacity utilization in current facilities as well as the Unichem. Yes, sir. As far as the facilities which are exported, U.S. currently, their capacity utilizations are very low. Our Pithampur plant is utilized around 30%. Piparia plant may be around 25%-30%. Both the plant utilizations are low. Once we have U.S. clearance, these capacities will be smaller, and we will have to expand further at existing place on this. The capacities of Unichem will also be helpful. Unichem currently would be at what capacity, sir? Unichem, they have set up recently and commercialized a new facility at Goa, which is Unichem Goa 2. Their capacity utilizations may be around 20%-30% right now. Significant capacities are available. It is much more automated plants with very less human interventions, practically. Everything, all is recipe-based and very good plant. Okay. Understood. Secondly, if you're saying INR 300 crore in the next two years, we are talking about fiscal 2026, right? I'm sorry. We have management in hand, and we start operating things. It's from that time, yeah. Okay. What is the top line versus you're looking at INR 300 crores? I mean. Overall, it should be able to, let's say, go to almost around INR 1,700 crore-INR 1,800 crore kind of turnover maybe in two years' time? Okay. Sir, our margin historically, I mean, pre-COVID, it's been 18%-20%. With COVID, we went all the way to 25%. Now, this year has been an aberration, but we aspire to be again a 20% margin company. Correct me if I'm wrong. After two, three years, we are still talking about 18% margin. A lot of work will be done and margin dilution in the next three years. Prakash, you are talking about Unichem, not Ipca. No, I'm combining the two, sir, now. I'm just combining the two that in the past, you were 20%-plus margin, and in COVID, you went all the way to 25%. Now, about 16%, 17%, and maybe next year, you'll be back to 18%-20%. What I'm saying is two years out, Unichem, you are still talking about 18% margin. There's a long dilution that will play out in the next two, three years. Is that correct understanding? See, Ipca is also into branded formulation business in India. That margin, you can't equate with only international business, na? Unichem is a purely company which is into generic and API business. Yeah. That's why the rationale of doing such a large deal in the export market, especially when the margins and return ratios are so low, is what I'm trying to understand. Just for capacities? Yeah, there are surplus capacities available there, yeah, and very good plants, very good assets. Prakash, we are also talking we are into Australia and New Zealand. We are into Europe. Unichem is not present in those markets. Technically, whatever products they are today launching, they are registered in U.S. We can practically bring most of them also into Australia and New Zealand, Europe. That way, we can also increase our product basket, product offering. That will definitely add value to our business. Plus, we are also into branded formulation business in 40-odd countries where 1,000-odd people are marketing our branded formulations. Unichem also has a lot of registration. They sold their only brands for India and Nepal. All brand names, all rights for the rest of the market, they are with them only. That opportunity is also available for our ROW branded team. Understood. Lastly. Whatever other synergies we spoke about, U.S. and other things, this is also add-on to that. Okay. Perfect. Lastly, on the structure, of the promoters take off 50%, currently, only 33.38% is being done as a. Around 14-odd%, Dr. Mody family will retain, and it is at their will. When they want to sell, they want to keep. It is up to them. Management control post takeover matter completes will be in the hands of Ipca. Okay. To start with, it will be part of my ID address, and once the open offer concludes, it will be canceled, right? Both open offer and this acquisition is subject to Competition Commission approval. Once the Commission approval comes, we can acquire acquisition shares from Dr. Mody, and balance, it is up to the public how much they will offer. That is altogether a different thing. You can acquire the remaining from Dr. Mody? Is that what you said? In the current agreement, there is nothing on that. Oh, sir. It might be a possibility, is what you're saying? There is nothing stated in the agreement, not discussed. Okay. There's no ROFO, nothing like that? No. In the agreement we are providing, we can increase our stake through differential route and all. That is always open. Okay. Okay. If we don't get offer shared in the public offer, we can increase our holding through any other means, including differentiation. Okay. you're bound to get the majority, and the management control is what you're trying to say? That is already stated in the SPA. Right. Right. Right. That will come irrespective of our holding. On 33% also, we will get that. Okay. Thank you, sir, and all the best. Yeah. Thanks, Prakash. Yeah. Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. Hi, sir. Good evening. I just wanted to understand a bit more on the valuation paid for this acquisition. Can you explain a bit in detail what kind of valuation benchmarks has the company used to evaluate this particular asset? Obviously, on headline numbers, this valuation I mean, it's difficult to justify the rationale for this acquisition. Maybe on price to books, there's some rationale for this particular acquisition. If you're really looking at earnings to justify this particular acquisition, what kind of earnings are you looking at? Is it two years out, three years out, five years out? I think some color on this will kind of give us some confidence what kind of profitability you are in regarding from this business two years, three years, five years out. Yeah. That Mr. Jain has already explained, na, on a business of around INR 1,800 or so crore in second year after we took management control, the EBITDA should be around INR 300 crore. I'm talking only Unichem business. Just to understand this INR 300 crore number a bit better, if I look at the past history of Unichem, let's say in FY 2019, 2020, 2021, the gross margins for this business were pretty robust at 68%, 69%, and 62% also in one particular year. Still, the company wasn't able to generate positive core EBITDA. Is it entirely overheads which have to be normalized in the two years to achieve this INR 300 crore EBITDA, or sales growth has to come in to achieve this particular number? If you can bridge the INR 300 crore number split into how much of this would be sales-driven and how much of this can be pulled out from cost rationalization, I think that's. It is three things. One is sales growth. Second thing is operational efficiency improvement through whatever contribution we can do in increasing their efficiency of API facilities. Can you, sir, help me? Synergy, both the three things should play for this number what we are talking. Sir, in the first phase itself, why are these inefficients in this particular business? I mean, if you can, at a broad level, kind of help us understand a bit, what is plaguing the broader business that despite the. The first thing is obvious, na, capacity utilization. Second thing is API, whatever batch sizes and yield and other things. These are the two basic things. Okay. Sir, to go from INR 1,250-odd crore of revenue to INR 1,700-1,800 crores over the course of two years, this growth stream seems pretty steep for a business which has only 40 products in the U.S. Any color on how many launches will be done in this two-year period to drive this growth? I told they already have 50-plus approval, 40 launches, another 10 products they will launch over the course of time. We have also seen their order received and order book position. We are confident whatever guidance they have given for at least next financial year, they will achieve. Okay. Okay. Finally, sir, Mr. Jain, you have talked about these assets being pretty good. I think Unichem has had a decent US FDA track record in the past. What we have seen over the past five, six years is that the goalposts of FDA have been changing. Certain companies which seem to have had very good compliance have found themselves in some troubled waters at some point in time. What kind of diligence have you done from your end to kind of establish that these assets won't suffer from any U.S. FDA compliance issues in the coming future? As far as I remember, I think most of the companies have gone through a cycle of non-compliance, then come out of it. I just wanted to understand what kind of diligence, what kind of engagement we have done with the promoters of the target to kind of establish that these assets are pretty good? Nobody can ever guarantee what will happen in the future. There is no guarantee of what FDA can do in the future for anyone or for any site on this world. Other than that, I think we have learned a lot in the last seven years, eight years. We have used all of those, including some of, obviously, our internal and external resources, to go through the due diligence, especially on the quality culture and the quality practices, on the on-ground practices of their sites. I think we're generally satisfied, and we believe that things will remain very much in control. Okay. The quality system that will onboard, there will be no change done to that quality system, or you need to do some? Quality systems always have to be updated as per the current requirements. That's why it's called CGMP. Whenever there is a need, whenever they see a scope of improvement, every company that has to remain in the space will have to be proactively and at least to the best of its intent and expertise. Are you happy with what will come onboard? You're not looking to make much changes to upgrade it as of now? I mean, maybe one year, two years out, things might change, but. As of now, as we speak, no. We don't expect to see much changes. Okay. Got it. Thank you so much and all the best. Thank you. Thank you. The next question is from the line of Dr. Rao from ADIA. Please go ahead. Yeah. Hi. Am I audible? Yes, sir. You are on. Yeah. Yeah. Yes. Yeah. Hello, everyone. This is Prashant Poddar from ADIA, Prashant and Rao. Sir, first question is, were there other bidders for this asset as well? Was this a market-on-the-deal, or this is a private transaction? No, we are not aware of any other deals which they may be talking about. Yeah. Okay. Yeah. Mr. Jain, Mr. Poddar, sir, I think most of the questions have echoed the same sentiment, that is, that Ipca's own experience and many other Indian companies' experience in the U.S. market has been bad. Ipca's in the last decade, actually, and many other Indian companies in the last three, four years. Now, we are seeing some cyclical improvement. There's some talk about cyclical improvement. We have to yet see the fruits of those. I mean, a market which is so dominantly, I would say, positioned for distributors so two concerns there. One is regulatorily. I mean, we understand you have learned a lot, but could that be a risk? How do you calculate that when you are putting such a large capital allocation in the same