Ladies and gentlemen, good day, and welcome to the Laurus Labs Limited Q2 FY 2023 earnings conference call hosted by Antique Stock Broking. 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, sir. Thank you. Good evening, and welcome to Laurus Labs' Q2 FY 2023 results conference call. We thank the management for giving us the opportunity to hold this call. Today we have with us Dr. Satyanarayana Chava, founder and CEO, Mr. V.V. Ravi Kumar, executive director and CFO, and Vivek Kumar from the investor relations team. On behalf of Antique Stock Broking, I would like to wish the management and all the participants a very happy Diwali. I will hand the call over to Dr. Satya for his opening comments. Thank you, and over to you. Thank you, Monish. Thank you for joining us for our quarter two FY 2023 and H1 FY 2023 results conference call. We wish everyone participating in this call and their families very happy and safe Diwali. We are pleased to have this opportunity to update you on our progress and answer your questions. Our strong start to FY 2023 continued in the second quarter. Our H1 financial results demonstrate favorable change in our business mix and sustained profitability. This was despite ongoing disruption in the business environment due to continued pandemic situation and also emerging geopolitical crisis. Q2 results were driven by continuing strong growth in our CDMO business, with additional support from Non-ARV API segments. Overall FDF ARV division performance was subdued and was impacted negatively by lower formulation volumes and adverse pricing dynamics in both API and formulation. Supply chain logistics scenario has slightly eased, driving moderation in imported RM prices. However, the ground situation remains extremely dynamic with the multiple factors in play, like restricted internal mobility in China, geopolitical issues. We are trying to minimize any disruption to customer shipments by expanding our critical supplier base and also having enough inventory to cope up these challenges. As we enter into second half, we remain confident in strength of our businesses, which is expected to deliver a strong revenue growth and a stable EBITDA margins of around 30% for the entire financial year. However, in near term, we'd like to provide you an update on our earlier goal of $1 billion revenue by FY 2023 sales target, which could potentially get delayed due to change competitive landscape and adverse pricing impact in ARV APIs and uptake in ARV formulations. We remain firmly guided by our strategic priorities to build long-term growth, and our excellent execution skills will enable us to deliver value to all stakeholders. We are executing on the opportunities in front of us today while simultaneously making the necessary de-risking investments to sustain the company's success into the future. Moving on to our financial results, we achieved a healthy top- and bottom-line growth for the quarter and the first half of FY 2023, which was led by an exceptional growth in non-ARV numbers. We achieved INR 1,576 crores in revenues for the quarter, showcasing a 30% growth year-on-year. In the generic ARV for the quarter, our revenues were down by 70% year-on-year. For H1, our revenues were down by 51%. Our revenue degrowth was about INR 520 crore when compared to H1 FY 2022 versus H1 FY 2020. However, our antiviral APIs have shown a healthy growth, INR 477 crore in quarter two versus 339 crore in quarter two FY 2020. For the first six months, we did INR 790 crore ARV API sales versus INR 750 crore in last financial year six months. Oncology degrowth was visible in our Q2 numbers, but this is only momentary as we expect overall oncology will have a growth by end of the financial year. Our other APIs has grown significantly in the current quarter from INR 115 crore to INR 222 crore. In the generic APIs overall, we did INR 613 crores versus INR 527 crores in Q2 FY 2020. Our synthesis was a very remarkable achievement here. We did INR 720 crores versus INR 155 crores in Q2 FY 2022. Our biology results were almost flat, at INR 27 crores versus INR 26 crores in FY 2020. Overall, we did INR 1,576 crores in sales for quarter two versus INR 1,203 crores in quarter two FY 2020, which was almost 30% more than the previous corresponding quarter last year. I want to give a brief on our generic formulations. This division reported revenues of INR 498 crores for the first half of this financial year with an almost 50% decline year-on-year. For the quarter, it was exceptionally weak at de-growth of 70%. When it comes to LMIC business in ARVs, the broader demand environment for ARV continued to stay softer, and the pricing has remained very depressed in Q2, which is already at record low levels. We continue to remain calibrated in our bidding approach to ensure better profitability for the business. Having said that, we are optimistic about having a better H2 uptake with situation getting stabilized. We are very confident of sustaining our leadership position in the first-line HIV treatment, both APIs as well as formulations. During first half, we launched lamivudine/ritonavir combination in U.S. and also received U.S. FDA approval for abacavir/lamivudine combination in the second quarter, which we expect to launch shortly. Additionally, we are awaiting few more products approval, which should drive our growth in coming years. Laurus is fully integrated player in ARV formulations, and believe we have the ability to weather any pricing challenges in the coming quarters, as well as we are able to maintain our margins in the future quarters. Coming to the developed markets, our performance was stable, and we continue to get good market share on select products. Increase in the generic