LAURUSLABS — earnings call
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Prepared remarks
Moderator · Conference Operator
Good morning ladies and gentlemen.
Welcome to the Laurus Labs
Thank you.
Ladies and gentlemen, we will now begin with a question and answer session.
Anyone wishing to ask a question may please press “*” and “1” on your touch tone telephone.
If you wish to remove yourself from the question queue, you may press “*” and “2”.
Participants are requested to use handset while asking a question.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line Mr. Tushar Manudhane from Motilal Oswal Financial Services.
Please go ahead.
Tushar Manudhane
Thanks for the opportunity.
Sir, on the other API, there has been a good traction, just would like to understand is this to do with your new molecule addition or you are seeing the market share gain in the existing molecule?
Dr. S. Chava
The other API we have added only one molecule this year and the growth came from your contract manufacturing API's to our customers in Europe.
Tushar Manudhane
Okay, is this to do with restrictions in China or you think this is more sustainable and no need to go back.
Dr. S. Chava
This has nothing to do with the disturbances because of China.
So, this is normal growth and these molecules we are doing earlier and we were able to get more orders because our partner got more market share in this region.
Tushar Manudhane
Got it.
Got it.
And just lastly on this dedicated facility for a global license company, could you share some more color in terms of what kind of investments on this particular project or what is the size of the contracts and spread over what year?
Laurus Labs Limited January 28, 2022
Dr. S. Chava
We can’t give you the size of the contract, but it is a multi-product, multi-year contract and part of the CAPEX is also funded through commercial advance.
And we just started building facilities for that client.
And we as an interim we also added a manufacturing block in our existing unit four to complete the validation of products as part of the contract.
Once the new manufacturing unit is up and running, we will transfer this to the new site.
So that our partner will gain a year in the regulatory approval process.
So, this is a very significant for us and a dedicated team is working on the development of those projects, technology adoption of those projects, and things are moving as we anticipated earlier.
Tushar Manudhane
Got you sir.
And just lastly on molnupiravir where you know there is a lot of talks on the efficacy of this and then comparing to the Pfizer drug, but at the same time we go ahead and have a license from MPP.
So, are you seeing a good amount of traction on the business prospects on this product or given the efficacy this is, this is not so great a product to look forward for.
Dr. S. Chava
There are sales but is not meaningful.
There were many approvals.
Many got licenses from MPP and ICMR did not include this in the treatment guidelines.
So the uptake is not as expected.
So the business is not going to be a meaningful one for us.
Tushar Manudhane
Thank you sir.
That’s really helpful.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Sudarshan Padmanabhan from JM financial PMS.
Please go ahead.
S Padmanabhan
Thank you for taking my question.
Moderator · Conference Operator
Sorry, to interrupt Mr. Padmanabhan.
Sir we are not able to hear you clearly.
Laurus Labs Limited January 28, 2022
S. Padmanabhan
Yes, can you hear me now?
Moderator · Conference Operator
Much better.
Thank you.
Yes.
S. Padmanabhan
My question is to you know, understand a little bit more on the ARV business.
Both if I look at the API side and the formulation side, there has been a drop.
Drop wasn’t expected.
I mean, you know, when you talk about the inventory and things getting back to normal, we are basically paint the numbers coming right from over INR 550 crores a quarter in the fourth quarter of the previous year to about INR 200 crores.
Do we see a gradual ramp up back to where it was or are we going to see pretty faster kind of ramp up.
Do you see that in fourth quarter things can normalize completely?
Dr. S Chava
Fourth quarter, we see majority normalization will happen.
We are not anticipating our ARV API, sales will go back to INR 500 crores.
Maybe Q1 next year will be quite normal.
But even though there is a little bit normalization pending for ARV APIs in Q4, but other divisions are doing extremely well.
So we don't see any challenge for us to get back to normal tracks, and normal growth trajectory for us from Q4 onwards.
Moderator · Conference Operator
I'm sorry to interrupt Sir, we are not able to hear you.
S. Padmanabhan
Yes.
So my next question is on the synthesis business.
I mean, you have done a phenomenal job in terms of the you know, ramp up you know, almost going from INR 50 crores, you know, in FY 2020, almost a quarter to about INR 200 crores now, can you give some color with respect to where do you see the business, say in the next three years?
