Ladies and gentlemen, good day, and welcome to Laurus Labs Limited Q1 FY 2024 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 would now like to hand the conference over to Mr. Manish Shah from Antique Stock Broking. Thank you, and over to you, sir. Thank you, Karen. good evening, everyone, and welcome to Laurus Labs 1Q FY 2024 results conference call. We thank the management for giving us the opportunity to host the call. Today, we have with us, Dr. Satyanarayana Chava, Founder and CEO; Mr. Ravi Kumar, Executive Director and CFO; and Vivek Kumar from the IR team. I will hand the call over to Dr. Satya for his opening remarks. Thank you, and over to you, sir. Thank you, Manish, for hosting this call. Thank you, everyone, for joining us for the Q1 FY 2024 results conference call. We are pleased to have this opportunity to update you on our results and also answer your queries. During our last call, we emphasized on our growing commercial and scientific capabilities, along with our customer centricity, which will position us to achieve a sustained future growth. During the current quarter, we have continued to build on it and further advance our operational excellence. As we stepped up application of cutting-edge technologies like continuous flow chemistry, synthetic biology, and precision fermentation. We also executed on several value-enhancing business development work, including our first multi-year commercial contract with the leading crop science company, and deepening our collaboration in cell and gene therapy. We increased our stake in ImmunoACT to 34%, which will support ImmunoACT with phase III trials for their lead candidate, HCAR19, along with expansion of the multi-location GMP facility and scale-up for manufacturing of CAR- T. We also collaborated with IIT Kanpur in licensing for patents for three gene therapy programs, and we will also support the clinical activity there. We are also planning to set up a cGMP gene therapy and vector manufacturing facility at IIT Kanpur. Our team remains fully committed in driving scientific capabilities and delivering on long-term growth of business and efficiency, and also allocating resources very efficiently to forward on our transformative opportunities. During this quarter, our formulation unit 2, received EIR from U.S. FDA. Moving on to our financial results. Our Q1 results were very challenging, driven by lower revenues and higher upfront costs, and also rescheduling of some of the supplies by customers and global ARV agencies. It is also important to keep in mind that our year-on-year growth was subdued due to particularly strong quarter, where we had executed a large PO for a big pharma. As a result of these factors, our revenues have declined to INR 1,182 crores and EBITDA at INR 168 crores, with a EBITDA margin of 14.2%. We believe this is very transient and underlying demand for our key growth portfolio remains strong. We believe both our API business and FDF business will return to normal levels from Q2 itself. Our CDMO business improvements is on track, along with execution on some very interesting products and new partnerships. ARV revenues on overall basis have incrementally stabilized during the quarter, and expect continued strength given our leadership position in many of the first-line therapy products. Our cost improvement programs are also progressing as expected. We are optimistic about our Q2 and future quarters in the current financial year. To begin with, I would like to share key updates on our formulation business. We did INR 284 crores of formulation sales in Q1 with a decline of around 18% over last year. On sequential basis, revenues are dropped by 24%, mainly impacted by lower demand particularly in ARVs. This should rebound from the current quarter itself. The overall market volumes are largely remained stable in the LMIC business, a shift in the procurement timing from global agencies, along with continued lower prices, led to fall in Q1 revenues. This is transitionary in nature and expected to be back on track very soon. We remain intensely focused to stabilize ARV business through FY 2024 and beyond, while navigating pricing headwinds created by the competition. We have successfully implemented several measures around expansive portfolio with cost improvement initiatives, and we believe these measures will ensure our market leadership and confidence of sustaining our leadership position in the first-line products, both in APIs as well as in formulations. Coming to the developed market, demand for our broader product portfolio remains healthy. In U.S., we continue to get good market share on products, and also increasing volumes from the marketed products. During the quarter, we filed one ANDA. With that, cumulatively, we have filed 38 ANDAs to date. Of this, we have received 15 approvals, final approvals, and 13 tentative approvals. We continue to have diverse portfolio and pipeline, including novel purified BP products, across ARV, cardiovascular, CNS, and GI branches. In Canada, we have 20 filings. Of those, we got 13 approvals, which we have launched nine products, we intend to launch three more products during the current financial year. In EU markets, we have 15 filings, we got 12 approvals. Out of those, we have launched six products. We have continued to deepen our CMO relationship, anticipate more volumes in the current financial year. Our FDF division continue to operate a total commission capacity of 10 billion units. We anticipate that some of the brownfield capacities will fully utilize over the rest of the financial year. On R&D front, the overall spending to sales for Q1 FY 2024 was at 4%. We continue to make good progress on and invest in portfolio with product-specific approach based on complexity and scale. During the quarter, we got approval for an NDA for HIV pediatric Oral Dispersible Film by U.S. FDA. We are working towards maximizing opportunity by leveraging this ODF platform in other therapeutic areas, including HIV. We have total 54 products in R&D pipeline right now, with an addressable market size of over 40 billion. I would like to give a status of our filings across the globe. 