market which has hurt your asset returns in the past? The second one is your own expectation, this INR 300 crore EBITDA on an INR 1,800 crore turnover. Does this include the US recovery that we are seeing right now which could be cyclical for all you know? Maybe look at it. Where there's adversity, there's a bit of an opportunity. Yes, undoubtedly, due to the obvious market pressures, be it from the buying side and/or from the supply side from India, there has been quite a few disruption and challenges. As we see today, prices are getting kind of more rational and stabilized. We believe there is a scope for companies like Unichem and hopefully soon Ipca to make use of this opportunity. As long as we remain both compliant and competitive, I think we can achieve these kind of numbers. Mr. Jain, the other question is around this INR 1,800 crore kind of turnover. Just the 60 products, assuming what Mr. Kamath said, the 60 products, we assume all of them come through, even then, the INR 30 crore-INR 40 crore per product kind of is quite high. I'm not saying it's bad. I mean, we take it with both hands. These numbers are higher than what we have generally observed in me-too portfolios. We are just confused here. Sorry. We are just confused. They are not only in U.S. They are also into other markets. They do a lot of formulation business in Brazil. They have some business in the U.K. This INR 1,800 crore includes all those businesses. They also have API business. All of them are included in this. It's not only U.S. Should we assume half of this is U.S. formulation? No, about 60%-65% you can assume. 60% you can assume. Even then, around half a million dollars is clearly on the higher side. Would you also believe that it is on the higher side, that their product portfolio is generally producing higher value per product as such? No, today, also, 8-10 of their formulations are giving much, much higher than the amount what you are talking. I am speaking only U.S.-based. Okay. These are not early stages of competition. These are. No, no. No, old, older generics. Still, there is scope for them to grow their market share. Okay. Okay. Just quickly understanding this, as Pranay was explaining, that this is an opportunity you can use. Is it what kind of recovery are you expecting in this INR 300 crore EBITDA performance? Could it be better if is it if the market gets really rational, could it be better than this INR 300 crore? I would not extend myself that far. Let's hope that it gets better. There's a target we have set for ourselves. We want to hit for it. We are, at this moment, doing everything or thinking through this matter as intensively as possible to achieve it. I would not, let's say, bet on it right at this moment, at this point. Sir, Pranay Godha, if you split this into the three businesses, API formulations and the other countries' formulations, if you can give us some because all the discussion has been around the U.S. If you can specially explain the strengths in the other markets that Unichem brings to the table other than just the registrations, are there sales teams, branded sales teams which you can boast about in this transaction? One more last question there. In terms of profitability, if you look at INR 1,700 crore, INR 1,800 crore and INR 300 crore, it is 13%, 16%, 17% kind of margins. U.S. and these other formulations, which one would be the margin leader in this calculation of yours? Both these questions, please. That's all from my side. Other than U.S., the other biggest segment is their contract manufacturing, which is primarily for European customers. Then there are other markets like Brazil and other emerging markets. The API business is, again, dominant more in the European space and other, let's call it, emerging markets. Again, profitability-wise, obviously, I would say strictly as a percentage number, the emerging markets always are, from a percentage basis, more profitable. From a core number point of view, CMO business and Brazil business is now becoming more profitable than before. CMO and Brazil. Okay. The CMO has strategic potential to be growing much larger, is it? Or is it, again, a me-too kind of business? It is. From a product point of view, yes, it is a me-too kind of a business from a potential to grow, obviously, because everybody needs a competent and a reliable supplier. In that mark, again, Unichem has proved itself. It has great credibility. We know in the past from as a competitor how much it was difficult to compete with them on certain projects. They have a very good relationship with some of their key clients, and they have a good track record in terms of supply chain. Okay. All right. That's all from my side. Thank you very much. All the best. Thank you. Thank you. We have the next participant, Mr. Dheeresh Pathak from White Oak Capital, with the next question. Please go ahead. Yeah. Thank you. Sir, apart from the operating assets, the plants, and the filings, is there a non-core asset which you can monetize? There is a property in Jogeshwari which is mainly around 10-odd acres land and all. Over a period of time, I think that's one possibility exists to monetize. Apart from that, they have almost around close to INR 275 crore locked up in GST because they were following certain method of, let's say, GST refund instead of GST going for rebate. GST refunds take much longer time compared to GST going for rebate system. It's possible to unlock that kind of cash maybe over a period of one year time. That's basically cash available in the balance sheet of almost around INR 275 crore. It's possible