Given the opportunity, given that we have a dedicated plant for new customers, what is the kind of scale that we can see?
I mean, and what are you doing, you know, at this scale, to get, you know, give that kind of importance to this business.
Laurus Labs Limited January 28, 2022
Dr. S. Chava
This business is very important to us.
And we're giving required focus to strengthen this.
We are creating dedicated R&D, we are creating dedicated manufacturing sites, and we believe at INR 200 crore per quarter is not a big number for CDMO.
If you look at the global CDMO companies that do extremely well.
And we believe we have all qualities to become a very large player in CDMO, our regulatory track record, our EHS compliance, our manufacturing, quality infrastructure, our team in quality, so we have our qualities to become a much bigger player in CDMO place.
We can't give you the quantity -- quantitative numbers, how we will do in the next 2-3 years.
But we have so many avenues to grow.
As we're investing in a new manufacturing site for a customer, we haven’t got any revenue from that plant right now.
So this business, we believe were at a very infancy stage, as of INR 200 crore per quarter is very, very small for our aspiration.
S. Padmanabhan
I thought with request for this call, we had a plan that we could be able to kind of.
Moderator · Conference Operator
Sorry to interrupt Mr. Padmanabhan we are not able to hear you.
We requested to you to…
S. Padmanabhan
Hello?
Moderator · Conference Operator
Yes sir, please proceed.
S. Padmanabhan
Yes.
So final question from my side is, you know, when we bought Richcore, we wanted to extend the bio capabilities wherever possible in the current business as well.
Is that happening?
Are we starting to look at extending the bio capabilities in the current business and seeing some kind of an operating leverage of synergies going through that?
Dr. S. Chava
It is happening as we expected.
They gave several enzymes for our chemical synthesis.
And we are optimizing those enzymes to improve Laurus Labs Limited January 28, 2022 the yields.
They're also working on classical fermentation of APIs, especially for steroids, so it is going on very well.
So what interestingly purchase significant equity is working very well.
S. Padmanabhan
Sure sir.
Thanks a lot.
I will join back the queue.
Moderator · Conference Operator
Thank you.
The next question is of the line of the Ritesh Rathore from Nippon India, please go ahead.
Ritesh Rathore
Yes.
Hi sir.
Can you explain what are the risk and the upsides with a regimen change from TDF to TAF, Like Tenofovir Alafenamide.
Dr. S. Chava
The regimen change from TDF to TAF is not happening, which we also captured in our investor presentation, so that our investors can also better informed.
We don't see any change.
So based on the CHAI projections, the tapped market share gain by end of 2025 is not significant.
Ritesh Rathore
Okay, okay.
And Sir for this quarter since you provided your standalone numbers as well as consolidated numbers, your subsidiary revenue has gone up sharply to INR 96 crores versus historical average of INR 25 crores.
Anything particularly because there is not a proportionate increase in costs or anything in the subsidiary financials but a sharp jump in revenue.
Is it linked to some one-time income?
Dr. S Chava
Ravi do want to answer this question?
V Ravi Kumar
There is no one-time income but our new one of the subsidiaries started generating revenue.
Ritesh Rathore
Yes, but there was no proportionate increase in the cost or anything.
When you see historical three quarterly numbers, which you provide every quarter.
V V Ravi Kumar
But there is no one off kind of income.
Laurus Labs Limited January 28, 2022
Ritesh Rathore
Because your historical evidence for last 5-6 quarters is INR 25 crores and this quarter subsidiary number is INR 96 crores.
The number is a huge jump of INR 50 crores INR60 crores increments.
V V Ravi Kumar
That, that's correct.
That's correct.
You're right.
Ritesh Rathore
Because your cost basis remains flat, or no change in the cost.
Anyways, maybe if you can explain it later would be helpful
V V Ravi Kumar
Okay.
Ritesh Rathore
That’s it.
Thank you.
Thanks so much.
V V Ravi Kumar
Thank you.
Moderator · Conference Operator
Thank you.
We move on to the next question.
That is from the line of Krish Mehta from Enam Holdings.
Please go ahead.
Krish Mehta
Yes.
Hi, thank you for taking my question.
I just wanted to know the ARV versus non ARV splits for the company as a whole for this quarter.
V V Ravi Kumar
What is the question?
