Ladies and gentlemen, good day and welcome to Piramal Pharma Limited, Q4 FY 2023 earnings conference call. As a reminder, all participant lines will be in a 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 0 on your touch-tone phone. Please note this conference call is being recorded. I now hand the conference over to Mr. Gagan Borana, General Manager, Investor Relations and Sustainability from Piramal Pharma Limited. Thank you, and over to you, sir. Thank you, Vikram. Good evening, everyone. I welcome you all to our post results earning conference call to discuss our Q4 and FY 2023 results. Our results material have been uploaded on our website. You may like to download and refer them during our discussion. On the call today with us, we have Ms. Nandini Piramal, Chairperson, Piramal Pharma; Mr. Peter DeYoung, the CEO of Global Pharma; and Mr. Vivek Valsaraj, CFO of our company. Before I proceed with the call, I would like to update that the company has filed a DLOF for a rights issue with the SEBI for its approval. Given this event, we would have to abide by the statutory guidelines as issued by the regulator in regards to our disclosure and external communications. We would not be able to share any forward-looking statements, nor disclose any further details on the proposed fundraise during the window period. I would request everyone on this call to restrict your today's discussion to FY 23 and Q4 FY 23 performance. With that, I would like to hand over to Ms. Nandini Piramal to share her thoughts. Good day, everyone. Thank you for joining us for our post-results Q4 and FY 2023 earnings call. I'm gonna start with the quarter's performance. Starting with, over the past few years, Q4 has always been the best quarter for the company in terms of revenue contribution and EBITDA margin. This year as well, in Q4, we've registered a sequential revenue growth of 26% over last quarter, with an EBITDA margin of 17%, compared to 10% reported in Q3. In terms of YOY growth, for Q4, we registered a revenue of INR 2,164 crores, implying a growth of 2%. For the full year, we reported a YOY revenue growth of 8%, with revenues of INR 7,082 crores. Our CDMO business grew by 7% YOY in FY 2023. The muted growth was due to an external perspective, slowdown in biotech funding, delayed decision-making, and low muted demand in PNS, vitamins, and generic API. From an internal perspective, the resolution of execution issues at some of our sites was an ongoing exercise throughout the year. Margin in the CDMO business was impacted due to the muted growth and the large fixed cost base. However, the growth in our differentiated capabilities, such as peptides, ADCs, HPAPIs, potent sterile injectables, hormonal products, and on-patent API development and manufacturing was strong, with a 19% growth between FY 2021 to 2023. Our CapEx in FY 2023 was aligned to those areas. We closed FY 2023 with a healthy order booking versus prior quarters. Our complex hospital generics grew by 28% and 14% respectively during the quarter and FY 2023. Our inhalation anesthesia sales, particularly Sevoflurane, where we are a market leader with a 39% market share in the U.S. market, continued its healthy growth momentum in the U.S. and ROW markets with robust volume growth. Our India consumer health on a like-to-like basis, registered a growth of 5% and 16% during the quarter and full year, mainly driven by Power Brands and strong sales traction in the D2C and e-commerce channel. Our reported EBITDA margin for the year was 12%. Adjusting for non-recurring items such as inventory margin on account of demerger of INR 68 crores, near-expiring inventory position, provision of INR 92 crores on account of lower demand during COVID-19 pandemic, and provision for receivables of INR 32 crores from a biotech customer, our adjusted like-to-like EBITDA margin at FY 2023 was higher at 15%. Our EBITDA margins during the year were impacted by higher operating expenses, including raw material costs, energy prices, wage inflation, and marketing costs. We also saw some increase in OpEx as we expanded capacities at sites seeing high demand. We've already started taking initiatives towards cost optimization and improvement in operational efficiency to offset inflationary pressures and improve our profit margins. As mentioned earlier, in terms of CapEx investments during the year, we invested INR 965 crores, mainly towards the expansion of facilities, which are witnessing high demand, such as Riverview, Grange, Mumbai, and Ahmedabad. We believe long-term growth in our CDMO business would be driven by differentiated capabilities and integrated service offerings and have accordingly aligned our CapEx investments. For driving growth in our inhalation anesthesia business, which is seeing significant demand, we are expanding our capacities, including for key raw materials made in-house. Moving on to business-specific highlights. We, for the CDMO, we witnessed a muted revenue growth in our CDMO business, but are starting to see signs of recovery. Firstly, we're seeing continued client RFP flow with visible demand for integrated multi-site campaigns. We're also seeing healthy POs for recently approved on-patent commercial products. This has translated into a significant pickup in order bookings in Q4 compared to the previous three quarters. Our relationship with innovative pharma companies has strengthened. For FY 23, revenue contribution from innovation-related work was 45% of CDMO revenue. Some of our collaborations with innovative companies are already in the public domain, which highlights our capabilities in the CDMO business. Third, we continue to see good demand for our CDMO services in the niche areas of high-potent API, peptides, and antibody drug conjugates. Our recently expanded capacity of Riverview facility catering to high-potent API, has been seeing strong order inflows. We expect to go live with our expansion at our Greensboro facility in the second half of this financial year, which should help us in strengthening our position in the antibody drug conjugate segment. Revenue contribution from our differentiated offerings has increased from 27% in FY 2021 to 37% today. In terms of development pipeline, we aim to continue discovering and developing new molecules for our customers and have a development pipeline of molecules across various stages of development. We expect some of these phase 3 molecules to provide us with commercial manufacturing opportunities in the near to medium term. Finally, we have maintained our quality track record. We have yet another successful year, having cleared 36 regulatory inspections, including four US FDA audits at Riverview, Lexington, Sellersville, and Digwal. At Riverview and Digwal, we received 0 observations, while at Lexington and Sellersville, we received EIR for the AI observation. In the previous week, our Piscataway facility also went underwent an FDA inspection with 0 observations, and we are now at an NAI status there. The 5 sites which have passed the audit contribute more than half of the CDMO sales in FY 2023. With an increased number of customer audits in the year over the previous year, which is also a leading indicator of improving customer engagement. We