Ladies and gentlemen, good day, and welcome to fourth quarter ended March 2023 financial results Conference Call of Syngene International Limited. As a reminder, all participant lines will be in the listen-only mode, and there is an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Avantika Mishra from EY. Thank you and over to you. Good afternoon, everyone. Thank you for joining us on this call to discuss Syngene's Q4 FY 2023 financial and business performance. From the management side, we have Mr. Jonathan Hunt, MD and Chief Executive Officer, Mr. Sibaji Biswas, Chief Financial Officer, and Dr. Mahesh Bhalgat, Chief Operating Officer. Post opening remarks from the management, we will open the line for Q&A. We'll be happy to answer any questions you may have. Before we begin, I would like to caution that comments made during this conference call today will contain certain forward-looking statements and must be viewed in relation to the risks pertaining to the business. The safe harbor clause indicated in the investor presentation also applies to this conference call. The replay of this call will be available for the next few days. The transcript will be subsequently made available. With this, I now hand over the call to Mr. Jonathan Hunt. Thank you and over to you, sir. Thank you. Good afternoon, everybody. Thank you for joining us. Let me start with an overview of the fourth quarter before summarizing the full year and then hand back to Sibaji to give you a more detailed account and talk about guidance for the year ahead. Syngene's fourth quarter revenue from operations grew by 31% over last year, and was in fact our biggest quarter ever. As a result, we had a strong end to the year with positive performances across all four divisions. Profit performance was also strong, with operating EBITDA for the quarter up 27% to INR 314 crore. Profit after tax, PAT, was up 21% year-on-year to INR 179 crore. Turning to the business highlights for the quarter, our research businesses, that's discovery services and dedicated centers, delivered sustained good performances. The growth in discovery services was led by the continued uplift in demand we're seeing for chemistry. Part of that was delivered out of our research facility in Hyderabad. That facility expanded further in the fourth quarter and now accommodates almost 900 scientists. In development services, the fourth quarter is often the largest of the year. This year was no exception, and I'm pleased to report a sustained growth there. Growth in development services came mainly from orders from existing clients. This increased client stickiness, I think, really reflects our focus over recent years on operational excellence and on-time delivery. In manufacturing services, after successfully completing audits of our biologics facilities by the U.S. FDA, the EMA, and the MHRA, we had a busy quarter supporting the long-term partnership that we have with Zoetis. Let me spend now a few moments reflecting on the full year. I'm pleased with the progress throughout the year, and in many ways, the fiscal year proved to be an important one in the delivery of our long-term strategy. This year saw material progress in our manufacturing division, as Elise mentioned, alongside the continued good progress in discovery services, the sustained improvement in service delivery and operational excellence in development, and that gave people a much broader base upon which to grow. Our strong performance in the fourth quarter, having added to performance over the course of the year, ensured that we delivered full-year results ahead of our upgraded guidance. On the financial side for the full year, we reported revenue from operations up 23%. That's to 3,193 crore rupees. Profit after tax was up 10%. From the start of the year, we saw many clients were keen to make up for lost time that they felt they lost during the pandemic. This client base was supplemented with growth in the number of collaborations that we have with small- and medium-sized research-based companies. We also celebrated the 25th anniversary of our partnership with BMS a few weeks ago. This collaboration, as you know, started out with a handful of scientists in a single lab. It is now BMS's largest R&D facility outside the U.S., accommodating several hundred scientists. The partnership with Zoetis is also a long-standing one. Although the 10-year manufacturing agreement is relatively recent, actually our collaboration with Zoetis started back in 2011. Over the past 11 or so years, we've undertaken research and development work on a number of monoclonal antibody projects for use in animal health. Other highlights thinking about the year, I think the high operating standards are the hallmark of the company. The year saw several notable successful regulatory inspections. In addition to the successful audits of our biologics facility, we completed almost 80 other regulatory and client audits during the year. The latest one of those was the successful completion of the GCP audit by NABL, the National Accreditation Board for Testing and Calibration Laboratories, which endorsed Syngene scientific standards for clinical trials. While we take pride in our excellent audit track record, we know that really only comes from the meticulous and daily commitment to compliance, and we really don't take any of that for granted. During the year, we continued to invest in building capacity. I'm going to give you some examples. Our campus in Hyderabad added around 400 scientists during the year. We commissioned a dedicated PROTACs facility as part of Syngene's novel drug discovery strategy for clients involved in cancer and other treatments. In Bangalore, a state-of-the-art sterile clinical scale fill finish facility was commissioned. That adds to our end-to-end capabilities in development. Finally, a