38 ANDAs in U.S., 15 dossiers filed in Europe, 20 in Canada, nine with WHO. eight dossiers filed in South Africa, one dossier in Australia. We filed 21 dossiers in India, 23 products filed in various rest of the world markets. Of the 38 ANDAs filed in U.S., we have 16 Para IV filings, and out of those, 11 First-to-File opportunities as a sizable market opportunity. In the Generic API division, during the quarter one 2024, we achieved a INR 590 crore, INR 97 crore revenue, increase by 2% year-on-year, but sequentially declined by about 16%. Our antiviral business during Q1 continues its steady momentum and witnessed volume-led improvement, growing 6% year-on-year and 17% sequentially, with the revenues of INR 407 crore. The impact of ARV pricing has slowed down, and we continue to maintain a leading market share in the first-line HIV treatment. Onco API business for the quarter was lower and declined by 13% year-on-year, and with the revenues of INR 54 crore. Sequentially, there is a drop-off to about 15%. This was because we executed a large contract in the Q4 of 2023. As you're aware, the company has one of the largest high-potency API capacities in the country, and we continue to strengthen our global leadership in some of the molecules. In other API segment, which includes cardiovascular, diabetes, and asthma products, the revenue decreased by 1% year-on-year, with the revenues of INR 136 crores. The decline was on account of temporary market dynamics and scheduling patterns from our partners. We are very confident that our underlying demand for our products under CMO order book will continue to look better. In Q1, we filed three DMFs. Out of those, two are in non-ARV category. With this, the total number of DMFs filed to date is 83. In the synthesis business, company recorded revenues of INR 250 crores during Q1 FY 2024. The revenues declined due to year-on-year comparison, given large deals were executed last year. Otherwise, the baseline business is seeing healthy momentum overall, and project pipeline continues to scale up with our existing as well as new customers. We continue to work on over 60 active projects, ongoing commercial supplies for about 10 products. Out of those, four APIs. We continue to execute well on our scientific-led approach to customer acquisition and retention. During quarter one, we signed a multi-year commercial supply agreement with global leader in crop sciences company. We believe this agreement is a big milestone and the beginning of our journey towards leadership position in crop science ventures as well. With this, we have added a new global partner in our CDMO growth strategy. We are making good progress on new sites for CDMO division, both R&D as well as manufacturing. Our animal health unit was inaugurated during June 2023, and commercial validations will begin from October 2023. Our animal health site will have capabilities to handle steroids, hormones, high-pressure molecules, apart from large volume products. Laurus Bio reported INR 50 crore revenue in the quarter one, with a growth of 70%. The growth was driven by increased uptake in CDMO business and partially booking of certain delayed shipments in the previous quarter. We have continued to expand our customer base with a strong pipeline. We are also optimizing our capabilities at R2 with the large-scale CDMO partners, and further expect to complete the downstream debottlenecking during Q3 FY 2024. This unit will achieve its peak revenues during FY 2025. Our enhanced technical expertise and biocatalysis is expanding its application in small molecule manufacturing, which is helping the parent company significantly. Progress on our new greenfield site, R3, is on track, and expect expansion to happen in a phased manner. This site should further strengthen large bio capabilities in offering CDMO services in animal origin-free proteins and growth factors, apart from large-scale biotransformations and fermentation. With a profound scientific team of over 2,400 people, 1/3 of our total talent works in R&D and quality. We are continuously evolving our R&D platform towards more sustainable technologies to use in development and production of small molecules. We continue to implement and operate best-in-class R&D, manufacturing, and quality systems in line with the highest global standards, along with a comprehensive EHS management. During the Q1 FY 2024, a total of 31 quality audits were undertaken, including several customer audits. To date, since inception, we have successfully passed 18 regulator audits since 2007, including 44 audits from major global regulatory agencies. With that, I would like to hand it over to Ravi to share some financial highlights. Thank you, Doctor, very warm welcome to everyone for our quarter one FY 2024 earning call. Our total income from operations, INR 1,182 crores, against INR 1,539 crores, with a decline of 23%. As Dr. Satya explained the underlying reasons for that, we have more visibility from second quarter onwards. Gross margin for quarter one came at 50.6%, which is largely due to the product mix change and partly fall in ARV prices over last year. Whatever savings we are expecting from raw material prices will affect from quarter two. Our EBITDA for quarter one is at INR 168 crores, with a EBITDA margin of 14.2% because of operational deleverage and the raw mat selling price decrease, et cetera. We are expecting to improve from quarter two onwards, based on the order book, RM price stabilization. Our diluted EPS for quarter one was at INR 0.5, reporting a decline of 18%. Our ROCE declined to 16% against 21%, due to weak operating results and stronger capital deployments. On the CapEx front, we invested around INR 200 crores for the quarter. As I referred that for FY 2024, majority of the CapEx in synthesis and bio divisions. Most of the expansion projects are on track to support our future growth. You can refer our slide number seven of our IR presentation for more details. With this, I would request the moderator to open the lines for Q&A. Members of the management, can we begin the Q&A session now? Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead. Thanks for the opportunity. firstly, on the formulation revenue, how much is ARV and how much is non-ARV for the quarter? The INR 188 crores is ARV and INR 97 crores is non-ARV. 2/3, 1/3. Yeah. Okay. Sir, given that the facility being started in November 2022, how do we see the ramp up for non-ARV formulation business? See, the majority growth in formulations in FY 2025 onwards will only come from non-ARV. See, we expect the similar trend in the diversification of the revenues from formulations similar to APIs. If you look at APIs, we around INR 50- INR 69 crore of API sale in ARVs. In our oncology, non-oncology, and CMO revenue increased in API. Similarly, our formulation also, we believe the ARV contribution will stabilize around INR 1,000-INR 1,200 crore, and the rest will only come from non-ARV formulations. The visibility for that will be based on the contracts you receive from the customers or products, like a product approvals? We have enhanced our CMO for European customers significantly this year when compared to last year. The volumes have gone up significantly, and we also got a few approvals from U.S. and in Canada. Those volumes are all starting up. Currently, our nominal capacity of FDF is 10 billion, but we are operating at five billion right now. It will go up to maybe seven billion by the end of the financial year. Just sitting on the guidance part, while you have highlighted that we've maintained the same guidance. But considering the shift of the procurement by the global agencies and CDMO coming up in second half, firstly, are we going to see some 5%-10% dip for FY 2024 sales? Secondly, given the kind of profitability which we have achieved for first quarter, if you could also guide for the EBITDA margin for full year? Can you repeat your last question? both, while in the presentation, we have highlighted about. Sorry to interrupt. May I please request you to use a handset mode while speaking, as there's a lot of disturbance from your line? Is this better? Yes, sir. Thank you. Please go ahead. While you have highlighted of consolidation year for FY 2024, but given that there has been shift in the procurement by the global agencies and CDMO orders picking up, second half, so just would like to, you know, sort of have a reiteration about the sales guidance in terms of whether you'll be able to match or there could be some dip in the sales compared to FY 2023. Secondly, given the kind of profitability which we had from the purchase orders in FY 2023, and considering one to FY 2023 EBITDA margin, how do you look at the full year EBITDA margin for 2024? Thanks. The shift in procurement pattern from the global agencies yearly, overall, here, they purchase what they committed. It's they shifted from Q1 to Q2, we will have more sales of ARV formulation in the Q2. That's what we mentioned, is the shift is only transitionary in nature. Okay. When it comes to the revenue, as we mentioned, we will be very close to what we indicated earlier, so we are not giving any guidance right now on our revenue numbers. Tushar, whatever we have indicated as a consolidation year, there is no change in the state. In fact, we are in, we are on par with our internal targets, or maybe we are better than our internal targets for the quarter. Got it, sir. Thanks a lot. Thank you. The next question is from the line of Jeevan Patwa from Sahasrar Capital. Please go ahead. Sir, I have a question on ImmunoACT. We are also starting trials in Dubai and Mexico, right? For ImmunoACT phase III trial. It's not phase III trial. It is the Mexican authorities will do trial in Mexico using the product made in Mumbai. You can call phase II only, not phase III. Okay. Not in Dubai. It is only in Mexico. That's the current agreement. They are working with many other countries to have a similar opportunity, but nothing finalized as yet. Okay. We will be launching. As per our timelines, we may be launching it in end of 2024 and start of 2025 in India, right? Are we going to launch it in other countries as well at the same time frame? Yes. It will be a little later? No, it is only India. Only for India. Yeah. Okay. Secondly, sir, on the Richcore side, have we orders for the R3 capacity? Have you orders for the reactors and fermenter? We are in the process of finalizing, yeah. We haven't yet ordered it? No, not yet. We will order during this quarter. The land was acquired, the registration formality is completed. The other groundwork is just began. Okay. once we order, I think nine months to 12 months will be taken, right, after the order? I think this will be qualification will start 18 months from now. Okay. Okay. Perfect, sir. Thanks a lot. Thank you. The next question is from the line of Bharat from Quest for Value Capital. Please go ahead. Yeah. May I know, what is the CapEx for FY 2021, FY 2025? This is for Ravi. Sorry? What is the CapEx for FY 2025? 25. FY 2024 CapEx for FY 2025. Yes, you're right. See, especially the animal health, whatever we have capitalized during FY 2024, it start generating revenue even in FY 2024, in the second half of FY 2024. In FY 2025, it will generate a full year revenue. I mean, my question is about the CapEx. What is the CapEx for FY 25? How much you're planning to have CapEx? INR 25 CapEx, we have yet to crystallize. Actually, without crystallization, it's not fair on our part to commit. September results will come back, definitely. Okay. Okay, thank you. My other question is to Dr. Chava. I think this animal health would be one of the big growth trigger in FY 2025. Apart from animal health, may know what else are the growth triggers in FY 2025? FY 25, we will start supplying the crop science product later part of FY 25. Some of the projects in the CDMO will move into higher clinical phases, so we'll get more volumes. Some of the large volume APIs in the generic also will be commercialized in FY 25. The growth will come from generic APIs, generic formulations, and Advance animal health and also CDMO. We expect, as Ravi mentioned, FY 24 is a consolidation year. We see these investments will start giving good returns next financial year onwards. Okay. Yeah. Thank you. That's it from my side. Yeah. Thank you. Thank you. The next question is from the line of Balaji Boina from JM Financial. Please go ahead. Sir, good evening, sir. Good evening. Sir, happy to talk to you about the man in the ground levels, and we are giving the AP Telangana product formulation and with super compliance system with your company. I'm from the, as an investor, from last two years, we are dragging in terms of results, and