have taken specific actions to improve the business performance. We have added more people to our business development team to improve share of wallet at key customers and drive demand at strategic sites. Our COO, Herve Berdou, who joined us last year, is continuing to drive execution improvement at various sites. We've also made some site-level and functional leadership changes to address execution issues where they're needed. At OpEx, we've reassessed our cost structure more prudently, given the new demand environment, and hope to grow the business with better profitability on the back of increasing demand visibility in our differentiated CDMO businesses. Moving to our Complex Hospital Generics business. Our inhaled anesthesia portfolio, particularly sevoflurane, is witnessing high demand in the global market, and we're expanding our capacities to meet the growing demand for our products in non-U.S. markets. As per IQVIA MAT, moving annual total, September 2022 data, we are the leading player in sevoflurane in the US, with a value market share of approximately 39%. We're vertically integrated and are expanding our capacities to address the growing demands of our inhalation anesthesia products. Our intrathecal portfolio continues to command a leading market share in the US. As per IQVIA MAT, September 2022, we ranked number one in the US market with baclofen prefilled syringe and vial, with our brand, Gablofen, having approximately 78% market share. In the injectable pain management segment, our growth during the year was impacted by supply constraints at our CMO. We're working to improving these products with our CMO partners and have seen improved traction in production in Q4, FY 2023. Profitability of our CH CHG business for the full year was also impacted by near expiry provisions on account of lower demand during the COVID-19 pandemic, which we expect to normalize in FY 2024. We continue our focus to build a pipeline of injectable products and have 25 plus SKUs currently in the pipeline. During the year, we launched a few new products with multiple SKUs in U.S. and European markets. Moving on to our India Consumer Healthcare business. Our India Consumer Healthcare business had a good year in terms of revenue growth, despite a high growth base of FY 2022. This growth was primarily driven by our Power Brands, which witnessed growth of 37% in FY 2023. Our Power Brands contribute to 42% to total healthcare sales during FY 2023. Little's brand grew over 50% in FY 2023, and Lacto Calamine grew by over 40% in FY 2023, powered by new launches and traction in e-commerce. In line with our strategic strategy, we are reinvesting our profits in the consumer business to support the growth of our Power Brands. During the year, we continued to spend on media and trade promotion, which has yielded good results, as reflected in the performance of our Power Brands. Further, we launched 26 new products and 37 new SKUs during FY 2023. New products launched over the last two years now contribute 18% of consumer business. We have a strong presence in the general trade and are strengthening our presence in alternate channels of distribution, including e-commerce, modern trade, and our own website, Wellify.in. Currently, e-commerce contributes about 16% of our total consumer business sales and has been growing well. To summarize, I'd like to say while our CDMO business has had muted growth in FY 2023, we're witnessing green shoots of recovery in Q4, including a pickup in our order book, increased mix of innovative business, increasing demand for differentiated capabilities, and continued standards of quality and compliance with five successful US FDA audits in the last six months. We have taken efforts to reallocate resources in OpEx and CapEx towards our higher demand sites. Our inhalation and seizure portfolio continues to see a healthy demand in the US, where we're the leading player in sevoflurane. In the view of increased demand, we're expanding our capacities at our Indian and US facilities. Our India consumer healthcare business is delivering high growth by Power Brand. Our multicultural and multinational team of over 6,200 employees, 17 manufacturing facilities worldwide, and a global distribution network in over 100 countries gives us a robust platform to build scale. We take pride in our quality, track record, and focus on patient, customer, and consumer centricity. We are also conscious of our responsibility towards our planet, society, and all the stakeholders, and are making steady progress in the areas of greenhouse gas emissions, water stewardship, and waste management. We believe in the potential of our business, and our main focus over the next few months will be on capturing demand, driving productivity through operational excellence, and executing critical maintenance and growth CapEx. With this, I'd like to hand over the call to Vivek, our CFO, who will respond to queries we have received since the last evening. Post that, we will open the floor for any questions that you might have. Thank you, Nandini. Good day to all, and thank you to those who shared your questions in advance. We'll try and answer them now and then take up any other additional questions that you may have. The first question was: "What is the status of the rights issue?" We have filed the DLOF with SEBI on the 20th of March this year. We have received and replied to the queries from the regulator. Currently, it is under review with SEBI, and we are awaiting an approval. The next question was: "At what price will the rights issue be priced?" The pricing will be decided closer to the launch of the issue. "What are the reasons for the muted growth in the CDMO revenues for the quarter and the year?" For a full year basis, we saw 1% growth year-on-year in a tough macro environment. Current quarter revenue growth was affected primarily due to the effect of those factors that had impacted the business in the prior quarters, like softer demand for our generic API and vitamins portfolio, relatively low order book during the first nine months of the year due to a delay in decision-making by customers on account of macroeconomic environment and pipeline prioritization. Some execution issues at the start of the year at few of our facilities, which have been addressed during the course of the year through operational excellence initiatives and appropriate interventions across sites and business leadership team. We have seen a good pickup of order booking in the month of March, which will reflect in H2 FY 2024. Also, our recent operationalized expansion at sites offering differentiated capabilities like high-potent APIs and peptides, which went live in H2 of FY 2023, has witnessed a good customer demand. The next question was: "What was the significant year-on-year and quarter-on-quarter growth in the CHG business during the quarter? What has driven this growth?" The main reasons have been healthy demand for our inhalation anesthesia product, Sevoflurane, where we continue to be market leaders in the key U.S. market with a 39% market share, and improvement in supply from our CMO from our injectable pain management product. There was also a question on reasons for a muted