kilo-scale lab for polymers and specialty materials was also commissioned during the year. Another important area of focus was our supply chain. We took steps throughout the year to increase supply resilience. We increased the number of suppliers we have outside of China, added more suppliers here in India. We took steps to improve our overall supplier ecosystem. Looking ahead, we see industry trends for our sector that are positive. Although there are two macro trends that are yet to fully play out for our clients in biotech and pharma, let me comment a little bit more on those. Thirdly, you know, there are financial pressures coming from increased end product pricing, the higher inflation and higher interest costs. We can see those pushing pharma companies to think more carefully about how to optimize their operating models and budgets. For some, this is making them much more cost conscious. Now, I would say that's not a bad thing for a business like Syngene, given we have a relative cost advantage. For others, it's leading them to consider their total size of their operations and even bring into play thoughts on their own internal infrastructure. You have seen a number of these trends reported over the last year in the media. Overall, I think this is likely to increase the trend for outsourcing, and that I think is a net positive for a company like Syngene. Secondly, in the emerging biopharma segment, while we've seen a slowdown in funding in 2022 compared to the previous two years, I think you'd note that the previous two years were some of the highest funding environments we've ever seen. The share of industry, the share of the industry pipeline coming from those biotech companies continues to increase. The current focus for many of these companies is how they extend their cash runway while keeping their promising scientific programs moving forward. Here we think, of course, the breadth of capability and the relative cost advantage that Syngene offers can be attractive to them. In conclusion, I think we had a good year on multiple levels. Syngene's revenue performance was positive. We beat the upgraded guidance. I think we're starting to set a new trajectory that's a positive one for the company. We saw good evolution and growth across all of the businesses. Discovery services had a good year, that was led by a sustained uplift in chemistry. We made good progress through improved operating performance in development services. That was reflected in the number of repeat orders from existing clients. Manufacturing had a strong year led by the commercial scale biologics manufacturing business. There, the long-term deal with the latest and successful regulatory inspections sets the solid foundation for the future. Looking ahead, I think we're optimistic, and that's despite the challenges of inflation, geopolitics and recessionary pressures that are visible in some regions of the world. I believe that our performance over the last year and the progress we've made on the strategic development of the company position us well for the year ahead. With that, let me hand over to Sibaji to walk you through the financial performance and also to cover guidance for the year ahead. Thank you, Jonathan. A good afternoon to everyone. Fiscal year 2023 was the year after the pandemic. I'm delighted to report that our company demonstrated remarkable resilience and emerged stronger than before. With a robust business model, a broad customer base, a strong balance sheet, and with focus on execution, our company has delivered a very strong year-on-year increase in revenue and EBITDA. The performance in the fiscal year 2023 has beaten the upgraded guidance and provided a strong foundation for our future. Before we delve into the detailed performance for the fourth quarter, I want to remind you that as in previous quarters, I'll be referring to the underlying performance. This is performance that excludes the impact of COVID-related remdesivir manufacturing, which provided a one-time revenue and profit stream in the previous fiscal year. As we have more remdesivir sales in the financial results that we are reporting today, it is useful to exclude remdesivir from both periods to focus on the underlying performance of our ongoing business. As Jonathan mentioned, the revenue from operations in the fourth quarter increased by 31% compared to the same quarter in the previous year, while the underlying revenue growth excluding remdesivir was marginally higher at 33%. We have seen continued good performance from the Discovery Services division, which grew steadily on back of healthy demand. The Development and Manufacturing Services division as a whole grew by 42% year-on-year, benefiting from repeat orders from existing clients in the small molecule development business and increasing collaborations with emerging biopharma companies. With the regulatory approvals in place, this quarter also saw the start of manufacturing of drug substance at a commercial scale for Zoetis, which also added to the strong year-on-year growth. Reported EBITDA for the quarter saw an year-on-year increase of 27% amounting to INR 337 crore, up from the INR 265 crore during the same period last year. Reported EBITDA margins for the quarter was 33.1%, down a little compared to 34.3% in the previous year. EBITDA from operations, excluding other income, came in at INR 314 crore, up around 26% compared to the same quarter last year. The corresponding operating EBITDA margin, that is without other incomes, stood at 31.6% for the quarter compared to 33% the previous year. The EBITDA margin was lower primarily due to hedge losses booked this year versus hedge gains in the previous year. Turning to the key elements of cost within our business. Material costs for the quarter increased by 37%, reflecting a shift in the business mix towards