Can you repeat?
Krish Mehta
ARV versus non-ARV split as a whole for the company for this quarter?
Dr. S Chava
About 50%
Krish Mehta
Okay, thank you.
Dr. S Chava
Both APIs and formulations put together.
Krish Mehta
Yes.
Thank you.
Thank you so much.
Moderator · Conference Operator
Thank you.
The next question is from the line of Bharat Kumar from Quest for Value Capital.
Please go ahead.
Laurus Labs Limited January 28, 2022
Bharat Kumar
Hello, Hi, thanks for the opportunity.
My question is for Dr. Chava.
Regarding the new formulation capacity of 4 billion tablets, which is coming up this year.
You said that in the last concall that it would be used by our, for our European partner and five transfers are already done.
And our site is also included in the dossier.
And you said that the regulator's have scheduled for the site inspection.
May I know if the inspection is complete and did we get the approval for commercial production.
Dr. S Chava
One inspection was concluded two weeks back, it was successful.
And one more inspection for packing lines is expected in May this year.
And which is on track.
See nowadays inspections are happening online.
So we don’t see any challenge there.
Bharat Kumar
So we can expect revenue coming from June of this year.
Dr. S. Chava
You're right, you're right.
Bharat Kumar
Okay, thank you.
And my second question is regarding the global tender, the global tender for ARV formulation, which we got in 2018, I think it is supposed to end last year but because of COVID I think it is extended by one year and I think this year end it is going to end.
Can you please let me know like if you have applied for the new global tender for the next few years?
Dr. S Chava
It is extended by year so we'll be part of that.
See we are a significant player in not just in APIs but also in formulations.
So we will be there.
Bharat Kumar
So you are applying for the tender…
Dr. S Chava
This is a regular phenomenon.
So I'm sure we will be there.
Bharat Kumar
Okay, so did you get the tender for the next year? or is it like it is in process already?
Laurus Labs Limited January 28, 2022
Dr. S Chava
It will come.
Bharat Kumar
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Pranav Tendulkar from Rare Enterprises.
Please go ahead.
Pranav Tendulkar
Hi sir.
Thanks a lot.
So when you say that the business will be at a normal margins and normal growth rates what exactly is normal because just five quarters ago 46%-47% of or six-seven quarters ago 46%-47% of gross margins and sub 20% of EBITDA margin was normal.
And clearly the pandemic had a supply chain issues and they are getting resolved now.
So can you just highlight how the margin can be drastically different from, say, five-six quarters ago going forward.
I'm not asking on a quarterly basis, but on a sustainable yearly basis.
Thanks a lot.
Dr. S Chava
So we invested in R&D much ahead of the business.
We invested in capacities much ahead of the business.
And if you look at our R&D expenditure remained constant as a number.
But as a percentage was pegged on by almost 3.5%-4%.
And our manpower cost used to be 12% or 13% now it is about 9%.
So if you look at 4% came from R&D expenditure, 4% came from manpower, so this is the operational leverage that led us to EBITDA margin expansion.
EBITDA margin expansion has nothing to do with COVID because we are not in the COVID related products.
We don't have remdesivir, we don't have other biological products.
So our growth in EBITDA margins came because of the expansions plan and the commercialization of those facilities, commercialization of those products.
Pranav Tendulkar
Perfect, perfect, but on gross margin levels from the increase of 5 percentage points.
Laurus Labs Limited January 28, 2022
Dr. S Chava
Yes, it is also a very interesting question.
The gross margin improvement is because of expansion of non-ARV business.
Pranav Tendulkar
No, I’m asking about 5 percentage points over the last 7-8 quarters.
Clearly pre- COVID.
Dr. S Chava
Clearly pre-Covid.
Pranav Tendulkar
Okay.
Okay.
Dr. S Chava
That is because of our Non ARV business is growing much faster than ARV business.
So non ARV business, synthesis business, formulation business, other API business are more profitable, more gross margin business than ARV business.
That is the reason EBITDA expanded and also gross margin expanded.
So the multiple things which led to EBITDA expansion, operational leverage, and then gross margin improvement.
Pranav Tendulkar
Right, right.
Perfect.
So that makes sense.
So just two supporting data or view if you can give.
So what is the price correction on ARV and other products or formulations that have happened from say, during COVID?