performance in our consumer products business during Q4. On a full year basis, our consumer products grew by 16%. Quarterly revenue year-on-year growth appears to be lower, as the prior Q4 included sales of COVID detection kit, which was discontinued this year. Excluding this, the Q4 growth was 15%, and the full year growth was 19%. We also received a question to explain the differences between the reported and the like-to-like EBITDA seen on slide 24 of the investor relations presentation. Just to clarify, the scheme of demerger of the pharma business, which is Piramal Pharma from PEL, and amalgamation of PPL's wholly owned subsidiaries, namely, Hemmo Pharmaceuticals and Convergence Chemicals into PPL, was effective from the appointed date of first of April, 2022. To the extent of non-common control transactions, the financial results are not comparable with corresponding previous year periods. That is, the like-to-like financials eliminate the impact of intercompany transactions between PEL and PPL during the prior periods. Accordingly, all the closing inventory as on 31st March 2022 at PEL, in respect of such transactions, included a margin element, which was charged by PPL to PEL on an arm's length basis. Since the demerger is effective first of April, the opening inventory transferred to PPL at fair value as per IND AS, included the margin element, and the same has been charged to the PNL during the first quarter of PPL's financial statements on sale of such products. The one-time non-recurring impact of EBITDA of this inventory margin in quarter one was INR 68 crores. There has also been a question on expenses on the reasons for increase in OpEx, employee cost up by 19% and other operating expenses being up by 18%, and how many employees were added during the course of the year. As explained, the financials are not strictly comparable due to the demerger-related accounting. On a comparable basis, employee expenses for the full year increased by 17% and net of Forex, the impact is 14%. During the year, we added about net 650 people to fill up the open positions and operate new capacities recently open or planning to commercialize in the coming few months, which are witnessing high demand. The commensurate revenue from this expansion in headcount is yet to come through. The year-on-year increase in employee costs also includes impact of increments and annualization of cost of positions recruited midway through previous year, where attrition was higher. In terms of other expenses, the comparable basis, the operating expenses have grown 13% and net of Forex is 11%. Primarily coming from marketing spend in the consumer products business. This is a strategic choice, which was made to increase market share in the fast-growing segment. Increase in OpEx related to additional capacities, which came in online. We are seeing good demand traction and expect a good efficiency of the cost base and provision for receivables in Q3 due to funding uncertainty of a certain biotech customer. Having said that, the company has been taking measures to contain costs through operational excellence, better procurement, energy efficiency initiatives, lowering discretionary spends through a company-wide initiative. There was also a question on reasons for lower operating income and higher tax in Q4. With respect to other income, it was basically low in this quarter as compared to the prior quarter due to a decline in Forex gain. In terms of tax, the tax liability was higher in Q4, as tax included tax paid on dividends received during the quarter from our joint venture company, against which Section ATM of the income tax benefits were not available, as Piramal Pharma has not declared any dividend. Likewise, on a full year basis, all dividends received from the joint venture company and returned by PL as a part of the demerger process have been offered for tax. This has caused a one-time increase in the tax liability by about INR 43 crores during the full year. As an information, the consolidated accounts, dividend is not shown as an income, but it is knocked off against investments, whereas tax components reside in the tax line, causing this anomaly. The next question was: How much of the net debt resides overseas? Of the INR 4,800 crores of net debt, about 69% resides overseas. There was also a question on the rate of borrowing for the company, and when do we expect to bring the debt down using the proceeds of the rights issue? The rate of borrowing ranges between 6.5%-8.5% between overseas and India, and subject to regulatory approvals, we are expecting the proceeds of the rights issue to flow in by end of Q2, FY24. There was a question on the quantum of CapEx expenses in FY23 and the plan for the future years of FY24 and FY25. The CapEx spends during FY23 was about INR 965 crores, which was largely spent on differentiated sites, which witnessed high growth during the course of the year. For example, we expanded our capacities at Riverview and Turbhe during the year. With respect to CapEx in FY 2024 and 2025, at this point, we cannot make any forward-looking statements during the deal window. There was a question on, other than the receivables provision, which was made in Q3, were there any other atypical provisions in FY 2023? The EBITDA for the full year included near-expiry inventory provision of about INR 92 crores in the CHG segment on account of lower demand of non-COVID products during the pandemic, and besides that, was the one-off provision on receivables that I mentioned. Adjusting for these and the one-time inventory margin on the stocks taken back off PL of INR 68 crores, the like-to-like EBITDA for FY 2023 was INR 1,047 crores and EBITDA margin of 15%. Those are the few questions that came up upfront, but we'll be happy to take up any additional questions. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your 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. We will wait for a moment while the question queue assembles. To ask question, please press star one now. Take our first question from the line of Kunal Khudania from DSP Asset Managers. Please go ahead. I have a couple of questions. First one was on the order book. Like you mentioned, there is a good amount of order book built up, and you also talked about the cost optimization measures that are being undertaken. If you look at the global macro environment, the uncertainty still continues. Is company taking any further efforts to rationalize the costs? More so, if you look at the sequential employee expenses as well as the other expenses that have marginally declined on a sequential basis. What are the exact cost optimization measures that the company is undertaking? The second one was, like you mentioned, most of the proceeds for rights issuance will go towards debt repayment. Is the company confident of meeting its CapEx requirement through internal accruals, or how can we see the debt levels panning out in the near term? Yeah, those two were the questions. Thanks. Okay. Thank you, Kunal. Overall, in terms of the debt, as you rightly mentioned, the intent is to pay down that debt through the proceeds of the rights issue significantly. We are looking at the overall business performance