to take out the entire cash. That will have to be check written from the government, right? That's basically normally, all exporter goes for rebate system. That when you export something, you prepare an, say, GST invoice and pay the GST out of your credits. Once your exports are done, within a period of two months' time, one and a half, two months' time, you get the refunds. The GST refund systems take very long time because refund applications, then process, and all those kind of it takes some time more than one year. They have a huge amount of money which is lying in GST refund amount on which applications are going or some applications have already gone. When we change the method from your refunds to rebate, the cash will start coming out with existing money which is locked up in refunds. Is that coming over a period of one year time? Almost around close to INR 250 crore cash can be generated from that change itself. Jogeshwari property could be almost around INR 300 crore. Broadly, we have not done any kind of variation right now. Looking at the market and three and a half acres of land, that should be the variation currently, yes. Almost. Understood. That's the kind of cash could be available which can be utilized for the business. Sir, this INR 1,800 crore revenue, this assumes optimum utilization of the current plants plus the plants which are in CWIP, right, and the current filings, right? Because they have already capitalized their Goa plant which is the latest capacity they have put up on formulation side. On CWIP, there is some more assets which is there at Pithampur API plant which is all around INR 100 crores are there. That plant will have to be reworked out because they have not installed any kind of reactors or some. It's basically building and other assets are ready. We will have to use all these kind of chemical engineering methods to understand what kind of rework on their powder processing areas to have a much better throughput. Just to achieve that INR 1,800, another INR 500 crore from the extra revenue from the current generate, you need to invest in working capital plus some CapEx. What is that estimate of extra investment that needs to go into to generate the full INR 1,800 crore revenue? From Unichem's operation itself because GST refund itself will be a significant amount which will come out. We don't need any kind of additional cash. Rather, we'll have to look into their supply chain to see what kind of rationalization can be done more particularly on their entire cash-to-cash cycle in terms of inventory holdings and in terms of all operations synchronizing everything. That part can also bring out some kind of cash from the system, yes. Would you also step up your R&D investments for U.S. now? Let's say our strategy policy is very, very clear that we don't want to do a lot of work based on somebody else's API. All the kind of work that needs to be done is only based on our own API. Therefore, that work is not like, say, that currently, Unichem is spending a large amount of money on R&D. That also will need to be rationalized properly. A good amount of savings can also be generated from there because in an integrated company, it's only the product development which will happen only based on our own internal API and then forward. It's not that dozens of your R&Ds need to be filed and generated and all that because how much competitive you could remain on the outsourced API. Today, when the margins are under pressure, operational efficiencies and all that can come only through your own API. That's the business philosophy will not change, yes. Okay. Thank you. Thank you. The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead. Yeah. Hi, everyone. Can you share what's your future plan on the pending stake post-open offer? Would you acquire that stake, or would you have any plans in the next three to five years of acquiring, or would this entity be kept as a listed entity, Unichem? Oh, it will be kept as a listed entity. Our SPA is for acquiring 33.38% shareholding, plus we are making open offer for 20%. If everything comes in the open offer, my holding will be around 60%. I am talking post-that. Given many of your past acquisition, you have kept stake not reconnected 100%. What are your plans over there? No, no. This is a listed public company. In any case, the public holding has to be in excess of 25% to remain listed. That will continue status. Okay. You don't plan to acquire full 100%? Currently, there are no such plans. Just in one of the previous questions, since you are planning to acquire 60% at INR 1,800 crores, so overall, you are just getting a proportionate stake. If I do a full company valuation, it's a INR 3,000 crore kind of a valuation. That is correct, yeah. Which is coming in somewhere around $350 million or $370 million, whatever the number. For 50-60 NDAs, it's too much, I think. Maybe you need to I don't know what benchmark you have taken for this, but it's coming somewhere around $5 million-$7 million kind of a range, which is out of range. Maybe you can talk about non-U.S., but non-U.S., it's still not it's just 40%-50% listed U.S. This is very extreme in terms of valuations when you do that per NDA. Maybe on the capacity side, when you are saying that you have a USFDA-approved facility, how many times this facility has been inspected till date by USFDA since it started? Okay. First of all, you have commented 50 NDA. That is not correct. They have about 75 filings. They also have 78 DMFs for API. These products can be marketed worldwide, not only necessarily in US. They are focused on