Ladies and gentlemen, good day, and welcome to Laurus Labs Limited Q1 FY 2023 earnings conference call hosted by Antique Stock Broking Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you, and over to you, Mr. Shah. Thank you, Neeraj. Good morning, and welcome to Laurus' Q1 FY23 Results Conference Call. We thank the management for giving us the opportunity to host this call. Today we have with us Dr. Satyanarayana Chava, founder and CEO, Mr. V.V. Ravi Kumar, executive director and CFO, and Mr. Vivek Kumar from the investor relations team. I would like to hand the call over to Dr. Satyanarayana Chava for his opening comments. Thank you, and over to you, sir. Thank you, Monish, for this introduction. Thank you for joining us for our Q1 FY23 Results Conference Call. Since COVID-19 continued to pose challenges with increased infections with new subvariants, we hope every one of you and your family members, colleagues and friends are keeping safe and healthy during these challenging times. We are pleased to have this opportunity to update you on the progress and answer your questions. Our Q1 results reflects a very healthy start for our FY 2023. As we continue to improve on product mix and EBITDA was maintained at 30%. This was achieved despite ongoing disruptions in the business environment due to COVID-19 and geopolitical scenario. Our CDMO division delivered exceptionally good performance, offsetting pressure on our ARV business. Growth in API division was modest, but future business prospects appear very encouraging. Imported RM prices have largely remained elevated in the light of supply chain conditions, but we do anticipate some of these challenges to abate with gradual China coming, lifting sanctions during COVID and also easing of geopolitical situations across the globe. We are progressively expanding our portfolio and new initiatives. This, along with our significant investment program, should enable us to capture exciting and new business opportunities and reduce any concentration risk from a single product or a single therapy and deliver a broad-based sustainable growth in the long run. As a result, we retain our aspirational target of 1 billion sales and which will be partially supported by several approvals, anticipated. Moving on to our financial results for the quarter. We achieved INR 1,539 crore in revenues, showcasing a very healthy growth of 20% year-on-year. Sequentially, we have substantially improved on our non-ARV revenue numbers. Formulations reported a revenue of INR 349 crore for the quarter, a decline of 33% year-on-year. Coming to LMIC business, while broader demand, the pricing has largely remained depressed in Q1, which is already at record low levels. We are taking a calibrated bidding approach to ensure better outcomes in the tenders for this business. Having said that, we are very confident of sustaining our leadership position in ARV first-line treatment, both APIs and formulations. During quarter one, we launched Lopinavir/Ritonavir combination in U.S. Additionally, we are awaiting few more approvals in the U.S., which will drive our growth in the coming quarters and years. As you're aware, Laurus is a fully integrated player in ARV formulations, and we believe we have the fair ability to weather pricing challenges, and we are able to maintain our margins in the current quarter, supported by performance in other divisions. Coming to the developed market, our performance was stable as the increase in the generic volumes more than offset by pricing pressure. We continue to leverage our front-end operations in U.S. market for new product launches. During the quarter, we filed one additional ANDA and received two approvals, both tentative. We expect U.S. filing pace to pick up during this financial year. Cumulatively, we have filed 32 ANDAs to date, of which we have a total 11 final approvals and 13, actually 14 tentative approvals so far. In Canada, we continue to have 11 product approvals, of which we have launched five products and planning to launch more products in the next couple of quarters. For EU markets, we have validated two products as part of the CMO opportunity. We expect a significant upside in this financial year from these products, and we have a basket of nine approved products, of which we have launched three on our own label, and we will be launching two more products shortly. Based on our healthy product pipeline progress, we continue to invest in non-ARV FDF infrastructure. As indicated in our last conference call, we have commissioned our brownfield expansion at Unit II, taking the total FDF capacity to 10 billion units now. We expect a more gradual ramp-up of capacity utilization in the new block. On R&D front, we continue to allocate critical resources to our research initiatives and invest in portfolio with product-specific outlays based on complexity and scale economies. Additionally, we are implementing steps to bring more robustness in our overall product development processes, including focus on bringing digital transformation within the organization. We were happy to share that we have commissioned our sterile R&D labs, which we have started working on a few priority projects. Overall R&D spending to sales for the quarter was at 3%. We have a total 55 products in the R&D pipeline, either under review or under development, having an addressable market size of over $40 billion. When it comes to generic APIs, our antiviral business during the quarter continued to witness sequential improvement, and sales grew to INR 383 crores. While overall demand environment stays faster, we expect volume and prices are going to stabilize around these levels. We continue to maintain a leading market share in current product line and also expect to increase marginally in the developed market supplies of APIs. Onco APIs reported INR 62 crore sales during this quarter, reflecting a marginal growth of 5% year-on-year. As we are mentioning, we have the largest high-potency capabilities in the country, and we are adding