that is reflecting in our stock prices. Any improvement can be expected next financial, next quarter or after six months? See, the biggest CapEx is going on into commitments what we made to do manufacturing at the commercial scale for several CDMO projects. That was the biggest commitment in capital. When it comes to improvement, as we mentioned, we are very sure the improvement will be visible from Q2, FY 2024 itself. One more question, can I ask you, sir? Please, go ahead. Sir, as a promoter, you are, I mean, from the market point of perspective, you are holding very low equity as a promoter. Is there any probability to buyback or acquiring from your end to make it more than 30%? Because it will. Actually, you have a good name in the market, saying that Satyanarayana Chava is maintaining ethical values for the company and as well as employees, that that is proud of our stake. But if you are increasing the stake for the investor point of view, it will helps to the investor confidence more now, sir. Is there any, can we expect anything, sir? We don't have any plans for that right now. See, whatever money company is generating is going into deployment, which will benefit every shareholder of the organization rather than few of us. We have no plans of buyback in the near future. Okay, sir. Thank you, sir. Thank you very much. Thank you. The next question is from the line of Madhav Marda from Fidelity International. Please go ahead. It's your time. Sir, I'm so sorry to interrupt. May I request you to please hold for a minute while we have the management reconnected? Thank you. Requesting the participants to please stay online. Requesting the participants to please stay connected while we have the management reconnected. Requesting the participants to please stay online while we have the management reconnected. Thank you. Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected on call. We also have Mr. Madhav Mardha in the question queue. You may please go ahead. Yeah, Hello? Yeah. Am I audible? Yeah, you are audible. Yeah. My question was on the crop science business, the contract which we won. If you could just give us some more details in terms of, duration of the contract, size of the contract, potential size, or some other, some more details that'll be very helpful. As we mentioned, this is a multi-year contract, long term. It's not one, two years, it's a long-term contract, and volumes are reasonable, I'll say. That partner has a lot of portfolio, so we have the ability and interest from both sides to work on more projects. We can give that much details right now. Got it. Got it. Basically this product was being made by the partner in-house, which they're now also seeing, or it's being shifted from a different vendor they were buying from earlier? We can't give you those details right now. Okay. Is it a patented product or is it off-patent? Pardon? Is it a patented product or is it off-patent? still under patent. Under patent. Okay. Got it. Understood. On the CDMO projects, which we are, you know, doing $100 million plus CapEx, this year, typically, what is the asset turn for the CapEx year for CDMO product? You see, asset, CDMO, assets are not utilized fully around the year. If CDMO assets are utilized fully around the year, the asset turn is very high. This you can consider maybe it, I think similar to our API business, I'll say. Karul, is it, is this line clear? One minute. Karan, is this line clear? No, we can hear you. Yeah, go ahead. Go ahead. I was just asking that, you said it's similar to the API, but typically, what is that? Is it 1-1.5x asset turn we can expect typically in a year from the CDMO CapEx? What is happening right now, as I mentioned earlier, the CDMO partners are asking us to deliver commercial scale batches for phase II, phase III onwards, especially phase three onwards. Your facility will be idle for a reasonable time once you deliver phase three molecules, phase three volume, and wait for significant amount of time. If the block is fully utilized, asset turn ratios are over two in some cases. In some cases it is around one point, but it is safe to assume at a fully utilized basis for a mix of products, we can assume 1.5 asset turn ratio. Understood. Understood. Okay. Sir, if I can ask one more question. In CDMO business, what's the total gross block that we have invested now, excluding what we'll be doing this year, but end of FY 2023, what was our gross block? FY 2023 gross block is we don't have any, it is a common facilities. The exclusive block, gross block is INR 250 crores. Okay. Exclusive gross block, INR 250 crore-INR 300 crore, but it is a common facilities. Understood. Okay, thank you. Thank you. Thank you. The next question is from the line of Ranvir Singh from Nuvama. Please go ahead. Yeah, thanks for taking my question. Sir, on ARB side of business, two queries I had. In formulation side, the price erosion what we witnessed, has it stabilized now, or we feel that further scope of price erosion is there, looking at the kind of competition? That is one. Second question, that in ARB API, we saw a good uptick in this quarter. Again, we see that that is going to sustain or this is, this will remain volatile quarter on quarter. That's two things I wanted to know. The ARV... We have a very good order book and visibility, so we expect ARV API sales to continue like that. Your first question of price erosion of ARV formulations, it was very drastic in the last financial year, but now we believe it is very close to stable. Yeah. Yeah. My question was in a context that, because a new tender cycle has started for formulation, and we expected that, we'll gradually will see the overall revenue moving up. Two elements here, price erosion is one, and I believe that volume has also been, not been, you know, witnessing any uptake. Am I right, that volume is also stable and then price erosion, that is impacting? Or it is volume we are seeing the improvement, but it's a severe price erosion which has impacted the revenue there? In the Q1, Q4 to Q1, the price erosion is not much. Volume only went up. We expect the similar pricing in Q2, both API as well as formulations in ARV, but Q2 volume is looking much better than Q1 in formulations. Okay, fine. Fine. On margin side, I think I see three elements