volumes have been able to offset the pricing pressure. We continue to leverage our strong presence in U.S. for new product launches. During the quarter, we filed two ANDAs and received four approvals, three final and one tentative. We expect U.S. filing pace to pick up during the second half of this year. Similarly, we have a total of 34 ANDAs filed to date. Of which we have a total of 14 final approvals and 12 tentative approvals so far. In Canada, we continue to have good approval pace with 11 approvals on hand, of which we have launched seven products. In the Q2, we launched one product, and we intend to launch two more products in the rest of the financial year. For EU markets, we have validated three products as part of our CMO partnership. We did one product in the Q2. We got approval. We expect a significant upside from these products in the coming quarters. We have a basket of 10 approved products versus nine in the previous quarter, of which we already launched five products. We launched one new product in Q2, and we'll be launching few more products in the rest of the financial year. Based on our healthy product pipeline progress, we continue to invest in non-ARV formulation development and infrastructure. We currently have commissioned the total capacity of 10 billion units during Q2. We also wanted to make a note. There is room to expand the formulation capacity another 5 billion, but this may happen during the next financial year, depending on how we are doing in Europe and U.S., and how best we are utilizing our current capacity. On R&D front, we continue to allocate critical resources to our initiatives and invest in portfolio with product-specific approach based on complexity and scale economies. We initially started with immediate-release solid orals. Now we moved into modified release. We're also slowly moving up in the value chain by investing in complex generics. We have developed a unique novel drug delivery for pediatric HIV and filed patents around it. We intend to file NDA for this novel pediatric product during the current quarter. We believe this drug product for pediatric HIV treatment will significantly enhance our position as a innovative, cost-effective solution provider in HIV treatment in LMIC, and also provide opportunity for us to explore other therapeutic areas using this drug delivery system. We are also happy to share that we have commissioned our sterile R&D, and currently we have 30 scientists working there. Overall, our R&D spend to sales for the quarter was around 3%. Going to generic API, our antiviral business during the quarter continued to witness healthy improvement, with the sales growing by 20% year-on-year to INR 407 crore. While for the first six months, the growth was 5% year-on-year. Overall demand stays softer, and we expect volume and pricing are going to stabilize at the current levels. Oncology APIs reported about INR 51 crore sales during this quarter, a decline of 30% year-on-year. However, for the past six months, the segment had a de-growth of 14% year-on-year. This is a temporary phenomenon that we are very confident to increase our oncology sales significantly in the next six months. We are also increasing our capacity of high-potent manufacturing in our unit 4 located in Achutapuram to meet our continued demand for high-potent APIs. Other API segment sales, which includes cardiovascular, diabetes, and anti-asthma products, have seen very good uptake both for the quarter two as well as the first half of the financial year. For quarter two, we reported sales of INR 222 crore, growing 90% year-on-year. For the first six months, even after adjusting to a low base, the growth is robust at almost 90% year-on-year, supported by new contract supply. During the first half, we have filed 1 DMF for a non-ARV product. With that, the total DMF filed are 74 to date. We are also initiating validation for several APIs and expect to see good filings in H2 2023. We continue to have a high order book visibility for non-ARV, non-oncology APIs, and additional manufacturing capacities also will support and to capture the opportunity in the segment. Synthesis business delivered strong quarter, delivering a growth of over 300% year-on-year and 28% quarter-on-quarter, and recorded a sales of INR 720 crore. During the first half of the financial year, our CDMO business have grown over 2.5x compared to the previous years. This growth was supported by solid demand from new and existing clients. We are very excited about this division, and we are investing more in augmenting our capacity in R&D as well as manufacturing. Over 50 active projects at different stages and an ongoing commercial supply portfolio for APIs and several intermediates. Our greenfield investment to set up a dedicated R&D center for synthesis division at Genome Valley and Hyderabad, and three manufacturing units in Vizag under Laurus Synthesis Private Limited is progressing as per our previous timelines. New sites for this division will have the capabilities to handle steroids, hormones and other high-potent molecules apart from medium and large volume products. Our Laurus Bio revenues are largely stable at INR 27 crores versus INR 26 crores quarter-on-quarter last year. We do anticipate pickup of new capacity with our large-scale CDMO partners in the second half of this financial year. However, for H1, the sales grew 31% year-on-year. We believe alternate food industry is likely to grow meaningfully over the coming years. Scale, cost, and functionality will remain core drivers for differentiation for the players, and we want to capture this opportunity, and we'd like to expand our capacity both at R1 to have more R&D projects and also complete the investment and balancing