new capacity, and we continue to see good uptake in onco APIs. Our aim is to strengthen global leadership in offering onco APIs, not for generic customers, but also for the innovator clinical-based molecule also. APIs other than oncology and ARV sales, including diabetes, cardiovascular, and asthma, showed very good numbers for the quarter at INR 138 crore, growing significantly at almost 80% year-on-year. This was supported by new contract supplies, and we believe this segment should return to healthy growth trajectory in FY 2023. We filed one DMF in non-ARV field during the quarter, taking the total of 74 DMFs filed so far. We have also completed the validations of few APIs, and we expect to file the additional DMFs in the current financial year. Interestingly, we also have a very high order book visibility in this segment, and accordingly, adding additional manufacturing capacity to capture the opportunities in non-ARV, non-onco API space. Synthesis business delivered exceptionally good quarter, delivering a robust growth of over 190% year-on-year and 60% quarter-on-quarter to INR 577 crore. The growth was supported by solid demand from new and existing customers, existing products, and new opportunities in this division. We remain quite excited about this division as we focus on both commercial execution as well as pipeline expansion and execution. We continue to work with several and diverse customer base, including several big pharma. Our greenfield investment to set up a dedicated R&D center for synthesis division at Genome Valley, Hyderabad, and three manufacturing units at Vizag under Laurus Synthesis Private Limited is progressing as per our expectations as we communicated to all our stakeholders earlier. New sites for synthesis division will have capabilities to handle steroids, hormones, high-potency molecules, apart from other large volume products in animal health. Laurus Bio revenues were largely stable at INR 30 crores quarter-over-quarter, but we do anticipate pickup with the ramp-up of new capacities, debottlenecking our R2, and with our large-scale CDMO partners. We do believe alternative food industry is likely to grow meaningfully over the coming decades, and scale, cost, and functionality will remain the core drivers for differentiation for the players. Scheduled expansion at R1, including a new R&D block and installing downstream balancing equipment to enhance capacity at R2, is on track. This expansion will be completed before Q2. We have zeroed in on land parcels for another greenfield site for our large-scale fermentation capabilities, and we are at the drawing board stage right now. We will invest to create capacities around maybe 600,000 L -1,000,000 L capacity in the new site. With that, I would like to hand it over to Ravi to share some financial highlights. Thank you, Doctor, and a very warm welcome to everyone on our first quarter FY 2023 earnings call. Total income from operation for the quarter is INR 1,539 crores against INR 1,279 crores with a healthy growth of 20%. Gross margin for the quarter is at 57.6%, almost like 90 BPS on a better product mix. Our EBITDA for the quarter one is at INR 454 crores with a margin of 29.5%, which is close to the full year guidance what we have provided. Our diluted EPS for the quarter is at 4.6%, not annualized, which grew over 4% over the corresponding quarter. Our ROCE improved to 29.4% on annualized basis, based on the better product mix. On the CapEx front, we invested close to INR 209 crores for the quarter. As we guided, we are expected to invest around INR 2,000 crores in the two years' time between FY 2023 and FY 2024. For any further details, you may refer to IR presentation in this regard. We remain on course to strengthen our position as a cost-effective integrated pharma player. We are investing in backward integration programs, creating more capacities in the non-ARV infrastructure. On the tax rate, our effective tax rate was around 29%. Based on this year onwards, we are losing our exemption to 50% on the SEZ side. That's the reason it is at a higher side. However, we are going to evaluate further at the end of the third quarter or beginning of the fourth quarter, whether to shift to the new tax regime or not. With this, I would request the moderator to open the lines for Q&A. Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is on the line of Sudarshan Padmanabhan from JM Financial. Please go ahead. Yeah. Sir, can you hear me? We can hear you. Yeah. My question is on the synthesis business. I mean, if I look at the run rate, honestly, you have done a phenomenal job from where we were two years ago to your run rate of almost INR 600 crore. In the annual report, you talked about two contracts. One is a multi-year CDMO contracts with, you know, niche APIs, and the other is global major life sciences. I would like to understand, I mean, whether this, you know, run rate is sustainable, I mean, going forward. I'm not necessarily looking at quarter to quarter, but directionally. Is there any kind of one-off supplies where we have ceded to any of the contracts which might not recur probably going forward? I will answer this question in two parts. You are mentioning on two contracts, two pieces of information. One is multi-year, multi-product contract signed with global life science company. We are building a dedicated capacity to cater to the products and demands as per the contract. Right now, we are redeveloping products which will go into that manufacturing site. One QA Validation is going on our current site. The revenue coming from that contract is not that significant right now, but it will become significant once we qualify the plant, which will happen maybe second half of next financial year. That's question about part one of your question. The part two, which we indicated we got a major contract from another life science company, and the supplies are ongoing. With that, there is no one-off in Q1. This will continue probably for the next year. I mean, it's a longer-term