here. Operating deleverage is one. Secondly, the price erosion in formulation would have impacted, but on the other hand, we see the raw material prices has also softened, and that is visible in your gross margin profile also. There also, I wanted to understand, next quarter, when we see that, most of business vertical will see a better, you know, Q1 growth, then raw material prices, do you see that, this will, you know, also help going forward? If any kind of, you know, on an annual basis, if you could guide the margin, that what kind of EBITDA margin we, you know, ballpark number we can expect? The raw material prices have definitely softened. We wouldn't expect, and we don't wish the prices should go down to unsustainable levels. If the prices go much below unsustainable levels, some of them will stop manufacturing. It will have a very bad impact on the prices. They will go up. We believe the prices have softened, you know. I think it will maintain at that level. Okay, fine. Fine. Thank you, and all the best. Thanks a lot. Thank you. Thank you. The next question is from the line of Harshal Patel from Mirae Asset. Please go ahead. Hello. Hello, hello. Thanks for the opportunity, sir. Just one question, one clarification I need for the oncology and the other API segments, where we've got a transient issue in this quarter. Sir, is it possible to quantify the impact? No, no. Okay, okay. We are quite confident of it getting rebounds into Q2 onwards. Yeah, that's based on order book and visibility what we have. Yeah. Sure, sir. Okay. Okay, thanks a lot, sir. Thanks a lot. Thank you. Thank you. The next question is from the line of Devvrat Mohta from Capital Group. Please go ahead. Hello? Hello. Can you hear me? Hello, can you hear me? Yes, sir, we can hear you. Please go ahead. Yeah, I just had one question. Can you just walk us through, you know, you called out the reasons for why margins fell so much this quarter? Can you, I mean, without, you know, specific numbers, can you just walk us through whatever levers for margin to improve Q2 onwards? Devvrat, the one is in FDF, ARV FDF opex is lower. That is one reason. Because of that, operating deleverage took place. The CDMO business is, of course, when you compare to the last year, quarter one, this is much lower. These are the two reasons. Selling prices also, whatever it impacted in the first quarter, especially one or two APIs, the selling price benefit has not been there. Sorry, raw material prices decrease is not being affected in the quarter one. That will be affected in the second quarter. These are the three reasons for the decline in the EBITDA margins. What is the improvement as we go forward? Because, I mean, again, next quarter, if you look at, you know, next quarter, if ARV formulation, revenues pick up, and CDMO, I mean, you know, you're saying that, you know, benefit, improvement is really second half onwards. Then, I mean, the mix is again adverse, right? There'll be more ARV versus CDMO even next quarter. What gives you confidence the margin will improve from where we are today? ARV FDF, we have an order book actually for the entire second quarter, and we'll be doing better in the ARV FDF, number one. Number two, oncology also, it is going to go up, number two. Number three, the overall volume we are expecting to grow in the second quarter. These are the three reasons. Fourth reason is, whatever the raw material prices softened, all these raw materials will be placed with majority of the second quarter. I don't say entire second quarter, but majority of the second quarter. These are the reasons we are expecting the margins will improve in the second quarter onwards. Got it. If I can ask one more question, with regard to the animal healthcare, when does that really start contributing, you know, I mean, from a meaningful revenue contribution perspective? From the second half of FY 2025. With this second half of FY 2024, commercial validations will start, Devvrat, and then supplies will start from second half of FY 2025. FY 2025, you will have an more meaningful full year revenue, Devvrat. Got it. You think second half FY 2024 itself, revenue start coming through, but the full grown impact is FY 2025. Yes, yes, correct. Got it. Thank you. Thank you. That's it for me. Thanks. Thank you. The next question is from the line of Nitin Agarwal from DAM Capital Advisors. Please go ahead. I have a question. Two things, one is on the CDMO business. Now, we've got three verticals in CDMO. We've got human health, animal health, and now the crop production. Sir, typically, the crop production margins are much lower than we've seen in some of the, some of our peers who do as well. Is that a right understanding that our margin mix is gonna change in CDMO once we have a larger share of crop production coming through? See, we are not in the crop production, B2C. In B2B, our margins are similar to other CDMO projects. Okay. Okay. I guess what about margins you're making right. You used to making in human health, you're saying the same margins are applicable even for the larger volume contracts which are there in crop protection? Current contract once we have signed is a middle volume. We have to experience if we sign a very, very large volume, how the margins look like. The current two products, what we have signed, is a complex chemistry, so margins are good. Okay. That's right. Certainly, you know, two-step, it is a multi-step synthesis, so complex chemistry, so margins are good. I got it. Sir, now if you were to look at maybe two, three years down the line, you know, when all of these three streams are firing, is there a broad sense you have in terms of the mix could be, that could be there for us in terms of the way the three verticals for in the CDMO business? Differently in the order of revenues, we can say human health, animal health, and Ag chem. Okay. The last bit on this, so we are currently about INR 250 crores there about per quarter on the, on the human health, CDMO business. I guess, so where do you see this piece of the business scaling up over the next two, three years? What kind of projects, any color you can give us, the scale of possibilities which are there in this part of the business? Just I want to correct one statement. In the CDMO, our INR 250 crore, we