And what is the difference in the two gross margins, ARV and non- ARV, if you can actually provide some comfort to investors about that.
Dr. S Chava
That's, difficult to give number. so we want to give a sneak, how much we're making in the formulation, how much in other formulations, because that is a very sensitive information which we don't want to speak.
Pranav Tendulkar
Okay.
Thanks a lot for the opportunity Sir.
Moderator · Conference Operator
Thank you.
The next question is from the line of Jeevan Patwa from Candy floss Investment Advisors.
Please go ahead.
Laurus Labs Limited January 28, 2022
Jeevan Patwa
Congratulations, Sir, for a very good set of numbers.
So there are a few things that I liked about the number one is obviously the CDMO sales has been INR 207 crores this quarter, which is a very good run rate.
So the question is, is this sustainable run rate for the next few years or next year you think this run rate will be even higher from here?
Dr. S Chava
Our synthesis business as explained the INR 200 crore is very small for our capabilities.
So we do expect it will be growth in this business.
Jeevan Patwa
And secondly, you said it's too little for our aspiration.
So what is your aspiration for synthesis business sir?
How much you basically see your synthesis business in next three years or four years?
Dr. S Chava
By FY ‘25 we want this business to be at least 25% of our overall revenue.
Jeevan Patwa
25%, so you're including biologics as well in the CDMO?
Dr. S Chava
All, all.
Jeevan Patwa
All, okay.
Okay.
Second question is, in the biologics side, we have INR 25 crore run rate quarterly and we have commissioned two more fermenters.
So, can we assume it's going to be INR 50 crores from here onwards, can we assume that?
Dr. S Chava
It will be around INR 40 crores probably until we expand capacity further.
Jeevan Patwa
Okay.
And in one of the interview, Mr. Rajesh Krishnamurthy of Richcore has actually said that they are planning for 2 million liter fermentation by early 2023.
Dr. S Chava
Yes, they have taken land.
Okay.
30 acre land, and in the process of finalizing the design and also talking to the customers who intend to use Laurus Labs Limited January 28, 2022 that capacity.
So, 2 million liter will not be put in one go.
They will put in a phased manner of 1 million plus 1 million plus one.
In fact, the land can accommodate up to 3 million litre fermentation capacity.
Jeevan Patwa
Wonderful Sir.
Wonderful Sir.
Thanks a lot, Sir next is so if I look at nine months numbers, our sales has actually gone up 3%, But our profit, so gross profit has actually gone up by INR 130 crores.
But our PBT is down because of -- obviously the operating leverage.
So we have got depreciation interest, other expense and other costs basically going up.
So that a eaten up our PBT but our inventory actually went up from INR 185 crores to INR 325 crores, so almost INR 140 crore increase in our inventory.
So the question is, do you see the, some part of that inventory getting liquidated in Q4?
Dr. S Chava
Yes, see our ability to ramp up production and then the ARV demand will come all of a sudden.
So we are prepared to tackle, take that opportunity.
So we are not having any concerns on this inventory levels.
Jeevan Patwa
Perfect, Thanks a lot Sir.
Dr. S Chava
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Hussain Kagzi from Ambit Asset management, please go ahead.
Hussain Kagzi
Hi.
Good morning.
So my first question was with regards to formulations.
So if I get it correctly, 65% to 70% of our formulations is ARV.
So I just wanted to know that since we are seeing a decline in the ARV API side of it.
So is there any case of this being shown or similar decline being visible in the formulation side, probably with a lag effect.
So that is my first question.
Laurus Labs Limited January 28, 2022
Dr. S Chava
There was decline in the ARV formulation, but not to the tune of ARV API decline.
ARV API quarter-on-quarter we saw 65% decline.
But we didn't see that much decline in formulation, there was a 20% decline in formulations but not to the tune of API decline.
Hussain Kagzi
Alright, alright, and so any update on the approval that we were seeking to get on the formulation side of it.
So by when do we expect to get those approvals non-ARV?
Dr. S Chava
One we are expecting this quarter and one maybe in the month of April.
So we are having a lot of approvals pending with various agencies and we are on track to get those.
There was a delay for three quarters, not because of our facilities or, so everything is on track now.
Hussain Kagzi
Alright, alright.
Got it.