contract. It's not necessarily a short-term contract. These clinical programs, commercial. See, it is difficult to predict. I think only as I mentioned in our last call, numbers only will tell you how we are doing. Yeah. The run rate should continue. I mean, more or less directionally, we should continue to do well on the CDMO part. Is that right assumption, sir? We will do very well in the CDMO part, that's for sure. There are a lot of opportunities that are for us. As Mr. Ravi mentioned, we are creating three new greenfield sites for the CDMO division. That indicates how many opportunities are in front of us. Thanks a lot. Sir, one question I did, last question from my side is on the formulation side. I mean, we have the new capacity coming in, but on a quarter-on-quarter, you know, we have seen a dip, I mean, from our run rate that we usually do. I mean, do we see the run rate kind of moving ahead? And, you know, when do we start to optimally utilize the capacity, sir? I mean, some color around how we look at it directionally. You are asking formulations. Formulation capacity is fully qualified right now, but it will be fully utilized by end of this calendar year. Sure. Thanks a lot, sir. I'll join back the queue. Thank you. Next question is from the line of Krish Mehta from ENAM Holdings. Please go ahead. Hi. Thank you for taking my question, and congratulations on a good set of numbers. The only question I had was on the total breakup of ARV versus non-ARV sales for this quarter. The ARV APIs is at 25% of our sales. If you recall it, ARV APIs once upon a time in four to five years back used to constitute 80% of our sales. Now it is 25% of our sales and 17% of sales came from ARV formulations. If you sum it up, about 42% of our sales came from ARVs, either APIs or formulations put together. Okay, thank you so much. Thank you. Next question is from the line of Amey Chalke from Haitong Securities. Please go ahead. Thank you for taking my questions, and congratulations to the management for the good set of numbers. Sir, I have one question on the margin side. Despite this sizable increase in the synthesis business, our margin improvement sequentially has been minimal. Is it fair to assume that the synthesis margins are not very far from the company level margins? And if it is so, don't you think it is on the lower side? If you can clarify on that. Along with that, also, if you can explain the higher other expenses for this quarter compared to the Q4 of last year. There was price pressure on ARVs, both APIs and formulations. That reduction in the margins in ARVs was offset by higher margin CDMO business. The CDMO business, the numbers are on par with any other CDMO-focused player. That is one. Second, when it comes to the other businesses, you are talking about EBITDA. EBITDA numbers, we for the entire company, we are not disclosing the division-wise. Expenses, right? Other operating expenses, I will ask Ravi to clarify. Yeah, the expenses side, there is a power shortage in our manufacturing area in Andhra Pradesh in the last quarter. We have sourced a lot of power from the private sources, and also we used diesel. We spent about INR 33 crore additional expenditure towards power. Some part of the foreign exchange loss also there. You are aware, the foreign exchange loss on account of the unrealized loss. It is a designated loss, so that's also reflected in the other expense. Sure. Going ahead, you expect the other expense to normalize, at least in the near term? We expect so. The power and fuel is getting normalized already. Okay. If the GM remain at the similar level because of good business mix, don't you think the EBITDA margin has scope to improve going ahead? Our overall for the year, we gave an EBITDA margin guidance of around 30%, and then we are still reiterating that. Just last question I have on the formulation sales drop on the TLD side, how do you see the tenders going ahead? If the demand have gone down or the pricing has gone down substantially, that's why the market size has shrunk. If you can elaborate on this part. The volume front, there is no degrowth. Volume uptake remain robust for all players put together. In the last quarter, the most of the tenders, except South Africa, winner takes all tenders. Business drifted to few players rather than spread across several players. That's the case with Global Fund and PEPFAR, where the volume split is evenly across all the players. We do expect the supplies to Global Fund and PEPFAR will start from Q2. We do hope the formulation sales in ARV segment will pick up from the next quarter. Thank you, sir. Thank you for taking my questions. Thank you. Thank you. Next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. Yeah. Hi, good morning. I hope I'm audible clearly. Sir, I had two or three questions. The first question is on the CapEx for FY 2023-2024. You have guided towards INR 1,000 crores of CapEx. Can you help me with the CapEx which will be dedicated for the custom synthesis business in this INR 2,000 crores? The CapEx number, guided by Ravi, little while ago is INR 2,000 crore for FY 2023 and 2024. I would say 40%-50% of the CapEx is in the CDMO space. Either R&D or manufacturing put together is about that number. Actually, not little, but nothing is going into the ARV APIs or formulations. Most of the remaining CapEx, say, which is around another INR 1,000 crore, is going into non-ARV APIs and non-ARV formulations or backward integrations. Right, sir. Basically, what is the gross for today for the custom synthesis business? If we add another INR 1,000 crore, what is the gross profit we are looking at for custom business two years down the line? Currently, except one small facility, we don't have a dedicated manufacturing facilities for custom synthesis. Today our facilities are common for both generic and custom synthesis. To remove that complexity and fight for capacity, we are creating dedicated capacities for our CDMO space. We can't segregate right now. How much is used for CDMO, how