in FY 2024 and are aligning our CapEx requirements accordingly, with respect to what we are going to spend, so the CapEx is getting prioritized. As of now, we believe that we'll be able to meet the immediate requirements, both through a mix of what comes in through the rights issue and the CapEx requirements through internal accruals as well. In terms of employee expenses, I think we have, as we said, hired new employees to actually fulfill the, and operate the new capacities that some of which have gone live and some of which will come in later on. We actually think that overall, the rise in actually sales will actually compensate for the employee expenses. In terms of cost cutting, we're doing, we're looking across the board. We are, you know, doing procurement costs, we're doing operational excellence, we're actually looking at efficiency. You know, if we are hiring, we look very, very carefully at seeing that only revenue-generating hires are being hired currently. Thanks a lot, and good luck. Thank you. We take the next question from the line of Hitesh Agarwal from Fair Value Capital. Please go ahead. My first question is on the Indian consumer healthcare segment. We have grown the revenues to around INR 1,860 crores at present. What will be our roadmap for the next three to four years? When can we expect the segment to start contributing to the bottom line? I think we've said this in public, that once we cross over INR 1,000 crore, we'll start doing a gradual increase in profitability. What has been the revenue and profitability contribution from Allergan in FY 23? As you're aware, that Allergan as a joint venture is picked up as a one-line item of associate income. That is not adding to the top line, but from a share of profit, it's about INR 54 crores for the whole year. Okay. My second question is on the intangibles for the overall business. If you look at the in the presentation, it is mentioned, we have total intangibles of around INR 4,400 crores, which includes goodwill of INR 1,100 crores. Could you throw more light on these intangibles? What do these consist of? Primarily, the major component of this intangible includes the brands that we acquired. As you may recall, that we had acquired brands for our consumer product business, and also for our complex hospital generics business, which includes the intrathecal brands and the pain management brands. Those are big components of the intangibles. It also includes certain component of the pipeline of DMS, which we have developed for our generics business. Are we anticipating any impairment on these intangibles in the coming year as such? Nothing of that sort. Okay. We don't see any indicators for impairment. My last question would be on how many new products have been commercialized in FY 23, and what will be our target for FY 24 in the CDMO space? Would these be on patent products, or would these be for phase 3 going to commercialization? Is that the question in CDMO? Yes. Yeah. Right. I don't think we're in a position. I think that's limited in our, in our filing requirements about sharing that information. Yeah. I would just point you to, I think we may have done a press release with one of our customers that allowed us to share. That would be one example you could go to and look on our website. Beyond that, we're limited in what we can say on that. Okay. I will join back in the queue. Thank you. We take the next question from the line of Niteen Dharmawat from Aurum Capital. Please go ahead. Yeah, thank you for the opportunity. Am I audible? Yep. Okay. You mentioned about 600 people that we added. How many of them are in India and how many outside India? I don't have a breakup at the moment. I think we can. Yeah, I'll get back to you on this. If you can just drop me a mail, I'll respond to it. I'll do that. Thank you so much. More were inside India and fewer were outside of India, because a significant amount of the addition was in our Ahmedabad discovery services group, which is an FTE-based model, but we can give you the breakout. Thank you. We take the next question from the line of Chintan Shah from JM Financial. Please go ahead. Hi, thank you so much for the opportunity. A few questions. The first one is, can you help us understand the margins of the CDMO business better? What I'm trying to understand is we have an innovator part, and we have a generic part. Can you just help us understand what would be the differential, probably on a normalized basis, if not specifically for FY 23? We don't actually provide segment-level profitability, but what we could guide is that the reason why we share and discuss the percentage of revenue from differentiated offerings and also our share from what we call innovative offerings, is because it's more lucrative materially than the alternate offerings. The reason why we try and share those revenue transitions in the different ways we communicate are because they are financially materially more beneficial. Okay, got it, understood. Secondly, with the guidance that we have a healthy mix of innovative portfolio in the bookings. I just want to understand, when you say healthy, what would that be? Ideally, more than the mix that we have in FY 2023, or how should we understand that? I don't think we can actually give the breakup actually for next year. Not at this point, Chintan. We can't make forward-looking statements, please bear with us for some time. Okay, sure. No problem. Another thing, in your RHP, you mentioned a few of the products on the generic side. Just want to get an understanding of the strategy here. Is it, in terms of market size, et cetera, if you can give some guidance basically about this place? Which products do you involve? You mentioned four products, basically, diltiazem hydrochloride, ketoconazole, trazodone hydrochloride, and those four products that you mentioned. I'm assuming this would be the major products to get sense in terms of what's the position in the market, the market size, and probably how much would they be contributing to our revenue? One is, Chintan, our generics products, there are 2 types. One is where we make generics for our customers also, so that's a kind of make to order. We, some of our big customers would be using our as main generics. We also have our own DMS, which is the API generics business, which makes those 5 kind of products. It's a mix, is how I would put it. Okay. On trade generic side, if you can throw some light, I mean. On the API generics, I don't think we can give outlook at the moment, right? Yeah. That's- Yeah, also. Basically, the market size, et cetera. The market size is, whatever we provided in the DLOF is what we can provide, because of the nature of the data sharing. Okay, sure. No problem. I'm sorry. Sorry about that. No, no problem. Lastly, on the India consumer side, if I see the growth, what you've mentioned is the Power Brands and Q4 have grown by 31%. Yes. What you mentioned in your opening remarks is, if you exclude that COVID case, the growth would have been higher at around 15%. What I want to understand, since Power Brands contribute around 42%-43%, the balance portfolio, what is happening with that? Is it growing or what if you can throw some more light? We