haven't mentioned that the entire thing came from human health. Okay. It's a combination of many other, many segments. You see, we are not giving segment-wise revenues in our CDMO. It will confuse everyone. Maybe at some point in time, when all the things become very big, we will give. Otherwise, we are not fragmenting our synthesis revenues, segment-wise. I got it. Just coming back to the human health opportunity, as you see in your pipeline right now, how should one think about this opportunity over a two, three-year time period? Which one in that? The human health. Oh, it is very good. We are very bullish on that. Yeah. Sir, if it's possible, you know, if you can give us a sense, how many molecules do you possibly see getting commercial in this space over the next two, three years? It's No, we would like to defer the answering that question, actually. Okay. Lastly, sir, on the other API segments, you know, again, taking a two to three year view of that business, what would be the driver? We've done very well in the business over the last four to five years in terms of the way you've scaled it up. I mean, is it getting to a size where incremental growth is gonna be a little more tepid, or do you see opportunities to grow this business at the rate you've grown the business in the past, and what will drive it? I think it all depends on how many new partners we'll bring into that CMO space. Currently, we have done very well with one partner. We have added another one, so portfolio is increasing, and we are talking to third one to add. See, we expect it will grow, but it is very difficult to quantify what will be the growth. We're happy there, that segment. Are there, apart from the CMO partners, any other drivers for this business? Earlier you talked about, you know, entry into diabetes, cardiac, and those products, scale up that will drive the business. I think our CMO approach in generic APIs and formulations is. Okay, we are not doing potent formulations, but then when it comes to APIs, we are doing potent, non-potent, all. There is no therapy preference for us. Okay. Okay, thank you very much. Thank you. Thank you. Before we take the next question, I'd like to remind participants to please limit your question to two per participants only. You may rejoin the queue if you have a follow-up, as we have many people waiting for their turn. The next question is from the line of Kunal Shah from Carnelian Asset Management. Please go ahead. ... two questions. one question was on borrowing, right? As of 31st March, so we had about INR 1,600 odd crores of borrowing, and then we plan another INR 1,000 crores of CapEx in the current year. How should we look at our borrowing? Sir, sorry, your voice is not clear. Okay. Is it audible now? Slightly better, but not very clear. Sir, may I please request you to use the handset mode while speaking? Yes, sure. Thank you. Is it audible now? Yeah, better. Better. Yeah. Yeah. I had two questions. One was on borrowings. As on 31st March 2023, we had about INR 1,600 odd crores of borrowings, and we plan to do another INR 1,000 crores of CapEx in the current year. How should we look at this borrowings figure, in the current year? That is the first question. Okay, go ahead. The second question was on the expenses part. You did articulate, when explaining on the margin front, that since our revenues have kind of, went down, you know, the EBITDA margins have kind of, compressed due to the operating leverage part. Just wanted to understand, now we'll have animal health CapEx on the CDMO front, to start in the second half. How should we look at the expenses, employee expense and other expense, which is about INR 160 odd crores quarterly right now, employee, and other expenses at about INR 270 odd crores right now. How do we see this move ahead? First question on the we already indicated even in the last call, our debt, net debt is going to increase by March 2024, maybe by INR 300 crore-INR 400 crore, but again, start declining from FY 2025. That is one. Second, on the expenses part, some of the like animal health is already some of the employees or maybe most of the employees required for the completed production block has already been engaged, but we will recruit more people in the second half. You are right, the expenditure on the account of manpower will increase in the second half. The most of this manufacture at the ground team, maybe in the bottom three layers, so we are not expecting too much of an increase there. Okay. You would want to guide some amount to have a better understanding for the whole year that would come up in the second half on account of employee addition? No, we don't have, and we are not disclosed, but if you are very particular, be touched with Vivek, he will provide you. Okay, okay. Okay, all fine. Thank you. Thank you. Thank you. The next question is from the line of Aditya Khetan from SMIFS Institution. Please go ahead. First question was on to the FDF business. That business is witnessing de-growth from the last five quarters. What gives you confidence that it will improve from the next quarter? Can you throw some light on it? Aditya, we haven't heard you clearly. Hmm. Please, don't speak on the speaker. Am I audible, sir? Slightly better, man. Sir, onto the FDF business, that business is witnessing de-growth from the last five quarters. What gives you the confidence that it will improve from the next quarter? We have an order book, that's the reason we are saying they improve. Yeah. Your observation is right. I mean, the FDF, the growth is bumpy, but we expect some stability will come. Okay. sir, my second question. Despite the weakness in numbers in first quarter, we are given a guidance of consolidation for the full fiscal. Can we assume that on top-line basis, we would be almost bearish for FY 2024? Yeah, that's what we are expecting. Okay. Thank you, sir. That's it from my side. Thank you. Thank you. The next question is from the line of Anirudh Shetty from Solidarity Investment. Please go ahead. Hi. Thanks for taking my questions. I had two questions around our CDMO business. You know, you know, sir, the last two years has been a bit of a, you know, you know, obviously period wherein, you know, it's also given us an opportunity to do projects that, you know, really