much is used for generic we know, but there is no dedicated capacity for CDMO or generic. Both utilize the same capacity. Sure, sir. No problem. Sir, second question, I mean, one of the participants has already asked this question. I might just want to ask this question in a very different way. In FY 2021 when the sales rebound happened for the company in a big way, the company wasn't fully sure whether that particular sales momentum or the growth momentum will continue in FY 2022 or not. In FY 2022 we saw destocking at various levels in CDMO and multiple business areas. Now, whatever the sales that is happening in FY 2023, a billion-dollar guidance that you are reaffirming on multiple forums, what can be the external threats or external shocks to that number in FY 2024 and FY 2025? I think it's very well understood, I mean, given that you are sounding so confident on this billion-dollar guidance, it should get realized in FY 2023. But as investors, we are not fully sure what kind of shocks can happen in the system, whether in the company or outside. If you can give some more comfort whether this billion-dollar number can sustain in FY 2024 and 2025 or not, that would be very helpful. See, what are the CapEx we have announced, FY 2023 and 2024. These capacities should give actual revenue in 2024 and 2025. Your question is, we, while achieving our target of $1 billion will be a growth in FY 2024 and how much will be growth in FY 2025. We can say, our history also reveals, we grow significantly in one year, grow marginally in one year. It's not that we can grow as a straight line, is not possible. We have very exciting opportunities in front of us. That is the reason we are doing CapEx. Now CapEx is not being done in anticipation of something. At least we have moved away from creating capacities that half our requirement is gone. We are creating capacities to capture what opportunities we have in front of us. FY 2025 is going to be very good year. In our previous call also we have mentioned. FY 2024, we are not giving guidance, but we'll give you guidance at appropriate stage what will be the growth opportunities FY 2024. Sure, sir. Sir, one final question again on the custom synthesis side. I mean, we are broadly aware of the capabilities that Laurus brings in this particular segment, especially in the high volume manufacturing front. Over the last three, four quarters, the run rate, the quarterly run rate of sales from this segment continues to move up. Do you mind highlighting some two or three incremental capabilities that is now helping Laurus to continue to grow in this particular business? I mean, maybe one or two case studies that you might want to share from your broad portfolio of products in this business. It's a very interesting question. We have added significant capabilities apart from significant reactor volume. The company is in a position to do hydrogenations at very scale, low cryogenic reactions at scale, biocatalysis at scale, continuous flow reactions at scale. Company added significant capabilities. That is the reason we're able to attract, retain new customers, and in-source several products at late-stage clinical phase or commercial because of our new enhanced capabilities in the company. Right. Just if I may just squeeze in one final one. For Laurus Bio, can you share some outlook from a two to three year perspective, what kind of revenue benchmarks we should expect from this business? Laurus Bio. We did 34 sales in this quarter, and Q2 will be similar. Q3, Q4, we expect bottlenecking of downstream processing to be over, so some increase in business will come. FY 2024 is going to be a flat year for Bio because our capacities are fully utilized by end of this year. That is the reason we are investing significantly or we are planning to invest significantly in that division. Those capacities will come for commercial use in FY 2025. FY 2025 is a big leap for Bio, but not FY 2024. Got it, sir. Very clear. Thanks a lot, sir. Thank you. Thank you. Next question is from Lennon Bino from InCred Capital. Please go ahead. Hi. Good morning, all, and congrats for a great set of numbers. Dr. Chava, your guidance of $1 billion for the year implies a 50%-60%+ kind of growth for the year. In the first quarter, you have done 20%. Which means for the next three quarters you are looking at maybe 70% odd kind of growth in revenues YoY. You know, still that instills confidence or is it more aspirational? How confident are you about meeting or surpassing that? When we announced our goal aspiration to become a billion-dollar, the dollar was at INR 73. Yeah, INR 70-INR 73. We are very confident to achieve that number now. Yeah. At that number, I think we have every arms and ammunition available to reach there. Yeah. Sounds great. Just to understand, is there any one risk that you don't need to say what it is, but is there that one risk in your mind which could impact achieving this? Maybe some product you know developing some problem or one client moving away from you. Is there one or two such key risk which can impact this? Or is it a well-distributed business target? See, we have capacities, we have customers, we have visibility of orders, and except one product approval in formulations, all are in place. If we are scouting for a customer, we are scouting for a capacity or a facility approval and all. It is a long goal. We are not at that. We are very close to our goal. We have all the actions required, our abilities required to reach that number. Great. Thank you and best wishes. Thank you. Next question is from the line of Tushar Manudhane from Motilal Oswal. Please go ahead. Thanks for the opportunity. First on this Brownfield capacity which is now come up in July, so what would be the incremental operational cost associated with this, which will come in the subsequent quarters? See, our formulations expansion capacity is fully manned, so those expenditures are already built in in Q1 itself. We are going to recruit marginally more people in new