equipment at R2 to do scale-up of the projects from R1. We are also in the planning stage to further expand our manufacturing capacity on a greenfield site in Karnataka itself. With that, I'd like to hand it over to Ravi to share financial highlights. Thank you, Doctor. Very warm welcome to everyone for our quarter two and H1 FY 2023 earnings call. Before starting anything, I want to wish a very happy Diwali. Healthy safe Diwali. Total income from operations for H1 is INR 3,115 crores against INR 2,482 crores, a growth of 26%. During the quarter, we have 31% growth with INR 1,576 crores against INR 1,203 crores. Gross margin slightly decreased to 65.1%. This is because of the product mix and some of the lower prices in the ARV segment. Our EBITDA is for quarter two, INR 449 crores with a 28.5%, whereas for first half is INR 903 crores with around 29%. This has happened for a better division mix. The CDMO better mix is being helping for this. Our diluted EPS for the quarter is INR 4.30 at 16% growth and INR 9 on a non-annualized basis for H1, a growth of 10%. Our ROCE is stable at 28% on an annualized basis. This is on the back of better product mix. On the CapEx front, we invested INR 416 crore in the first half, and we are broadly in line with our guidance for the two years around INR 2,000 crore across all the subsidiaries and divisions. We remain focused to strengthen our position as a cost-effective integrated pharma player. We are investing in backward integration program and creating more capacity. The additional investments in the capacities we are expecting to be in the non-ARV space. We are on a qualitative side, we are still bullish on the overall business of the company. The FDF ARVs are only a one-off kind of a thing in the second quarter, and we expect it to restore from quarter three onward. With this, I would request the moderator to open lines for the Q&A. Thank you. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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 will wait for a moment while the question queue assembles. We have our first question from the line of Jeevan Patwa from Sahasrar Capital. Please go ahead. Thank you. Firstly, happy Diwali to you and your team, sir. I have three questions. Firstly, earlier we had 5 billion tablet capacity. Hello? Please go ahead, Jeevan. Yeah. Earlier we had 5 billion tablet capacity, and at the peak utilization will be around INR 500 crore revenue from that formulation. Now we have increased it to 10 billion tablet capacity. The potential for formulation actually is INR 1,000 crore per quarter now, but this quarter it's been almost only INR 149 crores. I just want to understand by when you think we'll be able to utilize the increased capacity. We are also even thinking of going to 15 billion tablet capacity. Obviously you must be having the visibility of, you know, utilizing this formulation capacity. Just wanted to understand what is the timeline when we can actually fully utilize this 10 billion tablet capacity. Given the 10 billion capacity, you can't have just a multiplication factor to arrive at a revenue. Each tablet can be sold at different prices. No, I understand that, sir. I just want to understand the utilization, when can we utilize? By end of this financial year, we expect about 75% utilization of 10 billion units. Okay. Perfect. Perfect. Still we have some spare capacity. For us to enhance capacity from 10 billion to 15 billion, we also need 12 months to buy equipment, install, qualify, and validate a product. We need 12 months. In anticipation of business after 12 months, we need to start investment. We are not investing in additional 5 billion capacity in this financial year. The building is ready for us to expand capacity from 10 billion to 15 billion with a notice of 12 months, if there is an opportunity for us. Otherwise, if you want to do a greenfield, you need 24 months time. We have shortened that window by 12 months by building civil infrastructure, but not installing the line. Perfect. Thank you, sir. Secondly, we say that we have almost 47 approved filings in the DMF, developed markets with market size of $21 billion. Out of that, how much we have actually launched? We have launched 14 molecules as of now with an addressable market size of INR 2.5 billion. Yeah. Sure. Okay. Next is I want to understand, there has been 50% contribution from CDMO in this particular quarter, but still we are, our margins have actually dropped. Why that has happened? Is it because ARV API has got very low margins or is it something else? Secondly, other expense for this quarter also looks very high. Last quarter our other expense was high because of fuel and power cost, and also because of the Forex loss. This quarter, what has happened on the margin front? There was a decline in ARV API prices, and there is a deleverage in ARV formulations. Our formulation capacity was not well utilized in Q2, so there was a deleverage in our formulations. These two led to the overall decline in EBITDA margins. Otherwise, we could have done better. That is the reason what we have guided for the rest of the financial year, we expect better margin profile because the visibility for ARV formulation is looking bright for Q3 and Q4. Our gross margin also declined, sir. 50% contribution from CDMO, still our gross margin has declined. That's negatively impacted by ARV, API as well as formulation price decline. You see our formulation is an integrated play. If you recollect our guidance on the gross margin side is half gross margin is synthesis followed by formulation. When we lose formulation revenue, we not only lose gross margin and the formulation, but also on the API together. Okay. In the second half, when you say that