U.S., in U.K., and Brazil, and some other countries. With our presence in many other markets, there is every scope to commercialize these products in those markets also. We are not paying just for NDA, 50 NDAs. They also have a lot of other IPs like 78 DMFs for APIs which they have developed and filed. Okay. Still, the range is very, very high, is what my point is. Even at 70 or 60 NDAs, the per NDA is $5 million. Whatever you want to do for the API, DMF filing, it's about the range, is what my point is. Can you just answer on this one? What's the regulated track record of these Unichem plants? How many times they have till date been inspected? Even the last inspection was somewhere pre-COVID. Since their inception, how many times USFDA has inspected the plants? They have multiple plants, 3, 4 API and 3, 4 formulation. Out of that, 2 formulation plants and 3 API plants are USFDA-approved. Multiple times it is inspected. Some plants are new. They got approval recently. All approvals are definitely pre-COVID only. When was the last inspection for all these plants, formulation? I said pre-COVID, so 2019, 2020. The very last inspection amongst the five sites was in 2020. Given the formulation plants are the key ones, so how many times those have got inspected? Again, typically about 2-3x depending on which plant we talk about. Okay. Okay. Okay. No, I think you should rethink on this given most of the investors, what they are doing. Yeah, that's my final point. Thank you. The next question's from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. Yeah. Thank you so much for the follow-up. I just have one quick final question. What is Unichem's position today on the fine that has been imposed by the European Commission of INR 120 crores that is sitting as part of contingent liability? Second part to this question is that have you been able to de-risk yourself from this particular penalty if it goes through? I mean, this penalty also should be taken into consideration, right, when we are talking about the acquisition value? This is already considered while calculating. No, I mean, it is yet to be provided for, right? The matter is also yet to be finally settled, still in the court. Are you working with a worst-case scenario here, that entire INR 120 crores has to be paid out? There is a court procedure going on, plus there are several other possibilities and options also. Okay. Okay. Understood. Thank you so much. Thank you. The next question is from the line of Vaibhav Bajaj from Honesty and Integrity Investment. Please go ahead. Yeah. Hi, sir. Thanks for providing the opportunity. As one of the earlier participants highlighted, the margin of Unichem business is actually very good as compared to some of the other U.S.-focused players. What is the reason you will attribute this fact to? What are the advantages Unichem has because of which they are able to generate good gross money? On their key products, I believe it's their scale economies and their backward integration. It's a combination of both. In some cases, I think it's also because of their, I would say, cost competitiveness in addition to the above. Okay. Okay. Got it. Secondly, in terms of because now we will be in charge of things at Unichem, do you plan any significant management changes there in terms of people who are looking after compliances and any other thing, I mean, in marketing or something? Do you plan any major management changes, or mostly the things will be status quo? Not at all. I think whatever the team, especially in the quality and operation side, they've generally done a good job. Their actions are speaking louder than words, I would say. Things will more or less be business as usual. Okay. They also have an ESOP plan. That ESOP will continue as it is, or there will be some changes in that ESOP scheme as well? No, once the ESOP resolution is passed, it is generally valid for 10 years. You can't change once the scheme is passed by shareholders to the detriment of the ESOP grantees. That you cannot do. Okay. Okay. Got it. Understood. For scaling up to this INR 1,800 crore, as you said, will it require any cash infusion in any scenario from Ipca side, or it will be? No, no. No, it does not. No, no. It does not require. Okay. There's no plan as of now to kind of merge Unichem with IPCA after open offer completion, after we acquire? No, absolutely not. No. Okay. Okay. Got it. That's it from my side. I will come back in with you. Thank you. We have the next question from the line of Surya Patra from PhillipCapital. Please go ahead. Yes. Hello. Thanks for this opportunity. The first question is that, obviously, you have guided that the Unichem's business possibly in two years' time likely to achieve something like 80 NDA output. We know that around 70% or slightly more than that of business, what this currently generates, is relating to US and Europe. We are obviously targeting to achieve a certain growth number on that. What is the synergetic benefit that we are targeting for Ipca's portfolio in US business or in US ventures? Obviously, there will be some thought process, and that should be the key rationale behind the acquisition. Can you throw some light about that? What is your thought process about taking Ipca portfolio to US market, and how can you get or Ipca can get complemented by the assets of Unichem? For some of their core products, even today, we believe they can benefit from Ipca's cost competency in terms of the APIs for their own raw material consumption. Over here, I'm being a bit optimistic. I do look that our Ratlam facility will have a positive