had a whole hygiene COVID, like COVID hand sanitizers and things like that, as well as the COVID testing kits, which has obviously now become much smaller. I think that has degrown. Overall, the rest of the non-Power Brand portfolio is growing slightly, but not as fast as the others. Okay, would they degrow this quarter? Um, not- There's no degrowth. No, this is not degrowth, but it's just mostly they're growing slowly. Yeah. We're not putting promotion money behind it. It's more trade-led. Yeah. Okay, sure. In terms of margins, I know right now we are making losses, but just to get a sense, this Power Brands, how the daily or high-margin products versus other brands, how should we understand this? We're not making losses, we're breaking even. First is we are, you know, we very much said to the business that anything that they spend on gross margin, they can re-spend on promotion. The Power Brands are actually the potential of scale, and that's what we're looking at. From a product perspective, they're a mix in terms of gross margin, but we think they're in bigger markets and have the potential to be much bigger. On an absolute level, they will be profitable once you get to a certain scale. Sure. That was helpful. That's it from my side. Thank you so much. Thank you. Ladies and gentlemen, in the interest of time and fairness to all participants, kindly restrict questions to two per participant. We take the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead. Hi. Good evening to all. Just trying to understand the QoQ recovery, and the Q4. Is it also a function of new capacity starting to play out already, or it is yet to play out? If capacity is not the reason, then what played out? You've been saying that, you know, the order book for the start of the year has been soft, customers are delaying decision, et cetera. What really led to that growth recovery? Prakash, Q4 is always the biggest quarter. There's the way it's kind of, what that one, this thing, because the way a lot of our customers do is they want to run down inventories at the end of the calendar year and then beginning reorder in the Q4 of our financial year, so first quarter. That's actually 1. 2 is there has been some capacity, so at Riverview and at Turbhe, which opened during the quarter, and we were able to get revenues out. I think those would be the two. Okay. This would build up, right? Yes. Riverview as well as. Yes. Turbhe would have a full quarter impact going forward. Yes. It should build up, right? Yes. Okay. From the, you know, margin levers perspective, what are the key margin levers you have for, you know, what you have played out already in, say, you know, or you've already taken action in fiscal 2023, especially in second half of fiscal 2023? Would cutting some promotion costs at the consumer business would be one of them, or what are the other levers that you are playing? No, we've actually continued to spend on the consumer products business, because for us, we believe that, you know, continued promotion will get us more higher growth than not doing it, so that's on it. We've actually re- restrained costs. We cut down on CapEx and deferred CapEx, which was not growth or maintenance-led CapEx. We've seen also the benefit of higher revenues, which, in a fixed cost business, give you a lot more, I guess, operating leverage. No, no, I meant what are the initiatives you've already taken in the, you know, last 3, 6 months, given that you were foreseeing, you know, slowish, weakish, growth, what are the steps you are already taken in the last 6 months? Let's break it into segments. Yeah. You know, I heard you in the last call that you have done some, you know, replacement hiring in the CDMO business globally. That would have added to cost, then the power, fuel, freight, et cetera, you had talked about. Seeing the cost increase, and at this quarter, the cost has not gone up. I'm just trying to understand, are there any measures as a company you have taken, which has started to play out and, which will play out also in future? Yeah. First, I want to tackle the demand portion, and we'll cover CDMO first, and if that's sufficient, we can stop there, or you can guide if you want to hear about CHG. The first thing on demand is we took a number of actions to increase the number of shots on goal, speed the decision-making, make decision-making faster, make it easier for clients to decide faster on smaller projects or in smaller slices, and also improve our win rates. We saw a pickup in our win rates as the year progressed, and we saw a significant increase in overall decisions in the Q4. That's one thing that we see the benefits of in the later period. The second thing you're going to ask about is on personnel changes. We made some important changes. We have a new COO who's leading the business, and we also went through the next two levels of the organization and made a number of changes in leading functions and also sites where we thought change was needed. We do actually have injection of leadership in many of the places where we thought change was appropriate or necessary, and a few that were that are still pending, but they're in the works. Overall, that's been an important second component. The third one is we actually tried to explain how in the prior quarter, when we did the call, that we felt that the quarter-on-quarter OpEx may look disproportionately high versus reality. We gave certain explanations to try and guide that it wasn't a recurring increase. Actually, there were one-offs in that scenario. We think that that is showing up in this context. That notwithstanding, we've also taken certain cost moves. We've been very careful about our headcount choices. We're only adding headcount where there is robust demand and necessary needed of operator-level positions. In other places, we're actually seeing headcount reductions and decisions relating to that, to align to the demand scenarios at sites that are not in that position. I think the next thing is we've actually bolstered our OE team earlier in the year, which has been deployed to sites to derive productivity improvements that would allow us to get better revenue to EBITDA conversion. We're seeing some of the benefits, and we expect to see more benefits from the OE project. In addition, we did a lot of work on productivity side of the procurement, and we brought in additional capacity to be more aggressive in how we approach procurement. We've seen from, you know, unfavorable to favorable PPV variances because of those efforts by our team over the period. I would probably finally mention, we mentioned energy efficiency, and obviously, we all noticed the impacts of energy increases, so we deputed a company-wide task force at each of our sites to think about things that could reduce our energy spending either through rate or volume changes. We've actually started to see the benefits of the actions that may be not be CapEx driven and could be more lighter in terms of investment and time. I think we're seeing some of the benefits of those efforts already in the quarter. As Nandini mentioned, this is a fixed cost business, and top-line revenue has very beneficial impacts on bottom line, but we haven't been