block, but those costs are already built in in Q1. If there is a slight increase, it will be built in Q2. See, you're aware all these pre-operative expenditures are expensed, not capitalized in the company. All those are built in our numbers. Interesting. Thank you. Just on other API segments where we have seen good traction over past few quarters. How do you see this in terms of the new products and/or the market share gain in the existing products? The perspective here is that there has been good amount of inventory-led disruption in API industry per se on account, maybe on account of COVID, and/or maybe the China-related lockdown. How do you see the prospects for non-ARV API business? Non-ARV APIs will continue to grow. Our increase in our inventory is a conscious decision we took to weather the challenges of supply chain challenges. In one way, our increase in inventory helped us to sustain our growth. If we are very prudent in our inventory, we might have challenges also. Higher inventory helped us to sustain the supplies to our partners during the challenging times. Got it. Thank you, that's it from me. Thanks. Thank you. Next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead. Yeah. Hi. Can you quantify in terms of ARV pricing pressure, which you mentioned significantly, how much it would be down on a year-on-year basis? It is both ARV, APIs and formulation, if you take together, as I mentioned, it is about INR 550 crores. The margin impact was almost 15%, I would say. Okay. Average 15%, both put together. Okay. In case of custom synthesis, you spoke about two contracts and the second one where you are ramping up. You have, I presume, you would have ramped up in Q1 as well as in Q4, to some extent. How sustainable that business would be after a year or so once it reached to a steady state? You see risk of this, any sort of risk over there after a year or so? These products are in the late stage or just launched, so they have a very long patent life. These are not like generic molecules. Today company A will get market share, tomorrow company B get market share. We are not with the A and B, then we have no orders. With NCEs, these innovators will have long rope. I don't think these will vanish in a year, so. These are pretty long term in nature. This, you are talking about the commercialized product, right? Yes. Yes. Okay. Any kind of pricing pressure comes in this product on an annual basis or productivity benefits which needs to be passed on? We haven't seen significant price pressure in this division unless we agree. See, these contracts are long term, so we do agree what kind of improvements we make and pass it on to the partner. Other than that, this segment, pricing is predictable and stable. Excluding the two contracts which you spoke about, excluding that custom synthesis business, the base you will grow on that base if you exclude that, those two contracts. Even over there, you are confident of things and things like that. We do expect to grow. Yeah. On that previous base. Yeah. Yeah. One final question on CapEx. You would have maintained your CapEx guidance or even that has gone up. Like, what's the number as of now? Because you mentioned about the rupee side and rupee being fluctuating on your revenue guidance. Just to reconfirm your CapEx guidance. We indicated that around INR 2,000 crore CapEx for FY 2023 and 2024. Okay. In the Q1, we did spend around INR 208 crore CapEx. Okay. Thank you. Thanks so much. Thank you. Next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead. Thanks for taking my question. Sir, on the CDMO business, how many commercial products are we supplying right now? We have six commercial products, four, actually seven. Four intermediates and three APIs. Okay. Sir, how many late-stage products would we have that can get commercialized over, say, next two to three years? We're not going to give you a number, but there are very good number of candidates in the late stage. Sir, on the current revenue which. Sorry. That's because of those only we are expanding our capacities and capabilities in that division. No, absolutely, sir. I was just curious, you know, rest of the seven that we have, do we see this number going 2x, 3x over the next three to five years? Three years, rather? We don't want to comment on that. Fair enough, sir. Sir, is there a, I mean, can you help us also with a split which is there between the business, say, contract research and contract manufacturing in the CDMO business? The early stage contract research that you do. We don't do any pre-clinical work, so we don't do any med chem work. All or most, I would say, the most of our revenue coming from manufacturing only. The nothing is coming from research. We don't have any FTE programs. Right. I mean, in terms of is there a work that you're doing with the innovators during the clinical trial phase? Maybe doing pilot quantities and all in phase II, phase III, you know? Yeah. Okay. Well, ma'am, going back to your question, we're doing a lot of programs coming from phase I, phase II, but phase I revenues are not that big to mention. Yeah. Right. Sir, secondly, on the formulation business, so how do we see the XR ARV business in the formulations, over the next couple of years? What would be the drivers for this business? Excluding the- A lot of filings done, a lot of approvals anticipated, and the growth in formulations will come from non-ARV now onwards. Okay. Sir, you mentioned a specific product in Europe that will be a big driver. By when will that product start to kick in for this? Partly this quarter, but majority will come from next quarter onwards. Okay, lastly, on the CapEx, you talked about INR 1,000-odd crore on the non-CDMO part of the business, roughly. Can you just help us understand what were the areas where you're investing these, you know, where the primary areas investment in for on the ex-ARV side for the CapEx? In the non-ARV, non-CDMO CapEx, maybe two-thirds is going into APIs and one-third may go into formulations further. Okay. The