manufacturing services and an increasing proportion of early-stage clinical manufacturing projects that carry higher raw material cost. The quarter saw a year-on-year increase in staff costs of 41%. I would like to remind you that the fourth quarter of the previous year had the benefit of lower costs relating to retirement benefits arising from higher level of attrition. Adjusted for this, the staff cost growth is in line with increase in headcount and annual pay rises. Other direct costs increased by 15%. The company's investment in renewable energy helped to reduce carbon emissions and mitigate rising energy costs. Despite the expansion of facilities and the surge in power tariffs, we successfully controlled the overall expenditure on energy in the company through green power. The inflationary pressure on the rest of the utilities, especially gas, has partially offset the benefits we are getting from our investments in renewable energy. Other operating expenses, which includes business travel, sales, promotion, and other overheads, increased by 4% compared to the same quarter last year by when activities had already moved up to the near normal level. Revenue for the quarter was hedged at around INR 79.5 per U.S. dollar and the revenue and margin guidance were given based on the expectation of revenue realization around the hedge rate. The average spot rate, however, during the quarter was around INR 82 per U.S. dollar. The EBITDA margin for the revenue fixed at the hedge rate came in at 31.7% compared to 32.6% the previous year. The company saw hedge losses of INR 4.2 crores during the quarter compared to a hedge gain of INR 9 crores in the fourth quarter of the previous year, due to the difference between the average spot rate and the hedge rate. Depreciation and amortization for the period increased by 19% year-on-year to INR 95.5 crores. The increase is attributable to new investment in facilities, equipment, and infrastructure. Finance costs increased from INR 5.6 crores to INR 10.6 crores due to the rising interest rates and translation losses on foreign currency borrowings. Other income for the period increased by 55% rupees to INR 22.8 crores, which was driven by the increase in cash balance and better yields on bank deposits and other instruments. Profit before tax increased by 29%. Profit after tax was INR 179 crores compared to INR 148 crores last year, registering year-on-year growth of around 21%. The difference in growth rate represents an increased effective tax rate of 21.8% in fiscal year 2023 as compared to the previous year's rate of 18.3%. This increase in tax rate is due to some profit-generating units coming out of the effective tax benefit during the year. In summary, the fourth quarter demonstrated consistent positive performance leading to a strong full-year results. Now I'll comment on the full-year performance. Reported full-year revenue from operations exceeded our guidance with a year-on-year increase of 23%. This reflects good performances from all divisions. Our CRO businesses delivered growth over 20% and constitutes 65% of the revenue. The CDMO business grew by 28%, driven by the start of commercial manufacturing biologics and a healthy level of repeat orders from our clients in small molecule development services. EBITDA from operations grew at 17% year-on-year. The gap in growth rate between revenues and EBITDA is mainly due to the hedge losses booked during the year as against the hedge gain booked in the previous year. Reported material costs showed a relatively lower year-on-year increase of 15%, mainly due to the base effect of remdesivir manufacturing in the previous year, which had higher raw material cost. Adjusted for that, the underlying material costs growth is a bit higher than the revenue growth due to the shift of business mix towards manufacturing. The overall material cost to revenue ratio now stands at around 27% of revenue, which is within the range guided by us in our previous calls. Staff costs for the year increased by 20% in line with the headcount growth and annual increments. Overall, staff cost to revenue ratio stands around 28%, which is very similar to the previous year. Other direct costs increased by 27%, reflecting the inflationary pressures in utilities. Other expenses grew by 25%, driven by the resumption of activities post-pandemic and other operating investments. The EBITDA margin from operations for the 12-month period was at 29.3, 130 basis points lower than the previous year's margin of 30.6. However, if the revenue is fixed at the hedge rate, which was incidentally the basis of our guidance, the EBITDA margin came in at around 30%. Depreciation and amortization expenses for the year increased by 18%, reflecting CapEx additions. The operating EBIT, that is EBIT without other income increased by 17% in line with operating EBITDA. However, the interest expense for the year increased from INR 24 crore to INR 45 crore due to rising interest rates and translation losses on foreign currency loans. This is an increase of 87%. The higher increase in interest costs and increase in effective tax rate resulted in PAT growth of 10% year-on-year. Profit after tax was at INR 464 crores, which is above the guidance of single-digit PAT growth that we have given before. The CapEx guidance for fiscal year 2023 was for a spend of about $100 million. We recorded a CapEx spend of around $60 million and another $30 million has been committed. These projects relate to expansion of research, much of which will happen in Hyderabad and biologics. The projects are currently under execution and have rolled over to the current year, that is FY, in FY 2024 for completion. To give you the breakup of CapEx for fiscal year 2023, about 60% of the CapEx in the reported period was deployed in research services expansion. Another 35% was spent