outcome, by the will of God, I would say, in the very near future that we are trying very hard for that too. With that assumption in place, we believe we can be a very good alternative supplier, or I would say primary supplier, for some of their own raw materials or APIs. Irrespective of that, even if we do a tech transfer of our technology on their facility, they can get to benefit from the better processes that we have. On the other side, we find some of their APIs have better cost competencies but not adequate scales, which we think we can provide very easily within our available facilities. There is going to be quite a few give-and-take happening between the two companies in order to best utilize not just the capacities but to utilize the cost competencies also. Okay. The interest point. Yes. Yes. Of course, in addition, at the cost of being repetitive, Mr. Kamath had also mentioned that we are looking upon their already developed products to be extended out into other regulated markets. Okay. Sir, in terms of the let's say, you have mentioned that the top 10 product is generating almost 75% of the US revenue there. Obviously, that means they are having a kind of significant cost advantage or something like that in this in this cost-competitive world. They are so successful on those products. If you can share, what is the level of API integration that they are having? Means level of backward integration, I mean to say, for APIs. Are they into intermediate as well? Well, most of their products are better than intermediate, except a few products which they are outsourcing the API from outside. But most of their overall, let's say, your DMFs are from, let's say, stage two, stage three, something like that, not too much backward integrated. And they are from the key telemetry nets to the final kind of your API synthesis. So there, we can add a lot of values to them in terms of providing further backward integrations in terms of intermediates, and some of the sources replacement can also be possible. Once our facility gets US official. Sir, sorry to interrupt. You're not very audible, sir. The volume for you has gone low. If you could please speak closer to the mic, it would help. Some of the APIs are outsourced. Most of their APIs are basically from their own backward integration site. Most of their synthesis are also from, let's say, from the late-stage intermediates and all, where IPCA can add their value in terms of providing them the more cost-efficient intermediates or something like that. As Pranay has already said, that some of the APIs which currently are outsourced, it's possible to do our tech transfers to them and produce our products at their site and create further more cost efficiencies for them, to further maximize the market. Sir. Let's just ask one question. You talked a lot about the cost optimization. What is the ultimate outcome at the level over the next two-year time post-integration? I am assuming that, let's say, integration time would be one year and post-two-year post that during two-year period or in two-year period that you would be likely to achieve this INR 300 crore kind of number. For better confidence on. It could little bit longer also because pharma being regulated, the API needs to be then. Exactly. Device process needs to be validated. Again, formulation batches need to be taken. That validation is required. Sometimes it can go to around one and a half years. Not all APIs are to be done that way. For key focus API, that kind of program can be planned and could be implemented in a period of around one and a half years. Yeah. Yeah. Exactly, sir. Particularly, this was my point. Hence, sir, just to have a better confidence about the cost optimization. If I just comparatively see the Ipca's costing and the Unichem costing, there is a significant difference. Let's say, to start with, obviously, on the gross margin front, it could be comparable. Let's say, R&D spend itself, it is kind of a 10% of the revenues. If you see the other expenses, that is also significantly higher. The initial cost line items that could be of some could see some action from your side and could bring an immediate kind of a saving. Could you share your thought process on that cost optimization front during the process of integration? Because otherwise. We will have to look into their entire overheads and look into the whole things. Those optimizations will have to be done because it's not the gross margin, not an issue as far as Unichem is concerned. They have good gross margin. Can be further enhanced through further process optimizations and cost reductions and all that kind of things. More particularly on API side, formulation side, I think it's possible. Formulation side, only you can have higher capacity utilizations and greater margins. That's one. On API side, a lot of those kind of cost optimizations are possible. Immediate would be your cost rationalization itself. As you rightly said, the R&D cost itself is very high. There are a lot of other costs which we will have to go through. Once we come in management, then only we will be able to look into those kind of things and then work on them. Certainly, there are scopes to rationalize those kind of costs, yeah. Yeah. Sir, even if you are not having 51% stake post this open offer, can you integrate this or consolidate this business into IPCA's? We'll have to follow the law of the land on that. Yeah. Majority control in the management will not mean to or will not allow you to consolidate? Consolidation will happen, whether it is single-line consolidation or line-by-line