we have calibrated and digested our ARV strategy, and we also got the orders from the global funds and that is supposed to happen next week. Do you think we'll be able to get to the better margins from here? Better sense will result in better leverage for us, Vijay. The Q3 we expect, Q4 we expect to be better. Thank you. Okay. Next is the tax rate. Is it going to change in the second half for us? Or will it remain the same at this particular level? See, I mean, conservatively we are projecting with the old regime, we are evaluating it. There are two, three driving factors. Probably at the end of third quarter or end of fourth quarter we will have a fair idea whether it will be lower side or same. It will not go beyond this. Okay. The last question, sir. CapEx in the- Come back in the queue. Just one question I think, if you're allowed. Please go ahead. CapEx in the first half was INR 416 crore. Can you just tell us the CapEx in the second half and FY 2024? Similar number, what we are expecting. Okay. Thanks a lot. Thank you. Thanks a lot. Bye. Thank you. We have our next question from the line of Sudarshan Padmanabhan from JM Financial PMS. Please go ahead. Yeah, thank you for taking my question. Just to get a little bit more sense on the commentary that you've made and also, you know, on the portfolio. I know there's a 70% drop in the formulations and API even year-on-year and Q-on-Q. I mean, specifically is it primarily led because of higher inventory in the channel? Or what has been, you know, what are the reasons for, you know, number one, the prices being so, you know, different in the first quarter. And also some color in terms of if there is inventory, how much is the inventory in the channel? You know, how do we see the raw material kind of coming back probably in the second half? We don't expect a lot of inventory in the channel. It's quite visible that our API sales in ARV increased to a normal level. The reason for lower sales of ARV formulation in Q2, actually we saw that impact coming from Q1 itself. Q1 and significantly lower number in Q2. We didn't adjust the pricing in our tenders, so we lost a lot of tenders. Okay. That we have calibrated and we are on par with other competitive pricing environment. That's the reason we expect the Q3, Q4 to be better. We would now participate in the forthcoming tender. I mean, with the recalibrated prices. Yes. Yes, you are right. To start, what is the kind of extent of pricing drop that you have seen, between first quarter and the second quarter? Broadly, in the formulation the price drop was 20% actually. It was 20% price drop and 50% volume drop in the first, or in the second quarter of this year, sir. I said from the Q2 FY 2022 versus Q2 FY 2023, the pricing difference is very closer to 15%, around 15% price drop. One five. Sure. Sir, on the CDMO side, we are seeing a very strong growth in the last three quarters consistently. I mean, can you give some color with respect to, you know, the kind of profile of the kind of incremental growth, whether it is driven by, you know, or is there a revenue concentration in incremental growth or is it broad-based? How sustainable, you know, is the kind of growth that you are seeing on CDMO? We expect to have good partners, good products. We have good visibility in the segment. We are investing more in capacity expansion in the segment because of the visibility what we have. We are very excited and bullish on this division, not this quarters, in the coming quarters, but in the future years also. We wanted to invest and stay ahead of the curve in offering sustainable sourcing for CDMO partners. Sure, sir. Is the revenue growth is broad-based or is it kind of concentrated? I mean, if you can give some color with respect to what type you can give. It's broad. It's not concentrated. Yeah. Finally, on the cost side, I mean, as the previous participant pointed out, I mean, we seem to have not exactly captured the benefit of higher CDMO. Also we are seeing that the transportation costs coming down. If you can give some color with respect towards the, you know, second quarter run rate. You know, costs such as the transportation costs and certain other costs, how they are trending right now. You know, would we see some kind of a reprieve in the second half as we go ahead, apart from the operating leverage? The biggest negative contributor to our margin, not significant decline, some decline was there, despite we have done very good in CDMO, is because of the pricing pressure in ARV. Otherwise, we could have done exceedingly well. There is no challenge in the margins of CDMO business. It continued to do very well. ARV, there was a decline in margin, that contributed to drag the overall margins for the company. Yes. Sure. Thank you. Thank you. Thank you. We have our next question from the line of Madhav Marda from Fidelity. Please go ahead. Yeah. Hi, sir. Good evening. Thank you so much for your time. I have two questions. First one was, during your initial remarks, you mentioned about some delays on the ARV revenue target due to change in competitive landscape. Could you please elaborate what exactly is that on? Is that just on the ARV side or was that for something else? Competitive landscape changed significantly in the last 12-18 months in ARV. In the rest of the businesses, we are seeing good traction, positive traction actually. Our oncology business grew. Our non-oncology, non-ARV business grew significantly. Our non-ARV formulations also we have seen good progress, good approval. Our CDMO is doing exceedingly well. Except for the landscape change downward in ARV, APIs, and formulations, rest of the segments are looking very positive. Understood. This level of pricing for the ARV, you