in CDMO business to scale up the existing biologics facility and add clinical scale injectable fill finish facility, amongst others. The rest of the CapEx was spent on common infrastructure, especially on digital technologies. Let me spend a few minutes on the guidance for FY 2024. We expect the contract research, development, and manufacturing market to continue to see growth with key fundamentals remaining strong. For the year ahead, we see healthy demand for our services on the back of global pharma and biopharma companies continuing to diversify their supply chains. With stable revenues in the dedicated centers, good growth in discovery services, healthy repeat and new business in development services, and start of commercial manufacturing in biologics, we anticipate revenue growth on a constant currency basis to be in the high teens. I want to emphasize that this guidance is being given at a constant currency. This is a change from what we have done in the past, where our guidance was given in our reporting currency, that is the Indian rupee. The average conversion rate realized in FY 2023 was around INR 81 per U.S. dollar, and the growth rate in the reporting currency will depend on the spot rate prevailing during the year. For record, our average hedge rate for the year ahead is INR 81 per U.S. dollar, which is similar to the average spot rate realized last year. In the year ahead, we'll continue to invest in building capabilities and expansion, which will be traditional expenditures in our P&L. However, we expect our EBITDA margin to remain at around 30% for the overall business. This is of course assuming revenue realization as INR 81 per U.S. dollar, and it could change based on the actual spot rates seen within the year. As mentioned earlier, in fiscal year 2024, we expect better operating leverage with EBIT growth at least tracking the revenue growth in the year. As explained earlier, the effective tax rate is expected to gradually increase, and we expect the effective tax rate to be around 23.5%, moving up from 21.8% in the fiscal year 2023. The increase in effective tax rate will continue to provide headroom for our profit after tax, and hence we anticipate that the growth in PAT or profit after tax will be in the mid-teens. New CapEx for the current year is expected to be around $70 million, with $30 million rolled over from the previous year. Total CapEx spend will be around $100 million. Most of the investments will be focused on adding biologics manufacturing capacity, laboratory space for future expansion of research business and capability additions across our service lines. Overall, we expect to continue the growth momentum of the last year with better margins leading to improved profitability. That concludes my remarks, and I'll now open the floor for questions. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Prakash Agarwal from Axis Capital. Please go ahead. Hi. Thanks for the opportunity and congratulations on good numbers. First question on little bit clarity on the guidance. I'm not sure if you talked about the revenue growth guidance, but margin you said in first statement that EBITDA margin likely to be around 30%-31%. In the closing comment you said expected to see operating leverage and margins to improve. Two questions there. One is on the top line growth, if you could give some color for 2024 and about the margins also. Thank you, sir. Sibaji, I think it's coming to you. Yes, I'll take it. Thanks, Prakash, for the good question. What I clearly said in the guidance. First of all, let me repeat my revenue guidance because it appears that you haven't heard it. We said the Constant Currency growth will be high teens, and this is a change from the past. We are giving a Constant Currency growth guidance this time. We also said the operating profit or EBIT will grow at least in line with growth of revenues. We have reported a 29.3% margin in EBITDA, when we are guiding around 30% EBITDA margin, we are at, then, basically saying that the growth in margins or growth in EBITDA and EBIT operating margin and operating profit, which is EBIT, will grow at least in line with the revenue. The margins will not be diluted, and the expenditures will not grow more than the revenues. That's what I said. Hope I'm clear on that. Okay. No, no, understood. I think I missed it. I mean, with Zoetis business coming in, won't the margins and the, you know, the throughput that we've been investing into hard times also? In the good times, we should have seen some operating leverage. I think margins should ideally improve. Is the understanding not correct? As with any guidance, is the guidance, we've summed up our view on it in giving you the guidance. Is there any more investments which are going on, which require some kind of gestation where, when we can see, you know, the revenue flowing through later? Is that one part you want to cover? Yeah, I mean, constantly. If you look at the evolution of the company, we've been putting in ever-increasing amounts of CapEx to work year- over- year because we see good prospective returns, and we see a good reason to put our shareholders' capital to work in that way. Our total CapEx investment last year came in at around $60 million. We expect that to increase in the year ahead to $100 million. It's spread across the business. About half of it's going into the research services division, and the remainder 20% into biologics, 10% or so into development, and the rest, the remainder, which if I do the math correctly, is about 20%, would be spread across the rest of the business. We're investing because we're optimistic about the outlook, and we see good prospective returns on those investments. Okay, okay. One more clarification. The Zoetis business would have already started, right? I mean, in Q4, there would be some upside that