waiting for the top line. We've been taking a number of other methods and actions that I just described briefly here. No, fair enough. Thanks for the detailed explanation. Just a follow-up here. You talked about, you know, strong order book, which is visible now. Has the business environment changed? Because last time you spoke about delay, decision-making. Is the business environment improving and, hence you are seeing order book, or it's a function of more capacity being added, more capabilities being added, or is it the function of both? Sure. Actually, I'd say it's a third. The clients that we were in discussions with for a long period of time did have the money throughout the year, but they were not making decisions before they had to. They've now made decisions. The second thing I would say is that we actually have a certain number of clients that have had recent approvals commercially, and now they are preparing and engaging in their launch or the early commercial activities. They need to have the supplies to support those activities. I would say, Third, we've seen some of the benefits of our efforts. I mentioned our strategy of more shots on goal, faster decision-making, and improved win rate. We actually have seen some of those efforts starting to bear some fruit. I wanna caution that we're not counting on or depending on a macro uptick in the environment for our plans. If that were to happen, we would view that as an upside. We're just counting on the clients that have good science, good data, and clarity about their plans to continue to place their work with us and for us to get, we use the term, more than our fair share through the three strategies I mentioned, but we're not counting on or banking on a macro uptick. I don't know if you want to add anything. No. Okay, thank you so much, and all the best. Thanks. Thank you. We take the next question from the line of Yasser Lakdawala from M3 Investment. Please go ahead. Hi, good evening, Nandini, Peter, and team, you know, and congrats on having a strong compliance track record, as you've always had over the years. You know, when you look at sort of, you know, the long-term, you know, game plan, like, how do we sort of improve our CRO, CDMO footprint in India in terms of number of scientists, you know, more small-scale pilot labs? How hard is it to sort of build and scale this part of the business? Because we've seen that, you know, we've grown the discovery and development bit to about 30-35% of our sales, CDMO sales. How, how hard is it to sort of grow this business to a much larger, meaningful pace? Could you shed some light on that? Do you mean the discovery business, or do you mean the development and innovator side of the business? Yeah. The innovator, sort of, the discovery and development business, right? Because that would be sort of the top-of-the-funnel piece, which would allow, you know, maybe a lot of those projects to flow through eventually, hopefully, into commercial. The discovery business, I would say, is actually quite early on in the kind of scientific process. Mm-hmm. It would take actually quite a long time for those projects to flow through, right? It's a very profitable business, and, you know, it's kind of based on the number of scientists and fume hoods, and we've been expanding capacity over there. Mm-hmm. in our PDS business in Ahmedabad. I think we don't necessarily want to make it the, kind of, the driving force of the business, is how I would put it. I think it's. We like the business. Our scientists are actually very good, and we're going to continue to manage that well. In terms of discovery and development, I do think, overall, it is a question of having the right compliance and quality record, having the right scientists, but I will say some of our customers also want nearshoring to happen. You know. Mm-hmm. some of our customers are saying that they want business to be done for their patented products, innovative products in the U.S. or even in Scotland. That's why we've been seeing pretty good demand in our Riverview, Aurora, and our Grangemouth sites because that's where the customers want to do it. The benefit for us is we've been seeing with our integrated projects is that we can talk to a customer and, you know, do something at Riverview, and then they'll give us, you know, something in India, for example. That's something you wouldn't have seen if you didn't have the U.S. facility. I think the way we're gonna look at it is, we're gonna provide whatever the customer wants in whichever geography they need, whether it's the U.S., U.K., or India, and that helps us to meet the customer where they're at. Fair enough. thanks for that, Nandini. you know, secondly, we've had, you know, like, some sort of execution challenges at, Morpeth, you know, the hormonal, OSD, and contraceptive, plant, and the one in Lexington. I think there were two older facilities, which we were trying to sort of modernize and, you know, convert them to sort of commercial-scale, facilities. How far are we in terms of them become, say, profitable contributors to our CDMO business? I can't tell you forward-looking guidance at the moment, Yasser. Oh, okay. Oh, sorry. I can talk about the past. I can't talk about the future. Sorry. over, say, a 5-year- I would give some operational indicators as an example of why we have confidence in these two sites and what they can bring to the network. If I were to look at, let's say, the Morpeth facility at this moment, we look at in-stock ratio for some of our key customers, and we're at or above the expected% and have been for some time. We're meeting our customer commitments at that site, and we're actually seeing probably higher demand at that site than we have in the recent past, such that we're actually having to add operators at the moment to meet that demand, which we think is a beneficial trend for profitability for all the obvious reasons. We actually do think that a lot of our efforts to address the operational issues have borne fruit at that site, and it's now at the point where we can discuss revenue growth instead of operational issue containment, and that's a great transition to have made, and now we need to continue that transition. The second one I'd say is that Lexington, we did obviously have challenges before, but if you look at our recent trends or even our four-year trend in, let's say, net promoter scores of customer experience, which we find to be a lagging indicator of operational experience by our customers, it's been a sequential improvement each year over the last four years, and now we actually are in a positive position for customer experience. The second indicator I could give you would be around regulator experience, It's one of the sites, and Nandini mentioned having a favorable US FDA outcome, which we think is the regulator saying, "This is good." The customers are saying, "This is good." The third one, if I were to look at our set of open RFPs that are being discussed with customers, actually, Lexington would have the highest percentage of open, not yet decided RFPs of any of the sites in our network, demonstrating the overall market need for the offering. While we have not yet addressed it, and I