formulation, are we adding more capacity beyond the brownfield that you've commissioned this quarter? Not this financial year, but next financial year, maybe, yes. Okay. Thank you. Thank you. The next question is from the line of Siddhartha from The Investment Trust of India. Please go ahead. Hello? Hello? Hello. Yeah. Yes, sir. Sir, I had couple of questions. One on the ARV tender side. Sir, three years ago we received a large multi-year contract for the LMIC market. Just wanted to understand when this was due for renewal. Is this done, the new round of tender for this? The South African tender results were announced. We don't have any formulation business there. API sales will go to South African contract. The Global Fund and other tenders will be announced soon for 2023 onwards. For 2023, allocations were already made and supplies will start from next quarter. Okay. Sir, my second question is on the large CDMO product. Is it fair to say that if you exclude this from this quarter, then the synthesis business is flat to single digit growth on a YoY basis? Large multiyear multiproduct contract hasn't given any significant revenues in Q1. No, I'm talking about commercialized large contract that we have been supplying since March. No, still there is growth. This is not a one month contract, so there's a contract still we need to execute, yeah, fully. Sir, basically the follow-up to this is that is this contract a multi-year year contract or it's a renegotiable renewable single year kind of a contract? I think it's too early to comment on that. Are the margins for this product will be similar to overall Synthesis business? Yes. Okay. Thank you, sir. I will get back in the queue. Yeah. Thank you. Thank you. The next question is from the line of Dhruv Bhatia from Bank of India. Please go ahead. Hi. Good morning, sir. Thanks for- Dhruv, may I request you to speak a little louder through the handset, please. Hello. Thanks. Am I audible now? Yeah, you are audible now. My question is on the CDMO piece. This quarter you've done about INR 577 crore of revenue. Is it fair to say that for the full year, this I mean, this is at peak capacity utilization you're running at, so on a full year you could probably do INR 2,000+ crore revenue from this segment? We want to reserve answering this question right now. Do you have the capacity to do further than this, with current capacity available? No capacity available. Yes. Yeah. Okay. The INR 1,000 crore of incremental CapEx that you have planned for CDMO, what type of asset turns can we build in going forward? You could take our current average is close to 1.5%. Asset turn 1.4%, 1.5%. Yeah. 1.5%. Yeah. Between 1% and 1.5%, depending on how we effectively utilize that CapEx. Yeah. Understood. The capacity that you've put up is obviously for, as you mentioned, the multi-year multiproduct contracts. Over and above. Hello? Sir, the lines of the participant dropped. We move to the next participant. The next question is from the line of Kunal from Carnelian Asset Management. Please go ahead. Hello? Kunal, you're not audible. Hello, am I audible? Yes, now you are. Hi, this is Manoj here from Carnelian. First of all, congratulations for good set of numbers. I have a couple of questions. First one is on CDMO side. Just wanted to understand little bit more on CDMO. Since you mentioned that you have built some new capabilities to build this business. Just wanted to understand two things, sir. A is like what is our right to win here? And secondly, how do you pin down the opportunity side in the segments where you are working? The right to win these opportunities is based on reputation, regulatory track record, flexibility in offering volumes. That is the right to win. The second question I couldn't get very clearly. Sir, if you can pen down the opportunity size in terms of the segments or therapies or like in terms of the molecules where we are working, where we are putting the CapEx. If you can let us know the opportunity size overall for these segments where you are putting CapEx. In the CDMO, we have little or no scope to choose what we should get. Mm. It all depends on what partner want us to make. See, we are not making cephalosporin penicillins. Other than that, we are offering a wide spectrum of things starting from steroids, hormones, hypotensive, prostaglandins, so large volume, small volume. Our offering is very extensive except cephalosporin penicillins. Okay. Sir, whether these capacities which you are building are fungible, let's say if you are building a particular capacity, like you also mentioned in your PPT, that you are putting a CapEx on a multi-year contract, and let's say if that molecule, N molecule doesn't get the anticipated growth. Whatever CapEx you are putting, either it has to be protected by way of take or pay, or is it fungible? If you can elaborate on this bit, sir. One of the facilities we are building is for a specific therapy area, animal health. Mm-hmm. It is fungible within the animal health. Okay. Not human health can put there. That kind of fungibility is there. Okay. Other than that, other products are either advanced intermediates or APIs. There are some equipment- or technology-specific which is not fungible, but majority of the reactors are fungible. Yeah. See, in the CDMO space, except few occasions, our partners don't use those vessels 365 days in a year. Mm-hmm. There's some kind of flexibility has to be there. Got it, sir. Sir, one last question I have mainly on Laurus Bio. You mentioned that you are evaluating a plan to create close to 1 million L fermentation capacity in phase I. If that goes through, what kind of CapEx we can think for building this kind of capacity? Any color on timeline for this in terms of CapEx as well as ramp up? See, we will get back to you on how much CapEx we are going to spend maybe in the next quarter or so. We are finalizing our numbers. Mm. We do expect this facility will be up and running sometime during FY 2025. FY 2025. You see enough opportunity size