And lastly, so there's no doubt that ex ARV we have done exceptionally well, if I see growing at 45% CAGR for two years.
And if I go by your numbers, so I think as of Q3, I think it's still up 50% of our revenue.
So you know, the remaining 50% of our business is ARV so basically, if I just wanted to get a sense that you did mention that there will be a little bit of volatility in the ARV API side of it.
And I understand that's the nature of the business.
But on a steady state, what would be say your view or your assumption or where do you see a steady state run rate for that business in the future, say FY ‘24, or FY ’25?
Because we'll finish the year I think at around INR 1,300 crores to INR 1,400 crores in ARV.
So can you, is that a stable run rate which can be seen a future barring the quarterly volatility.
So I just wanted to understand that part.
If you can help me.
Dr. S Chava
INR 1,500 crores – INR 1,600 Crore could be the base what we think is sustainable in the ARV API.
Hussain Kagzi
Right, right.
And that would be for the next two to three years.
Laurus Labs Limited January 28, 2022
Dr. S Chava
Yes, Yes.
Hussain Kagzi
Alright.
Thank you.
Thank you so much for taking my question.
Wish you the best thing and I will get back in the line.
Moderator · Conference Operator
Thank you.
We'll move on to the next question that from the line of the Tushar Bohra from MK Ventures, please go ahead.
Tushar Bohra
Yes, thank you for the opportunity and good morning to everyone.
Just one point on your one of the slides I saw that the gross margin expansion YoY I think slide number five, your gross margin expansion YoY is significantly higher and or rather I'm referring to slide number eight.
So we have a 410 bps YoY gross margin expansion and a 540 bps EBITDA compression YoY.
So that's almost 900 BPS swing between gross margin to EBITDA.
So while some of this could be possibly because of operating deleverage because of lower sales, I am sure there would also be some costs associated with new capacity, which is still not contributing.
Can you just help us with the breakdown of where this slippage has happened?
Dr. S Chava
As you rightly mentioned, the operational deleverage, reduced the EBITDA margins, because we have the facilities, we have the teams, we have the investments into R&D, all those are happening, without revenues.
That was the reason for EBITDA de-growth.
Whereas the gross margin improvement is because of the product mix.
All of you are aware the ARV API's are not high gross margins, when compared to the rest of the business.
So ARV API's for 25% or less than 25% of our sales these quarters, the Q3. Our EBITDA margin improved because of that, sorry gross margin improved because of that.
Tushar Bohra
Sir how much of the capacity is not revenue generating today?
Or, let's say, so how much of the cost can be attributed to capacities that will start contributing, meaningfully going forward?
New capacities?
Laurus Labs Limited January 28, 2022
Dr. S Chava
Ravi do you want to answer this question.
V V Ravi Kumar
Yes, whatever be the new additions, we have done capitalization this year, that is not generating any revenue Tushar.
Tushar Bohra
So how much as a gross block or the cost of these facilities in operating costs, some metrics there.
Dr. S Chava
I'll give it gross block wise, 25% of our CAPEX is not yielding revenues right now.
Tushar Bohra
25% of your CAPEX done over FY 2022?
Dr. S Chava
No, no, 25%, our gross block.
Tushar Bohra
25% of your gross block.
Dr. S Chava
Yes.
Tushar Bohra
So it would be fair to assume said that at least 300 to 400 bps slippage would be only because of this new capacity, which is not yielding revenue, and not necessarily operating leverage.
Dr. S Chava
Yes, you're broadly in that direction sir.
Tushar Bohra
Different question.
Now, we see a significant contribution from synthesis this quarter.
And, and below normal contribution in that sense from the ARV API.
Is it fair to assume that there would have also been some gross margin compression on the API side, and therefore, the overall addition from synthesis in margin is much higher than the 200 bps suggest?
Dr. S. Chava
We can't give the margins that granular.
Laurus Labs Limited January 28, 2022
Tushar Bohra
Okay, I won't ask for specifics.
But is it fair to assume, sir, that our synthesis margins would be significantly higher than the corporate average?
Dr. S. Chava
Yes, it's yes,
V V Ravi Kumar
Yes.
Tushar Bohra
And likewise, formulation margins would be reasonably higher than the corporate average.