consolidation. That is the only difference. Consolidation will definitely happen, yeah. Okay. Okay. Yeah. Sure, sir. Thank you. You too. Have a good night. Thank you. Thank you. The next question is from the line of Cyndrella Thomas Carvalho from JM Financial Limited. Please go ahead. Thanks for the opportunity. Sir, can you help us understand? We are talking about integration from an entity perspective as well as the thought process of having backward integration with your filing. Out of the top 10 products, clearly said 70% is kind of the contribution for the U.S. sales from the top 10 products. How much is backward integration or possibility there? I mean, how many of those products there is backward integration for the scope? Okay. Miss Carvalho, just to be clear, you're asking how much of the top 10 products, what is the% of backward integration? How many are backward integrated? Correct. Correct. About 70% of those. 70% of the top 10 which contribute 70%, right? Yes. Yes. Okay. Okay. When I look at the nine-month performance, the gross margins in the nine months have kind of come off. What should be a sustainable? Is it? Your connectivity, there is some problem. You are not audible. Is it any better, sir, now? Yeah. Now it is better. Yeah. I'm saying, if I look at the nine-month performance of Unichem numbers, we are seeing gross margins closer to 59%. If I look at their other annual runways, they have been around 56%-57%. What should be a sustainable runway that we should look at? Largely, what has caused this lower gross margins in the nine months? If you can help us understand. It is to do with the product mix. That's it. On a normalized basis, you can presume it will be anywhere between 60%-65%. Okay. Sir, in terms of any US FDA schedules for the CGMP that you might have been aware about for the 2 formulation and 2 API facilities for Unichem that you could share with us? Again and again, your voice is not audible. Are you? Sorry, sir. Okay. Are you asking if there is any inspection scheduled in the near future? Yes. For the CGMP. Okay. Not that we are aware of. Any significant filings that can trigger that inspection from the facility? There are filings on a regular basis. I do not know how to categorize them as significant. There's nothing that can be called as a paragraph or first to file kind of thing. They are normal filings. There is nothing to trigger inspection. All their facilities are inspected by every regulator of the world, and they have all the approvals. Yeah. That's why I was trying to understand any CGMP schedule if there or anything like that. No, nothing. Nothing. There are no issues. There are no schedules. Okay. Okay. Sir, in terms of the timeline, how should we look at this deal from a consolidated entity? CCI approval, then open offer. Once open offer is completed, then only we get whatever control we get as per the SPA. It may be at the best-case scenario, maybe 4 months from now. Okay. Four to six months is a fair understanding. Thank you so much. All depends on when CCI approval will come. Okay. Thank you so much. Thank you. The next question is from the line of Ashish Thavkar from IIFL AMC. Please go ahead. Yeah. Thanks for the opportunity. In your opening comments, you did mention about 16%-17% growth. That was for Ipca on an organic basis, right? You are guiding for INR 1,800 crores of revenues for Unichem. Is that a right understanding? No, no. Both growth and revenue, we spoke about Unichem only. We have not spoken anything about Ipca guidance in this call. We spoke only about Unichem. Okay. Fair enough. INR 300 crore EBITDA on an INR 1,800 crore top line. It's kind of. That's right. Yeah. But still 2 years out, it would still be a sub-10% ROC business. What are your plans? Is there a certain mindset that you need to take ROC and bring it to the company level? Some guidance would help. No, no. We are also telling there are other synergic benefits available to Ipca also. We can take their products in all other markets where they are not currently operating. There is Australia, New Zealand. There is whole of Europe where we have a very big presence now. Our basket of offering in these markets will increase. They can manufacture, and I can market. Both will benefit out of that. Okay. As you have seen. Similarly, I can market their branded formulation in the ROW market also. Okay. Got that. Sir, are there any certain SEZ facilities which are based on an SEZ for them? Pardon? SEZ. SEZ facility, are there some tax benefits that? Now, nobody has any tax benefit. Everywhere there is sunset now. There is no tax benefit now. Okay. Not even the Goa, which is the latest one? Nowhere in India for that matter. Okay. Yeah. Fair enough. Thank you and all the best. Thank you. The next question is from the line of Rahul Jeewani from IIFL. Please go ahead. Yeah. Hi, sir. Hope I am audible. Yes, you're audible. Yes, yes, Rahul. Yeah. Yes, sir. Sir, can you comment on the availability of management bandwidth for managing this acquisition? Why I ask that question is because if you see on an organic basis as well, we were running several projects across our business. Be it the 25% depth expansion which we carried out on the India business this year or the capacity expansion which we are doing at the Ratlam and the Dewas API plant or the re-distribution or the realignment of the distribution network in U.K. You already had some of these organic projects ongoing. On top of that, this acquisition, that too for a market which hasn't been a focal point for you for past eight years. How will the management bandwidth