for this in this space, right? There are opportunities. See, the challenge right now is we don't have capacity to offer. That is the reason we want to do this on a fast-track mode. We'll get back to you with the exact timelines and also how much we are going to spend on that. Sir, on fermentation, I think world is overdependent on China, and still I think India is not there. Building this kind of capacity, so if you can give us some color in terms of the kind of capability or the kind of I would say that means whether we will require some kind of a preexisting contracts or whether we will first build the capacity and then we will have to wait for the contract. Some color on that, maybe this quarter or next quarter, I think that will be helpful for us. Sure. This capacity is being built for synthetic biology, alternative foods. Mm-hmm. Recombinant food proteins. We are not competing with conventional fermentation of steroids or vitamins or any other large molecules. This is specifically for synthetic biology. Yeah, precision synthetic biology. Yeah. Okay. Right, sir. Thanks. Thanks for taking my question. Thank you. Thank you. Next question is from the line of Bharat from ValueQuest Capital. Please go ahead. My question is to Dr. Chawa. Sir, you said that you want to see CDMO to be 25% of the sales in FY 2025. If you see our numbers now, already in last quarter, CDMO is 25% of the revenue, and this quarter it's only 37% of the revenue. I would like to know, like, where do you see, you know, CDMO in percentage of sales in FY 2025? A very good observation. Maybe we have to revise our target to one-third. Yes. By FY 2025. Yeah. Yeah. From 25% to one-third by FY 2025, maybe. Yeah. Yeah, yeah. Currently I can see in the PPT that it's 25% by FY 2025, but already you are 37%, so I think 33% is good number you think? Yeah. Okay. Thank you. My next question is that total capacity of Unit 2 is 15 billion tablets. INR 10 billion. Yeah, right now 10 billion is commissioned, but the total capacity it can be estimated to 15 billion, right? You can also do a brownfield extension of 5 billion more, right? Yeah, you are right. The physical infrastructure was created to expand capacity by 10 billion, but 5 billion capacity was installed and qualified. There is a room to expand by another 5 billion. That may happen next year, FY 2024, depending on how we are doing in Europe and U.S. Okay. You mean to say, like, once this INR 10 billion is completely utilized, then you will do a brownfield capacity of INR 5 billion? Yes. Okay. Thank you. One more question is that in PPT you mentioned that you are taking calibrated tendering approach to ensure better profitability for this ARV formulations. So don't you think that you would lose market share because of this calibrated tendering approach? See, what we meant by calibrated approach is we don't want to participate aggressively in tenders where winner takes all. There, people are very aggressive on the pricing. We don't want to participate in those tenders, but still participate in tenders where the award is split among several people. Generally, I mean, I may be wrong, but I think this ARV tenders, it's not like winner takes all, right? It will be like, 30% to the first guy and 30% to second guy and 30% to third guy. It will be distributed, right? It's not like winner takes all, I guess, or I'm wrong. There were some tenders, maybe I would put up to 10% of the market is winner takes all kind of situation. Yeah. My last question is like, in last con call, you said. I mean, not last con call, I think two quarters back, you said that you are planning to use this unit four capacity as interim to service this multi-year contract with animal health company till the dedicated plant is ready. May I know, like, by when you would be able to do commercial supplies from this interim capacities for this animal health company? Commercial supplies will start end of FY 2024. That's on the new capacity, new plant, right? Yeah. I think once the new capacity comes up, I think we don't want to utilize the capacity unit four. Okay. For those products. Okay. You're not planning to commercialize unit 4, you're planning to commercialize only in the new plant? You are right. Okay. Thank you. Yeah, that's it from my side. Thank you. Next question is from the line of Pratik Kothari from Unique AMC. Please go ahead. Hi, good morning, and thank you for the opportunity. Sir, a couple of questions regarding ARV. In the last call we did mention that our API and formulation prices were down 10%, then you said this quarter it's down about 15% from high. There's been further deterioration of 5% odd, correct? Yes. We do believe that's a new base. We don't expect further significant price drops. Yeah. Fair enough. We also did say that going forward in the coming few quarters, we used to do INR 550 crore-INR 600 crore of ARV APIs a quarter. We are at about 350 odd now, or rather 400 odd now. This should go back, but not at the same margins that we used to see maybe two years ago. ARV, both APIs and formulations put together, I think our topline will grow, but at a lesser gross margin than what we enjoyed in the previous years. Okay. Fair enough. So I mean, two years back, when you used to do INR 550 crore-INR 600 crore of ARV APIs, you had started a second line of. No, we never did INR 600 crore. The peak we did was INR 1,900 crore per year ARV APIs. But broadly you can say INR 1,500 crore-1,600 crore APIs and another, say, same number in the formulation. Our new yearly base for ARVs will hover around INR 3,000 crore. It takes at least couple of hundreds on the positive side. That will be a new norm. We don't expect that. See, the situation is evolving, and we are accustomed trying to accommodate to the changed environment. We are growing in volumes, but the price drops are pushing us downwards in our growth. Around INR 3,000 crore is the new base for ARVs put together. I think we are very confident to retain that number. That number will also help us to retain our