we have already booked. Correct. Okay. Hence why, we delivered a 31% growth in the fourth quarter. Albeit I know, and I'm just tweaking you slightly, you describe that as a good quarter. I would have thought 31% might have deserved better than just good as a super case. It was a very good end to the year and I think a pretty good year overall. Yeah. Extrapolating that also for, fiscal 2024, and since we said this $500 million business from Zoetis over the next 10 years, so this would have added or will have more visibility for fiscal 2024, I assume. That will have, you know, add up to the overall revenue growth. You are talking about high teen growth. I'm just trying to understand the math. Mid-teen growth we normally do, and Zoetis just adds a couple of basis points or should have been higher, in my view. This is what I'm trying to understand. Oh, I'd leave the modeling to you. I've given you most of the inputs you need. I'm sure, like most of the sell side analysts by now, you've divided INR 500 million over 10 years by 10 years and plugged in something around about INR 50 million. Yeah. Is that the right way to do? I don't know. I couldn't comment on your modeling. We don't guide at an individual level. When we announced the deal and I was asked the same question, I shared that in absence of any more detail, that's what I would probably do. Okay, fair enough. Lastly, on industry trends. We hear that, you know, a lot of innovative pharma, the RFPs, there are a lot of interest in terms of the earlier RFPs converting into business. Are you seeing more traction, especially on the innovative pharma side on the back of where we hear that, you know, small biotech companies are having, you know, funding crisis, et cetera. Just comments on the industry, what you're seeing from a client base. Yeah. From the pharma side as well as small biotech. Yeah. I get it. I get it. I'll take a step. I mean, I did try. If you look at the comments I made, I tried to cover some of those. There's multiple moving parts at the moment, and we've all got to make our own judgment on what we think the net position will be on all of these. It'll vary company by company and also client by client. Some of the sort of macro trends that I see. Firstly, I don't think the acceleration to catch up with lost time during the pandemic has played out fully. There are still companies that are pushing hard, re-recognizing that their programs ran a little bit slower in the two and a half years or so of the pandemic. Remember that many of these innovative assets are patent protected, and therefore, that's time that's incredibly valuable in the innovative part of the biotech and pharma industry. They have every incentive to try and recover time lost. There's one macro trend. Secondly, I think it's the pandemic, but also geopolitics. In all industries, people are thinking very carefully about the globalized nature of supply chains, where you get work from, where you get raw materials from, how your supply chain gives your business a sense of resilience. There, I think you can see people looking at dual sourcing and just rebalancing in various ways. Now, what that means for individual companies depends on their starting position. If some are heavily exposed to China, they may well lessen that and rebalance to other regions of the world. If some are massively exposed to, say, their domestic market. I've seen examples of very U.S.-centric clients actually looking to globalize because they're just looking for that dual sourcing and some re-resilience. For some of you, that becomes a China Plus One story, and I think it's real in some elements. Where you can see growth coming from that. If you put those together, first thing is around economic pressures most visible in Western markets or the U.S., North America, Europe. Clearly you're seeing unusually high inflation in those countries that's driving up labor rates for many companies. You're seeing higher interest rates or the cost of cash and cost of funding your business is going up for some. And in the emerging biotech, you've seen a drop-down from what was an all-time peak. You have to interpret that as funding for emerging biotech. Those that have funding are very keen to make it go as far as possible. I think I've given you three big building blocks of macroeconomic factors, you have to try and integrate those and come to your own conclusion. Mine is that I think at a firm level for Syngene, we offer some good opportunities. We have a relative operating cost advantage to our clients and some of our competitors in the West. That means that we can make a R&D dollar go a little bit further for some of those clients. We have scaling capability, in most cases, if a client comes with a particular request, we actually have the infrastructure, the people, the talent to be able to meet it. We don't often turn work away because it's just not a capability we have. The strategy of being quite broad is working for us. We have a geographical advantage, which is in a China Plus One world. We may well be the plus one. Did that help, Prakash? Yes, very helpful. Thank you. I'll join back the queue. Thank you. Thank you. Ladies and gentlemen, in order to ensure management is able to answer queries from all participants, kindly restrict your questions to two at a time. You may join back the queue for follow-up questions. We have our next question from the line of Harith Ahamed from Avendus Capital. Please go ahead. Good afternoon. Thanks for the opportunity. My first question is on the parent Biocon shareholding in Syngene. We've seen during the course of the year that declined from roughly 70% to around 65% currently. My question is whether you have any indication from the parent company on their plans in terms of their shareholding in Syngene. I'm asking this in the context of the parent