know, the way I at least understand is, Laurus is amongst the lowest cost producers for ARVs in the market. So if the pricing is, you know, under so much pressure, wouldn't the other competitors be facing a lot of pressure on their profitability as well, so pricing should come back eventually? Is that the way we should think? We hope pricing should bounce back to some extent positively. I do believe we are at the lowest pricing right now. We don't expect the prices to go down further. I think any improvement is on the positive side only. Got it. My second question was in your initial remarks, you also mentioned about investing in complex generic products. Could you, like, elaborate a little bit more in terms of what kind of products, like is it injectables, inhalers? What exactly are we doing here? Is it with our own front end or are we doing contract manufacturing for other pharma companies? I think because the nature of products what we are working, we don't want to elaborate further on what complex products we are working. The competition in those products is limited. Although they are generic in size, the competition is limited. Maybe when we file a product and, then we will be able to talk more about our strategy there. Makes sense. Is there any timeline by when we expect to file the NDA? Like, should we say FY 2023 or would it be FY 2024? Any rough timeline would be helpful. Maybe FY 2025. FY 2025. Okay. Okay, sir. Thank you. Thank you. Thank you. We have our next question from the line of Krish Mehta from Enam Holdings. Please go ahead. Yeah. Thank you for taking my question. My first question was on the FDF business. If you could, just clarify how much of the FDF sales in the first quarter and the second quarter of this financial year was from ARV? Give me few seconds. Sure. Ravi, yeah. ARV is INR 55 crores this quarter against INR 275 crores in the previous quarter. Out of INR 150 crores in formulations, only INR 50 crores came from ARV. The rest came from non-ARV, sir. Yeah. Okay. As a percentage of the total revenue, what percentage was ARV versus non-ARV for this quarter? Just about 29% is total ARV. Okay. We're at 70/30 now. 29%. Yeah. The less than 30% contribution came from ARV. Rest APIs and formulations put together. Okay. Thank you so much, and good luck. Thank you. We have our next question from the line of Bino Pathiparampil from Elara Capital. Please go ahead. Hi. Good evening. Couple of questions. One, Dr. Satyanarayana Chava, could you please make us understand a little bit about the mechanics of this ARV formulation tenders? Are these like tenders which happen every other day or every other week for a fixed amount of supply? Or are these like a longer term supply contract which runs through months or years? In the Q1 and Q2, the contribution from long-term allocation was less, and we didn't have success in getting non-long-term tender quantities, which there was a lot of pricing pressure. Now the other agencies are about to announce their long-term allocations in this quarter. We expect some stability will come in our forecast for the coming quarters. Our lower sales because we didn't win tenders in the non-long-term focused agencies. Understood. It's basically a mix of both. Broadly put together, I know it's difficult to calculate, but broadly put together, how much of the market would be long-term contracts and how much would be short-term? Is it like roughly 50/50 or? Typically in the last several quarters, our long-term contract-based sales is three-fourths and one-fourth is short-term tender base. In the last three quarters, the long-term base tenders awards were less because of the stocking in the channel stocking. Now that is done, we are back to ordering stage right now. That is the reason we expect a lot of visibility will come from this quarter onwards. Understood. Great. My second question is regarding FY 2024. When you had this original guidance of INR 7,200 crore, you know, generally we were expecting FY 2024 to be a soft or a flat year after a very big growth this year. Now that you have lowered your guidance by 10%, FY 2024 still looks like a soft year or you think this last 10% of this year can be caught up next year? We will come back with more updated forecast as we go into Q3, Q4. Yeah. Okay, good. Thank you, and best of luck. Thank you. Thank you. We have our next question from the line of Nitin Agarwal from DAM Capital. Please go ahead. Thank you for taking my question. Sir, on the ARV business, you had earlier indicated that you would probably be around a run rate of INR 3,000 crore per year. You know, with whatever is changing, happening in the landscape, you know, do you think that number needs to be toned down a bit in your assessment? It will be down, but not significantly. If you look at our ARV API, it's almost INR 790 crore in the past six months. It's easy, you can expect it to be INR 1,500-INR 1,600 crore for the entire year, ARV API. Our formulation sales is lower in the Q1, Q2, especially very low in the Q2, but we expect bounce back in Q3, Q4. It will be somewhere between INR 2,500 crore-INR 3,000 crore, total ARV API and formulation sales. Yeah. This is a rate we should assume even while going forward sustained basis? We expect so. We don't expect growth in this segment. We will probably in that range. Sir, secondly, on the formulation capacity, you mentioned you have a capacity of 10 billion tablets now. When you are planning, what is your assessment in terms of how much of this capacity wants to be utilized by ARV formulations? Capacity consumed by ARV formulations is less than 30%. Okay. See, if you look at the tablet-wise, three APIs go into one tablet. You can't just compare one tablet of ARV to one tablet of