can't give forward-looking comments, what I'm trying to give you are backward-looking information aspects that could give you reason why we think we have confidence in those two sites. That's great to hear, Peter. My last question would be, you know, I mean, you know, in terms we still have about, say, 50, say, more than half of our business, you know, is generics and some nutritional products. So what are we doing at, from a, from a, say, a process efficiency or technical competency and, to, you know, improve maybe our yields, maybe our manufacturing processes, maybe, you know, so that, as you said, like, you know, you want to improve margins, you can also, you know, maybe hopefully improve profitability, you know, improve gross margin and do that and not worry about the macro growth. From an existing business standpoint, what are we doing to sort of, you know, enhance our technical progress, if I may ask that? On the nutrition side, last year, we went through a soup to nuts, change effort involving changes at the how we lead the business, how we organize the business. We looked at go-to-market, we looked at offerings, we looked at cost to serve, way to serve, and we're now in the process of implementing some of those plans. It'll never be the top performer, but we do believe that these plans, as implemented, should continue to show a positive trajectory and improvement and reduce the drag that it's had in the recent past. It's never gonna be the hero, but it's gonna be a meaningful contributor again. It's gonna take some time, it's gonna take some work- Mm-hmm. We did go through the effort, to figure out what we think the job needed to be done, and now we're doing it. In the case of the generics business, that process we started more towards the end of last year. It's lagging a bit. Once again, it's a similar effort that's going on, where we're doing, once again, a soup to nuts activity. Some of the yield efforts actually progressed in parallel because it didn't require the overall holistic look, but we are, looking at the overall generic business end-to-end. I would mention that while you could frame all of generics the way you just did, generics also includes what we offer in Turbhe, and I would say the addition of the peptide generic component to our business is a highly growth-oriented, high-margin, less competitive environment that has really been a great addition to our portfolio. It allows us to kind of include, even in that business, from a mix perspective, technologies and capabilities and offerings that not all of our competition can offer, that we actually think is gonna change the overall mix, in addition to the plan I described for our more legacy generic portfolio. Thanks a lot. Thanks a lot, Peter and Dominic. Thanks. Thank you. Thank you. We take the next question from the line of Ishita Jain from Ashika Group. Please go ahead. Hi, thanks. Congrats on a stronger Q4. In the hospital generic segment, could you comment on the pricing pressure in Q4? We were also expanding Digwal and the Dahej facilities. Are these expansions live now? I'm not sure if I missed it. Perhaps you could also talk about capacity utilizations at these facilities, please. The expansions for our lead products are not yet live in India, and they will take some time to complete. They're underway. We do have some more expansions for reliability that allow higher capacity out of our Bethlehem, US facility that are gonna go on in a series of actions that will be more near-term realizable over the period. We expect those to be more short-term visible. I can't make forward-looking comments per se, but from a general strategy, you should view the Bethlehem capacity enhancements or reliability enhancements to be more proximate, and you should view the Dahej and Digwal to be a bit more medium to longer term. Our utilization at the moment is that demand is greater than supply. Everything we make, we're selling at the moment. The next question around pricing pressures. As you would know, we are in the generics market, and that's the market where prices typically go down, not up. We are in that scenario, and that we expect that to continue. We do expect with our overall approach to vertical integration and also the limited number of competition that can compete against us, given the model we picked and what we're actually selling, that we should be able to maintain what we would call healthy gross margins and overall profitability as we have over the last 10+ years with this offering. Got it. Thanks. You mentioned that demand is stronger than the supply in the market. It's the same comment you had given last time. Just wanted to ask that, A, that remains same, and B, that remains same in our existing geographies, correct? It does. You may wonder, well, why is this the case? I would give just two elements. The first is that we've been succeeding with our commercial execution and presenting ourselves as a compelling option against the alternatives in the marketplace, and that has been allow us to gain our percentage market share and improve our position. That is the first point. The second point is that there has been a general increase in Sevoflurane utilization versus some alternatives due to some changes in preferences that we think that trend is gonna continue. Notably, there's been a decline in the use of Desflurane and a conversion of that prior usage to Sevoflurane, we are well positioned to capture that overall macro change. Okay, that's great. Just as a second question, on the CDMO front, you mentioned 25% of CDMO revenue is from the innovators. What percentage was commercial manufacturing versus development and discovery services, and how has that changed year-over-year? I think it's 45%, Ishita. Maybe we can get back to you with the exact. If you email Gagan, please, and we'll get back to you with the exact how has it changed over year-on-year. Okay, got it. Will do. Thanks a lot. For the general audience, without giving specifics, we would say that the% change in innovator business is going up, as in it's growing faster than the overall. We would also say that the% differentiated offerings is going up and growing faster than overall. We think those are nice leading indicators of the efforts we've been doing for the last several years. Thank you. We take the next question from the line of Vinod Jain from WF Advisors. Please, go ahead. Thank you. My question is to Nandini, Madam. The financials reflect sustained lowering of profitability. Net profit recovered for Q4, but is a mere 2.5% of revenue. Priority-wise, what are the steps taken to counter this situation? Do you see the situation reversing in the near future? I think we've talked about, a little bit about how we are looking at cost, whether it's procurement or whether it's operational efficiency and as well as energy efficiency. We've also been, as we said, looking at headcount in terms of if we are adding people, we're adding people that are directly revenue generating and reducing headcount, where to be in line with where the revenue is. As we think about the next year, we expect. We've got a good order book, so that should translate into higher revenues in the second half of the year. We should