company continuing to look at various avenues to raise capital to support their other businesses. Yeah. I think you know that I'm gonna disappoint you by saying, it would never be something that I would comment on any of our shareholders, to be honest. It doesn't matter whether it's Biocon or whether it's any one of our myriad of investors. It's not management's job to comment on other people's investment horizons, holdings and plans. That's a super question that I'm sure when you rejoin the Biocon conference call, you'd be able to ask them. His line is disconnected. And if- Yes, sir. Please go ahead. No, no. I was just asking if there are any more questions coming from him, otherwise we can move forward. Sure, sir. A reminder to participants to press star and one to ask a question. We have our next question from the line of Lavanya Tottala from UBS. Please go ahead. Hi. Thank you for the opportunity. Congratulations for very good set of members. I just wanted to check on, API plant FDA approval timelines that how you are seeing, going ahead. Super. This, it wouldn't be a quarterly analyst call without this question, so thank you for throwing that one out. I don't think the only update I can give you, the expectations haven't changed. We're waiting for the FDA to come. It's down to their travel schedule and the logistics, but my expectation would be in the coming quarter. Very happy to have another go at answering that in the quarter's time. Got it. I just wanted to understand one thing, that the global player BMS, there's a new vertical that they are planning to open, there's one of the facility in Hyderabad. Do you see this as a risk? It might not be in the near- term, but do you see anything about that in long- term that they shift from outsourcing to insourcing? Any thoughts there? No, not really. I actually think, well, firstly, I had very good visibility of that happening. That you may have read it as a surprise in the media. It wasn't a surprise to us. We had a super working relationship with BMS, and they'd, you know, they definitely made sure that we were well aware of their plans. I would make a really obvious statement. The capabilities of their plan center in Hyderabad are a range of things that Syngene don't offer and is not part of our strategy. I see no operational conflict with what we do. If anything, I think it's a healthy indication of BMS' confidence in the relationship they've had with us, the experience they've had with us in India. It also reflects more broadly the emergence of the Indian economy. Just, I think we all need to get used to it. You'll see people coming from all over the world to invest in India because there's an immense amount of talent, economic opportunity, scale. The domestic market's becoming any bigger, they're bigger in many more industries. I'm certainly, as I fly in and out of the airport of Bangalore, struck by the number of international executives that are coming in and out. I think it's a healthy sign for the environment. If it builds more talent, that's a good thing for us. On the specifics of the center that they announced in Hyderabad, it doesn't do anything that we could have done for them, so it's off strategy for us, and I think we have a healthy relationship. Does that help? Yeah. If I may squeeze in one last question. I just have a doubt on this hedge rate. Hedge rate for the current quarter is around 79, and the spot was close to 81, 82. This is a similar level that we had seen last quarter also, but this time the hedge loss was relatively much lower. I just wanted to understand why is the difference between last quarter and this quarter. Essentially, we carry a hedge book and, you know, the hedge rate that we had during the year were anywhere between INR 78-INR 80. What I was giving you the last estimate of what the average looks like. Depending on what spot rate we got, this is the hedge rate, hedge loss that we have booked in the financials. The numbers are very consistent in that sense. What we basically also said that the average rate is around INR 81, the spot rate that we observed during the year. Next year also we have, we expect it to be around INR 81 because our hedge book is around INR 81. One of the reasons we gave a constant currency guidance is that we are not able judging or not taking a call on how the exchange rate will move. If it is at around 81, then the constant currency exchange rate will be similar to the reported exchange rate or reported growth. Otherwise, we'll have to make an adjustment based on the spot moves. Got it. Thank you so much. Thanks for the update. Thank you. We have our next question from the line of Surya Patra from PhillipCapital. Please go ahead. Yeah. Congratulations for the great set of numbers, sir. My first question is on the, let's say, the supply to Zoetis. Sure. In fact, we are initially possibly talking about supplying to the U.S., the U.S. requirement post the approval of the product. That has not happened yet. We have started supplying, possibly for European requirement. Sure. My question is that when do you expect the approval of the products for the U.S. market? Do you see a kind of a ramp-up in a stronger way post U.S. approval? That is one. Second question is, how lumpy or smooth then it would be, the supply would be for this Zoetis contract? Super question, Surya. I think you know what I'm gonna say, though. Certainly the first one of those, that's a question that I think you have to direct to Zoetis. It would be really unfair of me or inappropriate to try and second-guess what's a key business event for them and their shareholders. You know, their views of the U.S. regulatory approval. I don't have any special insight, other than I wouldn't expect to. It's actually not a comment, something I would comment on. If it's a Syngene-related question, I'll try and help