Dr. S. Chava
Maybe synthesis, formulations and other ARVs and ARVs.
That's the order.
Tushar Bohra
Sure.
So finally, one last question, if you can help understand qualitatively, what are the things happening on synthesis side, I mean, we are talking about INR 800 crore run rate annualized today, and if I do the math correctly, 25% of your revenue in three years, could be about INR 2,500 crores to INR 3,000 crores.
So you're talking almost a 3x to 4x jump in synthesis over a three-year period.
Just help us understand the demand side break down to this?
Do we have specific contracts in place or what kind of discussions we having something that would help us understand this pull up, sharp pull up.
Dr. S. Chava
We can give you a very broad view.
So we're building a dedicated facility for the contract which we have signed.
As of now the contract is not giving any revenues.
So that's one significant we have contracts in place multi-product multi-year.
And two products which may go from phase two to phase three and commercial in next two to three years.
Those are also very significant.
We have the only one source for those projects.
And we have a lot of projects, lot of customers that were added into CDMO.
I'm not saying every product will be successful with every Laurus Labs Limited January 28, 2022 customer.
So that risk is there in CDMO about but we have a lot of projects.
And we are building capacities to take on those opportunities.
Tushar Bohra
So this new project that we are referring to, for which you are building up a dedicated capacity, it would be fair to assume that it is sizable in context of current synthesis revenues.
Dr. S. Chava
Very sizeable.
Tushar Bohra
Okay, fair enough.
Thank you so much and wish you all the best for the coming quarters.
Moderator · Conference Operator
Thank you.
We'll move on to the next question that is from the line of Nitin Agarwal from DAM Capital.
Please go ahead.
Nitin Agarwal
Hi, thanks for taking my question.
Dr. Chava on the other API business.
So rather, let me go top down first, you have talked about the fact that FY ‘23 you're still holding the belief that you can achieve a $1 billion top line, now that's almost a INR 7,400 crore - INR 7,500 crore top line, you know, versus what's the top INR 4,000 crore run rate we had for the quarter, very large jump that we are talking about from a very short period of time, and you said that this is subject to some of the approvals coming through on time.
Sir, in which segments are these approval this guidance contingent on, which segment these approvals would be in our business.
Dr. S. Chava
Diabetes and cardiovascular, they are the two where we are expecting approvals.
And at the same time, you are seeing the run rate of Q3. So this year, if you look at nine months, we have done INR 3,500 crores.
So your run rate of INR 4,000 crores for this year is on the lower side.
Okay.
Laurus Labs Limited January 28, 2022
Nitin Agarwal
Fair enough Sir.
And on diabetes and cardiac that you mentioned.
So these are approvals on the formulations on the API side and any specific market that we're looking at where the approvals are contingent?
Dr. S. Chava
Well, Europe as well as the North American markets.
Nitin Agarwal
Okay, and this would be the primary driver for our other API business?
Dr. S. Chava
Other API and formulations growth.
Nitin Agarwal
Okay.
And what would be our currently assuming once the API or the ARV formulation business normalizes at the current 6 billion capacity, what is the capacity utilization of a formulation plant right now?
Dr. S. Chava
Right now, it is very good, actually.
So not much of spare capacity available now.
That is a reason we are building in a phased manner, from in fact next month onwards.
Nitin Agarwal
Sir when do you see this capacity of 10 billion getting completely utilized?
You know, in your assessment?
Dr. S. Chava
By maybe the early first quarter of 2024.
Nitin Agarwal
Okay, and lastly, on the oncology business, oncology API business, how should we look at that business are there newer molecules that we are looking to add in the segment?
Or do you see opportunities for significant volume growth in the existing products?
Dr. S. Chava
It's both sir.
Both.
Nitin Agarwal
Okay, thank you sir.
Moderator · Conference Operator
Thank you.
We move on to the next question better from the line of Ranvir Singh from Sunidhi Securities.
Please go ahead.
Laurus Labs Limited January 28, 2022
Ranvir Singh
Thanks for taking my question.
So my question relates to our aspirational goal to have $1 billion revenue by FY 2023.
So just wanted to understand if you could explain in little detail, because going by the API revenue, you're saying we will not be able to reach the historical peak on ARV segment, and that 25% upside in next two years, the next three years in CMO.