see profitability improve from there. Very well. Thank you and good luck. Thank you. We take the next question from the line of Tushar Manudhane from Motilal Oswal. Please go ahead. Yeah, thanks for the opportunity. Just on your explanation of preference towards Sevoflurane, if you could elaborate on this. Is this a regulatory factor which is driving this change in preference, or is there a doctor factor? I'd say there's generally the cost of Desflurane is a bit higher for a patient than the cost of Sevoflurane, and that's been present for some time. Generally, as budgets are economized, people have been switching and reducing from one gas to the other, because that's the cost to the ultimate buyer. The second one is that in some of our geographies, we have noticed that there is a argument for greenhouse gas optimization, and the contribution of Desflurane to those gases is severalfold higher than Sevoflurane. If a hospital wants to make a move towards net zero, they say, "I'm gonna reduce Desflurane, increase Sevoflurane," and then they can check the box and address their sustainability objectives for the period. Interestingly, this has, sort of, helped in, particularly in Q4, as I see the, our previous orders, we've been pretty stable on the complex hospital generic segment. The overall trend is a multi-year secular trend that I described. The quarterly performance is a combination of demand and supply and the overall contracts we've won. That would be more commercial execution. Understood. In complex hospital generic segment, how much of the overall requirement would we be taking from CMOs? We only make it sevoflurane. We make the inhalation anesthetic. The rest of our business is taken from CMOs. 56% is in-house, and the balance is from CMOs. Tushar, does it answer your question? Yeah. Just lastly on this, since we've acquired Hemmo, almost in November 2021, so if you could just help understand how much of the capacity expansion we have done in peptides, and now that capacity expansion is done, so, in terms of what could be the future course of work, or when could we see the commercialization benefits coming through? We were supply constrained up until when that capacity went online late last fall. The capacity increase was 50%, approximately, plus or minus. It took a little bit of time to stabilize. Now we think we're benefiting from that capacity expansion. It's now allowing us to execute on the orders that we have and the demand that we have. Now we're gonna have to tilt back towards demand generation. But for the period, we've now achieved what we needed with the expansion. Now we have to execute on the pipeline and the commercial execution. This would the incremental capacity require these exhibit batches, validation, and then subsequently the business, or is it the same product, so the commercialization can start from day one? Those were some of the issues I mentioned in terms of the teething issues with the expansion. We've done a lot of the validations needed to utilize the greater column, and we're now utilizing it, and that's why we now are no longer supply constrained at that site, which we were up until probably even March of this year. Good. Just lastly, on this aspect, so how much would you spend on expanding the capacity, and what kind of asset turn can be expected? I don't know if we've disclosed this, but this would be one of our higher ROI expansions. Got it. The investment was very modest, the incremental headcount was very modest, and the incremental revenue was significant. Okay. This is kind of, from a financial perspective, the dream CapEx. Interesting. That helps. Thank you. Thank you. Ladies and gentlemen, due to time constraint, we take the last question from the line of Aditya Jajodia, an investor. Please go ahead. Yeah, thank you for the opportunity. I wanted to understand on the innovator business growth, from the last year to the current year, there is a slight degrowth. Could you talk about that? I think we would say that there was an increase in what we call innovative business, which covers discovery, development, and on-patent commercial. Yeah, from on-patent commercial, there is a decrease. You're describing specifically the commercial. Yeah. There were some customer-specific issues that resulted in them not placing follow-on orders last period, that resulted in what we think is a one-off situation. We have other new customers that are expecting to place and have placed POs for the upcoming period, which gives us confidence that that was simply a one-off of one large customer that didn't place a PO over the period because of corporate action that happened on their end. Okay. Okay, can you explain on the integrated order book that you're talking about? It is a generic kind of business, in that, it is for the customers we do. What kind of nature is integrated order, when you speak of $62 million? What we mean by an integrated project is that typically a customer would historically have a team that would go off and procure individual services from different providers on a one-by-one basis, and then they would have an internal team that would project manage and move the product from the different providers along the chain, until it eventually ends up in their warehouse for them to use. With an integrated offering, we combine multiple steps into a single order or a single relationship, so that we handle the handoffs for them, for that portion that we do for them, instead of they do. It provides speed and simplicity. An example would be where we could... We recently signed an order for a large pharmaceutical customer, where they would start the early chemistry in Digwal, in Telangana, and then we would do the final chemistry in Riverview, Michigan, and then we would do the drug product fill finish in Lexington. In a traditional model, those three steps would be done with three separate contracts and three separate CMOs or CDMOs. In our model, we tell them: "We'll do you as one relationship and leave it to us." That's one example. Another example would be, which we gave a press release on, we can, you can look at it on our website, but it's where we did the drug substance in Digwal and the drug product in Morpeth, UK, and that these are both innovator examples. This is typically a more value-oriented partnership, as opposed to a cost-oriented vendor relationship. Okay, that helps. When you talk about the integrated, this one, it is totally innovative business, or it can be of generic business, but a little high margin business? It's more likely to be innovator. I'd say the 80/20 rule or the 90/10 rule. Okay. Okay. Thanks. Thanks. That's all for me. Thank you. Ladies and gentlemen, that was the last question. I now hand the conference back over to Mr. Gagan Borana, for closing comments. Over to you, sir. We hope that we were able to answer most of your questions. In case you have any follow-up questions or any clarification that you may need, please feel free to reach out to me, and I'll be happy to respond. Thank you, and have a good day. Thank you very much, sir. Ladies and gentlemen, on behalf of Piramal Pharma Limited, that concludes this conference. Thank you for joining with us. You may now disconnect.