Metformin. Yeah. It's not one to one, apple to apple comparable. Last year we produced a little over 1 billion tablets in ARV. Yeah. Right. Sir, you're saying for the total formulation capacity, ARV will take up only about 20% of your capacity, you know, on a going forward basis? Yes. Yeah. Yeah. A lot of ARV sales, not for us, for anyone, formulation capacity will never going to be a bottleneck. Formulation is easier. The challenge is how to make cost-effective API is one challenge, and winning the tenders is another challenge. Making formulations is never going to be a challenge for anyone, including us. Sir, just one point, as you mentioned that by the end of the year, you will be at 75% capacity utilization for the formulation business on the 10 billion capacity. Do we see a very significant ramp-up in the non-ARV formulations in the coming quarters? Volume-wise, yes. We are producing Non-ARV APIs, significant volume right now, and we expect one more approval by end of this year. With that, we expect to utilize even more capacity in Q4 of this financial year. Okay, sir. Thank you. Sir, last question. On the CDMO business, sir, we mentioned in the press release that the purchase order contract that you've got is sort of getting executed also steadily in the current quarters. How should we look at the purchase order business, sir? Is it only for this year or does it have continuity beyond this current year also? We have visibility for this financial year, but we don't have visibility for next financial year for. For the purchase order. For the purchase order. We have a lot of projects under evaluation, under execution, under negotiation. This division, rest assured, we are focusing and investing significantly into this. Sir, just last question on this. Given the very high base that you will create in CDMO this year, is it fair to expect a you know a flat to a growth number next year on this base? Or given the very high base this year, that will be difficult? We'll come back with more specific details. It's too early for us to comment on the FY 2024 CDMO numbers right now. Okay, sir. Thank you. That's all. Thank you. Thank you. We have our next question from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead, sir. Yeah, thanks for the opportunity. Sir, given the kind of disruption that has already happened on the pricing on the ARV front, even if we win the contracts, what gives us confidence that we'll be able to do 30% margin because the ask rate for second half FY 2023 would be 32%+ kind of a margin. To achieve 30% margin for FY 2023. For the first half of the financial year, we're already at 29% EBITDA margin. When we are saying we will maintain above 30% EBITDA margin, doesn't mean we are saying 30.00. We have to improve beyond 29% to go forward to 30%, which we are very confident. As we mentioned to some of the investors in this call earlier, because of the deleveraging that happened in formulations, that was compensated by higher margin synthesis division. Otherwise, we could have done better. Got you, sir. In fact, even the, you know, sales trend of the non-ARV formulation has been relatively lesser for the quarter. Any particular reason why? Actually, it was very good. Non-ARV doing INR 100 crore per quarter was good. Our non-ARV quantum-wise will grow in Q3, Q4. As we mentioned, our sales to European partner will happen in Q3, in the second half of this financial year, and we are shipping in this year, this quarter and next quarter. We have a very good visibility there. All right. Thanks. Thank you. Thank you. Thank you. We have our next question from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead. Thank you for taking my question. One basic question on the CDMO business. Right now, when there is a new RFP that is being floated, have you seen any change in the trend of new RFPs being floated, given, you know, the biotech has been under a lot of pressure on the U.S. side? We haven't seen any decline in the number of RFPs being floated by our partners from Q1, Q2 to current quarters. Because actually maybe trend is positive rather than negative in the number of RFPs, yeah. Number of people bidding for particular RFP, have you seen any change in trend over the last couple of years? That we don't have visibility on that. We can't comment. Okay. How many people receive same RFP? We have no visibility on that. Okay. One question on the ARV business. When we say that short-term contract, the pricing has gone down, but the long-term contract, allocation is about to happen. Does the short-term contract pricing, you know, are like a bellwether for the long-term contract pricing or the pricing could be different for the long-term contract? Long-term contracts generally better than the winner takes all tender. Eventually one could expect that lower pricing will also have an impact on the long-term pricing as well. Okay. Is it possible in short-term contract, winner takes it all kind of situation versus long-term contract would be like a much more stable allocation between the major players? Is it- In long-term contracts, there are allocations they do, and nobody gets more than one-third. Yeah. In short term it's not the case. It's not the case. In some cases people get 50%, some cases people get 100%. Okay. Thank you. Thank you for answering my questions. Thank you. We have our next question from the line of Palak Shah from Infina Finance. Please go ahead. Hi, sir. Thank you for taking my question. Sir, first I wanted to understand, our FY 2023 growth has two big components to it, right? First is your CDMO business, doing phenomenally better because of the large purchase order. Now we are looking at a price erosion in ARV and API, ARVs, API and formulation