will get allocated in terms of integrating this asset? From a management bandwidth point of view, thankfully, I think we can only thank Dr. Mody and his team. They have built an amazing team over there. We see practically no reason to disturb the top management and the lower levels. At the same time, even though from a business point of view, we were not generating any sales, it was pretty obvious for us at least that U.S. will always remain a market where we have to get back to and enter as fast as possible. It is the largest generics market and more so for the kind of products Ipca and Unichem are involved in. I think this was only a matter of time for us to enter directly or indirectly through Unichem. Dr. Mody would not have any skin in the game now given that you also indicated that once we acquire the open offer is through, you will have management control of the business. Let's say, in terms of the top management of Ipca, how would you allocate the time between the various business segments of yours now? Operating management, basically, whatever projects you have talked about is looked after not by the they are supervised by the top management, but otherwise, they are handled by the operating team. As far as Unichem is concerned, the team is good. What we need to do is change certain directions, change certain reviews, and build certain focus. On API front, yes, our interventions will be larger one. We have the competent team to look after that part so that more operating efficiencies can be built up in their system. I would say. Sir. There Ipca will have to intervene, yeah. Sure, sir. Just a few questions on the structuring of the deal. Would the deal require any approval from shareholders of Ipca? No, no. It does not require. Okay. For line-by-line consolidation, our stake in the entity has to be more than 51%. Only then it will get consolidated on the end. That is right. That is right. Yeah. Yeah. That's it from me, sir. Thank you. Yeah. Thank you. Thank you. Thank you. Uncertain. Please go ahead. Yeah. Very good evening to all of you. Thank you very much for taking my question. Sir, sorry to interrupt. The line for you is sounding muffled, and the volume is low. If you could please use the handset when you speak. Is it better now? It is much better, sir. Please go ahead. Thank you. Thank you very much. Just to understand, I think in your opening remarks, you indicated that this deal will be financed through the internal approvals. Does it mean that we don't have to take any debt for this deal? Basically, we have the kind of network. We are utilizing that for and for working capital, we will be utilizing the working capital financials. This deal is for buying the shares, you can't have borrowing from the banks. For our normal working capital, we will have some borrowings, yeah. Okay. The second thing, while I understand you are given an outlook for the next two years, and there are kind of scope and potentials in terms of what we can do with this asset and what it can bring on the table for us and even obviously improving the business metrics for Unichem. When I think from an investor's perspective or even at your perspective, how do you see the payback period of this acquisition? I'm thinking of maybe known for assets of INR 250 crore-INR 300 crore of office building available in Jogeshwari, kind of a refund from the government of India with regard to GST. Let's say the enterprise value of INR 2,500 crore-INR 2,600 crore, what could be the payback period for us? We have talked about a lot of things which IPCA will do with their product range in terms of extending the market reach of those products. Right now, we have not made any of those kind of calculations. Right now, it's difficult to say what will be the payback. Right now, we have indicated that once we are in the management, what is possible in over a period of two years' time. As the market extensions and all those things are done, the scenario will further change. Right now, those calculations are not. All right. Sorry to push this just a little further on this, sir. Given the way we have operated the assets in the past with 20%-plus kind of ROC, ROE, do you think that over time, we should expect the similar kind of returns even from these assets also? It will all depend on what kind of things overall comes out once we do all those kind of integrations and market extensions. Right now, I am not commenting on that part, yes. Okay. Just the last question, sir. At least in the last annual report, there is a CWIP of around INR 490 crore. If I include in the next block of INR 900 crore, the total gross or total block would be available at around INR 1,300 crore-INR 1,400 crore kind of numbers. Yeah, that is correct. 13, 14 crores? Yeah. On that block, sir, what could be the peak potential revenue which we can generate from these facilities? Obviously, it depends upon the kind of word which you file and all those things, but just as a ballpark number. Yeah. That the Goa facility is just commercialized, Manoj. Yeah. Just the question is that what could be the peak potential revenue from all the assets which they have built out and available to us now? Practically, it can go up to maybe around INR 2,700 crores, INR 2,800 crores right now, yeah. Oh, okay. That kind of thing we can do, yes. Very good. Thank you very much, and wish you all the best, sir. Thank you. Thank you. Thank you so much. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir. Yeah. Thank you. Thank you all for joining this phone call. Thank you. Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.