you a little bit to think about the modeling. If it's a Zoetis question in disguise. Okay. You have to go and ask them directly. Okay. It's classic relationships defensively at range, right? It's really not for me to comment on somebody else's business, particularly when it's a flagship product for them. It's an important part of their strategy. It's real innovation in their industry. I think you should be guided by them on that one. To your second question, which I think is a bit more Syngene related, we did start during the fourth quarter doing some manufacturing. You can see that in the strong fourth quarter that we had. I think the simplest thing, and it's the answer I reminded Prakash of in the first question on today's call. In absence of any more detail, divide 500 million by 10. a broader sense, whether it be a lumpy one within the year, it will not be a smoothing supply situation during the quarters No, Surya, I get it. If it was me modeling, I would, I'd assume a fairly smooth flow through the year, because the alternative would actually... You could only really get to it if you were sitting on our operating floor watching batches complete and whether or not they all finished on time or there were stop gaps and delays of an hour or a half hour a day here. I think the best modeling assumption is divide it fairly linearly through the year. Sure. I'm looking at the bag to see it, if that makes sense. Yeah, that makes sense. You know, If you divide the by ten and then make some adjustments, and next year being that effective the full first year, and we scale up to the maximum level, we will have the answer. Yeah. I mean, there's an income error because we haven't just done a full year in FY 2023, so you have to adjust for that. Shave a bit off the first, add a bit on the end. Straight line it through a decade. Yeah. Sure, sir. My second question is that, given the kind of supply chain challenges or people trying to de-risk from Chinese suppliers, all that, and the increased demand situation for the solutions. Have you seen any kind of improvement in the billing rate for you or let's say that is what you are anticipating for FY 2024 at least? Any sense on that? No. For us, I think it's a fairly stable pricing environment. I think we're more likely to benefit from volume. We already offer, you know, we offer attractive prices that create value for us and for our customers. I'd much rather see that volume growth in a stable pricing environment. Okay. Sir, one clarification can I take from you? During the quarter, that you have transferred your Hyderabad operation to Syngene Scientific Solutions, wholly owned subsidiary. What is the main motive behind that? How are you differentiating the operation of Hyderabad versus the CRO operation in Bangalore? Yeah, I wouldn't overinterpret it. It's just tidying up a little bit of corporate structures and making sure that we've got all the assets that work well together in one place. I genuinely it's more administration than it is strategy. I don't think there's anything that you can read into. No change operationally, by the way. If you're working in a lab in Bangalore, Bangalore or Hyderabad, the name on the bottom of your payslip might have changed, but other than that, nothing else changed. Okay. Sure. Just last one clarification. Sorry for that. You mentioned I mean, we have been associated with your teams since some time before we see a kind of a big positive surprise in terms of the supply contract. Similarly, we have been talking about the polymers and the fine chemicals since some time. Now we have seen some progress in terms of capability build-up for polymers and fine chemicals. Could you give some sense, some outlook there? Is it right to think positively about some supply contract or something like that? I get it. I'll tell you, I'll try and put some color around it, as long as you promise that was your last question, because you've got 3 last questions in. Yeah. No, it's okay. It's some good conversations and good questions. Again, I wouldn't overinterpret things like the polymers and the other elements. We, in part, when we talk to the capital markets, we're also talking to our customers, and therefore we make sure we take every opportunity to remind them of the full range of capabilities, breadth and depth that we've got. Not everything has to be strategically significant that we're trying to direct you in the way we want you to model next. If anything, I'd go back to the comment I made earlier. One of the reasons strategically where I think Syngene is doing well and we're progressing is that we did deliberately choose to be broad in our capability offering. We want to be one-stop full serve, therefore we add in capabilities as much so that we have them, so we never turn a client away. Not all of them are going to always scale up to be big individual business lines, but they do play their part. We're very happy when a client comes that we can say we can go on the full journey with you from discovery to development, to manufacturing. Does that help at least the context of the answer? Okay. Okay. Sure, sir. Thank you. Thank you, sir. Thanks a lot. Thank you. We'll take the last question from the line of Cinderella Thomas Carvalho from JM Financial. Please go ahead. Thanks for the opportunity. Am I audible? It's not very clear. Can you use your handset, please? Is this better now? Yes. Yeah. Thanks for the opportunity and congratulations on good set of numbers. The question to my mind is, how much of success are we seeing from, making available manufacturing facilities for our existing customers? How much of success do we see? What is the ratio that you have seen right now and how much of it will be visible in the coming two years, going ahead? What is the thought process on that? The second is, can you explain the gross