business both. On that basis, FY 2024's growth seems to be a bit difficult or do we have more levers which can actually aid us to grow next year? We're creating a lot of capacity. We have the levers to grow. We will give you more color or updates as we come closer to the financial year. Yeah. Got it. Secondly, you have have revisited our guidance of $1 billion target at 72. Now given that currency has depreciated and we have rationalized our guidance by 10%, that's effectively a 20%-25% cut in the rupee term that you would have expected. The understanding is right? You are absolutely right. See, as we gave numbers in our presentation, our decline in formulations in the past six months is almost INR 500 crore. Yeah. That means we are not going to recoup in the next six months. That led to revising our guidance lower to our aspirational number of INR 7,200 crores. Yeah. Just lastly, if you could permit me for this. Given that price decrease have happened across ARV formulation and API, and we still intend to maintain our margins, can you explain the way it will help us maintain the margin? Because my understanding would be price erosion would lead to some dilution of margin as well. If you look at our contribution coming from ARV, APIs and formulations will remain flattish, whereas rest of the businesses are growing significantly. Even though there is a price pressure on ARV because of flattish base for that, and rest of the businesses are growing, which are more favorable in margin. That is the reason we expect the margin profile will remain same or better. Of course. Thank you. Thank you for taking my questions and best wishes for the rest of the year. Thank you. Thank you. We have our next question from the line of Bharat from ValueQuest Capital. Please go ahead. Yeah. Hi, sir. Last quarter, there was an increase of other expense by INR 70 crore. The reason mentioned that time was like it was due to a one-time cost of power, fuel and Forex loss. Even in this quarter, we see that there's increase of INR 70 crore in your expenses. May I know the reason for this? I think Forex loss, even the second quarter is also there, though it is unrealized. Of course, power and fuel, it got restored. The additional expenditure in the power and fuel, what we are spending in quarter one is not repeated in quarter two. Mm-hmm. Yeah. It should reduce, right? The other expense should reduce, but it's still at the elevated level. There are some other expenditure also there. You know, we are adding new blocks, and new capacity added for a formulation. For that we have to recruit more people, et cetera, and more operating expenses also to be incurred for those. Mm-hmm. Okay. Thank you. In the board meeting today, you approved for incorporation of a new specialty chemical business. May I know what is this business? This is an adjacency to what we are doing. This, we intend to make some chemicals to start with what we consume, which we are buying from third parties. We will make some very large volume, medium volume or small volume products. These specialty chemicals prices vary from $1 to $100 per kg. Mm-hmm. Okay. Thank you. In last con call, you said that, generally for these tenders, 10% of the tenders are like, winner takes all, and rest 90% is something like it's evenly spread. You know, it's like 30% to the first guy and 20% to the second guy and 10%, 30% to the third guy, something like that. Now you say that we lost most of the tenders. Does it mean that, we have not even won any of those tenders where it is evenly spread between the bidders? We haven't won significant numbers of winner takes all. It isn't much. That was quite visible for our lower sales in Q1 and significantly lower sales in Q2 was because of that. Okay. You mean to say that in Q2 also most of the tenders were like winner takes all. Am I right? Yeah. Yeah. Okay. This 10% of the tenders are mostly in Q1 and Q2? Yes. Yes. This 10%. Okay. My other question is like till recently we had this 5 billion capacity for tablet, and I understand that out of which 2 billion is utilized for ARVs, right? So, 3 billion is for non-ARV. I assume that this complete 3 billion is fully utilized. Am I right? The current world 5 billion. Out of the 5 billion, complete 3 billion is used for non-ARV. Our whole formulation block is optimally utilized. Even in the new formulation block, about 1 billion units we are producing on an annual basis right now out of 5 billion new capacity, which we expect to utilize another 1 billion units on an annual basis by end of this financial year. That's what I said. By end of this financial year about 50% of our new 5 billion capacity will be utilized. Okay. The old INR 5 billion out of which it Is optimum utilized? Yeah. Does it mean that, you know, out of this old 5 billion capacity, so 3 billion is for non-ARV, right? 3 billion. Broadly, yes. Yeah. Broadly. This quarter we have done INR 100 crore of revenue from this non-ARV. Does it mean that out of the INR 3 billion we were able to have generated revenue of INR 100 crore for non-ARV? If I understand you right. You can't slice that way and then multiply. Broadly, you are right. We have been about 1.3 billion-1.4 billion units contract manufacturing to one partner, and we are doing another billion for our own formulations for Canada, U.S., and other markets. You are right, broadly. Yeah. My last question is like, you know, this 2 billion tablet capacity which we have on ARV, is that fungible, sir? Or, why I'm asking, like, if you want, to ship it to non-ARV, is it possible or is it only designed for ARV? It's possible. It's It's very fungible. As I mentioned, making ARV. Suppose there is opportunity for $3 billion ARV, we can do $3 billion. Like, ARV formulation