push us to the next stage. Can you just share, you know, some of the strengths around our CDMO business? What makes us a, you know, a unique player compared to the other CDMO players? Where do our strengths lie? My second question is, there are other players in the CDMO business that don't do formulations because they believe that it can either create conflict of interest or a perception of conflict of interest with the innovator customers. How do we manage that, given that we do both formulations and CDMO? The conflict. We are managing very well because we are not filing any more Paragraph IV filings with the partners with whom we are working. Yeah. That's one conflict management with it. Second, with whom we are working, they haven't expressed their concern so far. With the partners with whom we are working, they never talked to us expressing their dissatisfaction that we are in formulation. With some, we are doing some of their formulation work also in-house. Actually, we're expanding our offering from API, intermediate to API to some formulation work. We are moving up in the value chain because of having formulation capabilities, right. Yes, sir. My first question around, you know, what makes our CDMO business a differentiated business? Could you just talk about some of our strengths? No, and I'm sorry, I couldn't get your first one. Now I'll answer. The differentiator is our R&D strength, where we have well over 1,000 people. On their ability to do biocatalysis at scale. We have one of the largest hydrogenation capabilities in the country, and the ability to deploy large reactor volume at a short notice, ability to allocate technical resources at a short notice. These are our differentiators. Got it. As a comfortable sharing, you know, in our CDMO business today, how much would be commercial, you know, business and commercial molecules, and how much would be more, you know, early stage? We gave number. We have over 10 commercial projects. Out of those, four APIs. That's the we are giving. We are not giving breakup of revenue coming from those commercials. Okay, got it, sir. Thank you. Thank you for answering my questions. Thank you. Thank you. The next question is from the line of Sir Sajal Kapoor, an individual investor. Please go ahead. Yeah, good afternoon. Thanks for taking my questions. I've got just two questions. One, once a novel molecule fails during the clinical phase or becomes commercially successful, the same team of scientists can support a new project, right? So to grow five times on the current CDMO base, we need not double our scientists. That's one. Second question is on Laurus Bio. The design and construction of R3 will take all the learning from R2 downstream debottlenecking, that's my understanding. So we should expect a relatively smoother, sort of faster ramp-up when R3 goes commercial. Thank you. I think you put a very valid point. Our learnings from Q2, R2 debottlenecking will certainly help R3 design, which we have done, keeping those in mind. The one challenge at R2 was availability of land. We overcome that by taking an adjacent piece of land for debottlenecking. That problem was not there in R3. R3 is a 27 acre site, we are designing it very well, keeping the challenges what we faced at R2. On the CDMO side, Dr. Satya, to grow 5x the current base, we need not hire, or we need not double the scientific base, because once a project is either fails or goes commercial, the same set of scientists can pick up the next available project, right? You are absolutely right. we, to grow our CDMO business, we need to add capacity, not scientific staff more. We need to add some, but not in the same arithmetic proportion. Yeah. Yeah, sure. Finally, on this CDMO, slide 13, you mentioned solid outsourcing trend. Please, can you shed some light on the indicators that lead to such bullishness? Is this on the expectation of supply chain risk mitigation coming from innovators where, you know, they are shying away from staying overly committed to a single country or a single organization for their entire basket of CDMO projects? Is this bullishness backed by innovators' commitments and contracts? It is on the visibility of the number of projects we are talking. Earlier, our growth in CDMO came from, we started with phase one, went with the program phase two, commercial and all. Halfway through, we are getting opportunities, when the molecule is in phase three. Sometimes even when they file NDA, they're coming and trying to add us as the additional source. That is because of de-risking, definitely. Yeah. Okay. Finally, this new ARV synthesis filings, they kick off in second half. Is that the reason we have stopped using the old synthesis process because it wasn't cost-effective, and the new filing or the new synthesis route is cost-effective and that will kick in from second half of this fiscal? It is not new synthetic routes. It is only process scale optimization, solvent recovery optimizations, and lower RMC prices. We are not changing processes. That will be a very lengthy approval timelines. Okay, understood. Understood. Thank you so much for answering all my questions. Thank you. All the very best. Thank you. Thank you. The next question is from the line of Darshil Jhaveri from Crown Capital. Go ahead. Hello. Thank you so much for taking my question. I just wanted to ask about, now we see better results going forward to Q2. Would we see the margin that we've done last year in Q2, Q3, or how would the margin progression be? Will it be a linear growth, or would we be able to just jump back to the margins that we had? Going back to healthy margins of 28%-29% will need, not just this year, maybe we will achieve during the next financial year. No, not 27%, 28%, maybe, from 14%, could we see a movement towards 24%, and then maybe next year, 28%? How would it work out, sir? It will be gradual go up. Yeah. See, if you look at, why we are saying that our margin is not impacted. Our sales were impacted. Our margins are around 50%. Our sales was impacted, so that has an impact on every key metric. Yeah. Yes, sir. Gross margin are not impacted, so with better volume, we'll be able to see better margin. Okay, that helps me a lot, sir. Sir, revenue goal, so we would be able to... We are confident that there will be no