margin change, Q- on- Q, that has happened? If any, is it driven largely by the product mix? If yes, can you please explain it? Super. Let's do those in reverse order, I'll give Sibaji a chance to talk about gross margins. They do bounce around a lot. Which is why we tend to give commentary on, where we see it strategically and on a full year basis. Week-over-week, month-over-month, quarter-over-quarter, you'll see quite some swings on a whole number of things. Yeah. Full year picture usually makes most sense. I think, Cinderella, you are absolutely right. In quarter four, we had seen a big increase in material cost because the product mix changed. On an average, as you can see, the material cost to revenue came to 27%, and we have been guiding 27%-28%. What happened in quarter four? You know, the mix definitely came towards manufacturing. That helped us stop the material cost consumption in the business, and hence the material cost as a percentage of revenue went up. I also need to reflect on the accounting policy that we have on how we account for our material cost. Typically, when we kind of charge raw material to P&L, they are either from the inventory, if they are inventorized raw material, or they are consumables. And consumables are not inventorized. Consumables get charged on purchase. When you start commercial manufacturing, you do buy consumables for a longer period of time and not for one quarter. Effectively what you would see in quarter four is the beginning of the commercial manufacturing and hence, the consumables being charged to the P&L and the raw material costs will go up. That would again be different in the next quarter. Broadly speaking, you know, depending on when consumables are basically bought, it will move from quarter to quarter, but there is a definite 200 - 300 basis point shift in material cost that you'd observe because our mix has changed and that we have seen. Last, over the last few years, we have seen that gradually going up and 27%-28% is what we are, we'll be seeing it, broadly stabilizing and it's, it changes once again depending on the kind of projects we are taking. Is that clear? Yes. Yes. That's very helpful, Sibaji. Yes. Thank you for that, and thanks, Jonathan. Jonathan, coming back to my first question. How are we seeing the manufacturing availability either on the small molecules or on the large molecules? What's the conversion ratio from our existing partners to move towards the full supply or the entire forward integration? What is the ratio today and how do you see it changing? Any examples that you can share which you must have, you know, seen over the last two years and it will help us overcoming fully? Yeah. I think I get it. Sadly, I don't think I've got a killer fact at my fingertips to sort of illustrate it. I'm gonna talk about, you know, the strategy, and we're actually quite comfortable. The business is rebalancing. If you think about where Syngene was at the IPO, nearly all of the revenue would have been coming out of the discovery services as we talk about discovery and dedicated research. Since then, we've not only grown that, I mean, that business is... I think the research business now is bigger than the whole company was at IPO. We've done well in progressing that. At the same time, we forward integrated through the value chain with building a development business and now a manufacturing one. They work together. It's not an either/or. That really goes back to my comment about full serve, being able to do the full journey with the client on the molecule at each stage. I'm optimistic about the outlook. I think we go into FY 2024 with having seen a good year, one with good strategic progress in FY 2023 and pretty good momentum. Better balanced and with good momentum. Beyond that, I'm not sure I've got a set of facts I'm prepared to break open on each individual part of the business. Thank you. That's helpful. I just was trying to understand if, like, 10% of our customers are moving ahead with us in terms of, you know, going ahead in the manufacturing side, or is it right now very nascent? Anything that you can share on that? Look, the reason I'm struggling to give you a number is it's just not a number we would measure in that way. It's almost not how I'd conceptualize it. We, you know, we've At any given point, we've got 400, 450 plus active clients. Within them they may have a basket of 10, 20, 30 different projects. You're not, you know, the, you're not tracking them to see which ones are definitely kept flowing through to which next stage. Yeah. I was trying to understand if any of our manufacturing projects which are coming to us, are they coming to us, from the, like, you know, were they with us since the discovery? That was the way of looking at it, like, I hope. Yeah. I think the best, the last chance to defend the question. I think the best example we've got of that is Zoetis, in the sense that we did work with them as an organization. I put that in, into my comments. We've had a relationship with them, not for 11 months, but for 11 years. We started back in 2011 on the research discovery development side, and that relationship's grown from there. If you look at it less at the molecule level and think about it at the firm to firm relationship, then I think you can get a much more comfortable picture of how those relationships grow over time. Thank you. Thank you. Excellent. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Ms. Avantika Mishra for closing comments. Over to you. Thank you everyone for joining today's call. I hope we have answered your questions. If you have any further queries, please do get in touch with our team. We will be happy to get back to you. Have a good day. Thank you once again. Thank you. On behalf of Syngene International Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.