that was fungible, non-ARV capacity is also fungible to ARV. Yeah. Okay. Got it. Yeah. Thank you, sir. That's it from my side. Thank you. Thank you. Thank you. We have our next question from the line of Gaurav Singhal from Aspex Management (HK) Limited. Please go ahead. Hi. Thank you for taking my question, and Happy Diwali. Mr. Singhal, can you speak louder, please? Sorry. Hi, thank you for taking my question, and Happy Diwali to everyone. I just wanted to follow up on some of the questions that have already been asked. You mentioned that by the time we exit this financial year, our formulation capacity, we would be able to exit at like 75% kind of utilization for the INR 10 billion capacity. Can you share what our utilization was in Q1 and Q2? It was less than Q2, very visible after our lower sales. Yeah. Right. If you want to share a number, if that's possible, for 2Q or 1Q. We can't share more granular than this. We were sharing a very detailed number, but if you want, maybe you can reach out to Vijay and we'll be able to have a discussion offline. I think it is a very fungible capacity. It's very difficult to explore like that. Yeah. Okay, got it. No worries. For the ARV long-term tenders, probably this has been discussed in earlier calls, but how long are these long-term tenders that we expect to review or from? Long-term awards typically for three years. We allocate certain percentage of their purchases. That's for three years. Got it. When Global Fund, which is expected to announce the long-term award, they are expected to announce allocations next week. This is something that, if I understand correctly, we already have won these orders and it's just that a public announcement would be made next week. Or does the company also not know right now, and then they will also find out next week? I'm not sure if I understood that correctly. We don't know the results yet. They haven't announced. Yeah. Okay. Got it. Global Fund will know the results next week, and PEPFAR will know sometime into December. Sure. Yeah. Got it. Good. Got it. Good. Okay, all my other questions have been answered. Thank you. Thank you. We'll take our last question from the line of Neha Agarwal from SageOne Investment Managers. Please go ahead. Thank you so much. My question is largely on the non-ARV formulations front. If you could give more guidance on the growth visibility there pertaining to launches that we have made so far. Also, I think, end of FY 2022, you mentioned opportunities in the gliptins and statins segment because of the kind of superior purity of the product that we have, such better quality that we have and will be able to garner better market share. What is the progress there? When you compare our formulation sales in Q4 last financial year, it was about 500 crores. Yeah. Right. No. 300 formulations. About INR 500 crores, INR 490 crores. Yes. We have de-grown to INR 150 crores. There is a room for us to go back to INR 500 crores. Growth will happen from ARV and non-ARV both. Maybe by end of FY 2024, most of the growth in the formulations will come from non-ARV. Like our API growth is coming from Non-ARV APIs. By end of 2024, most of the growth in formulations also will come from non-ARV. Yes. In ARVs there is a limit for us to grow in both APIs and formulations. We believe by end of next year we will reach that plateau, and then growth will come from non-ARVs in formulations too. Yeah. Yeah. No, totally, so in fact, particular to non-ARV only, my question was how is the product launch? I mean the product that we have launched so far, how is the growth coming along in those? We What type of market share are we getting there? We are launching two products in Europe this quarter onward. We expect one product will be launched in U.S. Q4 this financial year. Those products, Europe products already we started shipping and U.S. depending on approval, we expect approval is delayed by a quarter, so that launch will happen early next year in calendar year. All these new products what we are talking about is non-ARVs. That's right. Any overall revenue guidance on the non-ARV formulations front for the full year? I can't- No. I can't give you more granular than this. I'm sorry for that. Okay. If you could just help me with last year's non-ARV formulations number, please. Give me a second. Around INR 250 crores or so. Okay. About $18 million. Oh, 18. Yeah, 18. Correct. Yeah. Around 250 was non-ARV. Yeah. Correct. Definitely on back of non-ARV and just leaving aside the ARV formulations piece, at least, we can expect a good, you know- Good. Strong double-digit growth on that front. You are right. You are right. Overall with the kind of pace that we are seeing in terms of formulations launches on the generic formulation side, do you think we could see a kind of curve similar to what we have in CDMO in terms of growth for non-ARV formulations also, a similar growth spot? Not- I mean, biosimilar. Not that big. Yeah. Formulations, we expect lot of growth will come in FY 2025, not in 2024. Okay. Just one last question on the multi-year contract that you had, and which you signed earlier this year. Revenues have started coming from there already? Okay. No. The new sites for that will be qualified mid of next year. Mid of next year. Okay. I think second half of FY 2024 and then more meaningfully in FY 2025. Will that be correct? Yes. Yes. Okay. Thank you. Thank you. I would now like to hand the conference over to Dr. Satyanarayana Chava for closing comments. Over to you, sir. Thank you, Monish, for organizing this call. Thank you, participant for asking very intuitive questions, and we wish you happy and safe Diwali. Thank you. Thank you, sir. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.