other threat to it, right? We are now back to whatever bottom line we've done, and now we'll be back to the track that we have, so, right? Yes. Any threat we could see, sir? Pardon? Sorry, sir. I just meant, do we see any threat or risk, other than the normal business risk or something specific that we might be on the lookout for? All our facilities are regulatory inspected. There is no regulatory risk. We have good visibility of orders in ARV, APIs, and formulations. We believe the risks are minimal. We can't say risk is zero, but risks are minimal. Okay. Perfect. Thank you so much, sir. All the best for future quarters, sir. Thank you. Thank you. Thank you. The next question is from the line of Tushar Bohra from MK Ventures. Please go ahead. Yeah, thank you for the opportunity. you know, starting with the introduction, we see a lot more emphasis on, so gene therapy and ImmunoACT. you know, there's also this crop protection in that design. Increasingly, we are seeing efforts now starting to, you know, become intense on the need to diversify from ARV and the traditional areas you are working on. Can you just throw some more qualitative light and also maybe some milestones to look out for, you know, over the next two, maybe three years, on the different areas that you're working on, including maybe ImmunoACT and gene therapy itself, maybe on flow chemistry, fermentation-based products? There was in one of the earlier calls, talks about your efforts on injectables or you're looking out for injectables. Just to understand the bridge from where Laurus is today, in say three years' time, where we would be, from a therapy and, you know, area of work perspectives. Thanks for asking this interesting question. If you look at our investor presentation, page 15, we clearly put transformation, what we have done in the last five years. In FY 2018, 73% of revenues came from ARV, both APIs and formulations. In FY 2023, 37% of revenue only came from ARV, APIs, and formulations. That's the big transformation. When we initiate any transformation activity, we also need a lot of gestation period. Going back to your question, what are the areas which will drive our future growth? Will definitely come from our CMO, generic API and formulations, CDMO, and Laurus Bio. These will drive our growth. This is, you know, like something that's already understood. What I'm trying to understand is, let's say, within Laurus Bio, what are the initiatives being taken today, qualitatively, what areas you are focusing? Flow chemistry you've mentioned, what exactly are you looking at? Something on those lines. You know, maybe a bit more granular and, not sticking to generic API and CDMO kind of response. In the CDMO space, as we mentioned, few of our investors also asked questions, our animal health, ag space and human health advanced clinical programs will give a lot of benefit. In the Laurus Bio, we are expanding capacity to cater to precision fermentation. We are also getting into peptide space. We are also planning to get into media space there. There are several initiatives, yeah, in CDMO. In flow chemistry, sir? Pardon? Flow chemistry. Flow chemistry, we have two flow chemistry commercial machines installed at Vizag. I think that will continue to help. See, what is happening in overall reaction schemes right now, you have a one flow chemistry in out of 10 reactions. Unless you have flow chemistry capabilities, you can't take up the entire projects. Similarly, with biocatalysis, if you are doing 10 chemical steps for a program, one biocatalysis, one continuous flow, or two biocatalysis, two continuous flow. Those are the capabilities helping us to get customers attracted towards us in providing manufacturing. On the ImmunoACT, sir, we are now at about 34%. The idea is to consolidate this eventually? Does this also mean that we are looking at CDMO projects in this space, maybe? What is the ambition for this segment, sir? Right now, no plans, Sir Tushar. Okay. sure. You mentioned on the CMO activity and formulations, that you're moving up from API to formulations. If you could understand what kind of projects are we picking up, and what is the potential? Is this mainly to, you know, sort of fill up the large capacities, or is there an element of, you know, specific capabilities at play that are helping us get high margin CMO activity? We are asking our CMO generic formulations. Yes. We last year, we did close to one billion units. This year, that number may inch closer towards 1.5 billion, 1.6 billion. Yeah. Hello. Right, sir. Yeah. Yeah. Sure. I thought you were interested in that. Let's speak offline. Yeah, sure. Sure. Thank you so much. Thank you. Thank you. The next question is from the line of Rishabh Shah from Dalal & Broacha. Please go ahead. Hello? Hello, am I audible? Good. Yeah, thank you for taking my question. My concern would be that in the ARV business, which declined last quarter, the reason for the dip in ARV business is because we did not have procurement of ARV intermediaries by global agencies. This quarter, where do we stand now? Over the course of time in FY 2024, how do we expect the business coming from global agencies regarding the ARV intermediaries? It's looking very healthy right now. Both API front, and formulation front looking very healthy. The only challenge what we had last year was the pricing erosion. This year, we expect price erosion will not happen. Can you share any ballpark numbers regarding this? We shared the API sales around INR 400 crores ARV, and about close to INR 190 crores formulations. About INR 600 crores of Q1 sales came from ARV, APIs, and formulation put together. Okay. Other than pricing improvement, there is no any specific improvement for getting orders from global agencies? We have more supplies planned in Q2 than in Q1. We can give that much guidance. Yeah. Okay. Thank you. Thank you very much for taking my question. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for the closing comments. Thank you, investors, for asking very insightful questions. I want to thank Manish for hosting this. We want to thank everyone for your active participation. Thank you. Thank you all. Monish, Karan, thank you. Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you all for joining. You may now disconnect your lines.