leadership position in both, especially in APIs. Fair enough. In your opinion, what is causing this price of? Because at one time we also saw that our solvent prices, our input prices were going up and we were intending to pass that same. Has new players come in, or has that market share changed in certain ways? You can throw some light. It's a difficult one to answer. No new player came onto the market yet. It is not a growing market for 10 people to jump in. It is a declining market, and the incumbents are very strong. If the incumbents are weak, then there is a scope for a new player, but incumbents are very strong and market is stabilized, it's not growing. It is a natural phenomenon in the business. The era of high margins in this business has gone and it has become a cash cow. This is very important segment for us at INR 3,000 crore, it's important business for us, and we are committed to that business and we'll do whatever course correction is needed to maintain our leadership position. Certainly, sir. Thank you and all the best. Thank you. Thank you. Next question is from the line of Jeevan from Sharekhan Capital. Hello. Congratulations, sir. Just two questions. First is, last year when we talked, we were basically having world leadership in 8 molecules, and we're aspiring to go for 15 molecules. Where do we stand now? In couple of oncology we increased our market share, so that target is on, given on that. We are continuing to add portfolio where we have leadership position or ability to get to leadership position. That goal is on track. In next two years, maybe that number, what you said, will definitely more than ten. Yeah. Perfect. On the CDMO side, basically we were into human health, now we're getting into animal health. I think we're also getting into plant. Looking at your CDMO, it looks like more of a chemical company than a pharma company. We have capacities, we have capabilities, we have credibility, and we have clients. We have all four C. How do you see the traction coming in the CDMO, the kind of inquiries you are getting from the clients? Are we looking to sign something similar multi-product contract deal even in the future? We are not a chemical company, we are a chemistry company. There is a lot of difference between that. We intend to use our chemistry capabilities and scale to offer value to our partners. I think we are adding more capabilities there, as I mentioned previously to one person. What is our right to win here? We offer large scale chromatography, biocatalysis, fermentation, hybridization, continuous flow chemistry, very low temperature chemistry. I think our capabilities are also very enhanced. We can also do spray drying. Because of those enhanced capabilities, coupled with our commitment to invest for a project, I think this division looks interesting for us. Are you seeing similar kind of inquiries for a multi product deals or large deal I'm seeing basically? We are working on some, at an appropriate time we'll let you know. Yeah, we are working on some. Okay. Perfect. Last question is on the bio side, actually. Last time when we spoke, we said that we have enough land acquired for 3 million L-4 million L capacity. Right now- We didn't acquire. We have chosen land parcel, and now we are zeroed in where to build. We will close that land in this quarter and then start putting bricks as quickly as possible. Yeah. Perfect. One more, sir. On the multi-year contract that we have for the CDMO, so is it for intermediates or also for API and formulation? We can't answer that. Yeah. Yeah. Okay. Okay. Perfect. Thanks a lot, sir. Thank you. Thank you. Next question is from line of Naushad from Aditya Birla AMC. Please go ahead. Hi. Thanks for the opportunity. Few clarifications, sir. Firstly, on the CapEx pipeline of INR 2,000 crore-2,500 crore, you mentioned 50% would go to CDMO business. You have shared an asset turnover of 1.5x. Can you give us the asset turnover of the CDMO business, what one should expect? I think when I mentioned around 1.5, our CFO also corrected that. You can take between 1 and 1.5. Yeah. Asset turnover ratio when it is fully utilized. See, the gestation between our first two investment starts to getting to the peak commercial sale will take between three to four years. We invest and then we go to the peak, it doesn't happen. The day we complete our CapEx, we need maybe another two years to fully utilize that capacity. Yeah, that I understand, sir. In both the businesses, we should expect on a full utilization it should give 1.5x. Between 1 and 1.5. You are free to choose either 1 or 1.5. Yeah. Okay. How are we planning to fund this CapEx, sir? Would it be largely through internal accrual or any portion of debt we are planning for this? I'll ask our CFO to answer this. Mostly internal accruals. Okay. By any chance, do you share your CDMO margin? If don't quantify it qualitatively, can you indicate? Is this significantly higher than our API and formulation business or marginally higher? We have been disclosing that on a gross margin side, CDMO is the highest, followed by formulation, followed by API. That is the disclosure we gave, and it is still valid. At the EBITDA level, the difference remains same or, it becomes narrow? We don't calculate the EBITDA level, so it's not possible to calculate EBITDA level. Okay. Lastly, in our CDMO business, typically when we go for new client acquisition, what is our value proposition to the client? Is it cost? Is it the capability? What exactly we do, or we pitch as a differentiation to get the client? I think it's two: speed and flexibility. Perfect. Thank you so much, sir, and all the best. Thank you. Thank you. I now hand the conference over to Dr. Satya for closing comments. Thank you, participants, for your very intriguing questions, and we'll continue to update you any further information in the next calls. Thanks to Manish for organizing this. Thank you, everyone. Thank you, everyone. Thank you very much. On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.