So just wanted to you know, understand that how much because even nine months figure annualized or even better gaps $650 million kind of -- $650 million kind of revenue.
So $350 million remains a gap for FY ‘23.
So that I wanted to understand.
Dr. S. Chava
In the API space from November onwards, until April this year, we are adding 25% more capacity than what we had earlier.
That's very significant.
And as we are discussing, our formulation capacity is almost doubled.
Going to be doubled from the current capacity to the expanded capacity.
So, what we need to have first one is capacity second one is products approval and then customers.
So, we have capacity, we are in the process of getting approval and the customers are happy to buy.
So, why we are saying aspiration at billion for that we need to have capacity first which we have done.
And then approvals are going on.
And our customers are happy to buy from us because we are not adding new customers, we are increasing sales to our existing customers.
So, that is the reason we are still comfortable with that number.
Ranvir Singh
Okay, and that mix on ARV API side, I think one of the participants asked that average the kind of normal revenue where we see the normal revenue on quarterly basis coming to, because if I factor the restocking cycle and de-stocking cycles, the average should be some INR 350 crore - INR 400 Crore kind of revenue.
So, are we reaching there?
Dr. S. Chava
Yes, we expect Q4 onwards we will reach that level, closer to INR 400 crores ARV APIs.
Laurus Labs Limited January 28, 2022
Ranvir Singh
Okay.
And in your commentary, you said that three elements actually was challenging, availability of raw material, logistics and prices of certain products.
So availability of raw material did you mean related to ARV API or some other API.
Dr. S. Chava
Other APIs.
Not specifically ARVs.
Ranvir Singh
What is your status now?
Dr. S. Chava
It has improved.
See the availability is there, but we had to pay a higher price.
Ranvir Singh
Okay.
Okay fine.
And last one, what is your current debt?
After this expansion, we believe that debt would go up.
So what is status right now?
Dr. S. Chava
Ravi?
V V Ravi Kumar
Around INR 1,750 Crore debt.
As we indicated before, by March our debt is going to increase but from next year onwards, we are expecting debt to be reduced.
Ranvir Singh
Okay.
Okay, that's it for my side.
Thanks a lot, and all the best.
Moderator · Conference Operator
Thank you.
The next question is from the line of Tarang from Old Bridge Capital, please go ahead.
Tarang
Hello, Sir good morning four questions from me.
First on the synthesis business.
Sir this business largely entails manufacturing of intermediates or API's or both?
Dr. S. Chava
Both.
Laurus Labs Limited January 28, 2022
Tarang
Okay.
So as you move forward with this business and we ramped it up, what proportion of your revenues here are likely to be from new molecules either commercialized or in the process of commercializing?
Dr. S. Chava
As I mentioned by FY ‘25.
So we have a strategy to take synthesis division revenue contributing a quarter of our total revenues.
Tarang
All of it would be from new molecules, right under commercialization, trials or getting commercials.
Dr. S. Chava
From new clients or existing contracts, new products.
Tarang
But NCE largely.
Dr. S. Chava
NCE yes, you're right.
See this division, our approach is we don't add the CMO of generic API synthesis.
CMO of generic APIs will go into generic division only.
So, these are one product one customer business comes here.
Tarang
Got it.
Amongst the plans that we have here are these FDA approved capacities.
Dr. S. Chava
Currently, capacities are all FDA approved.
The one we are building will also go through approval when, when we validate products.
Tarang
Got it.
And last, how much of the CAPEX for nine month FY provision?
Dr. S. Chava
About INR 700 crores we did CAPEX first past nine months.
Tarang
Plan for the next three months would be?
Dr. S. Chava
FY 2022 and FY 2023 our CAPEX will be in the range of INR 1,500 crores to INR 1,700 crores.
So that number is still valid.
Tarang
Got it.
Thank you, sir.
Thank you so much.
Laurus Labs Limited January 28, 2022
Moderator · Conference Operator
Thank you.
The next question is from the line of Krish Mehta from Enam Holdings.
Please go ahead.
Krish Mehta
Thank you for taking my follow up.
So basically, as you mentioned, the future possibility of this 25% of your gross block being utilized, could you actually throw some light on what this future revenue possibility might be of this 25% that's not being utilized.
Dr. S. Chava
As we explained, we have built this facility to meet our product demand and our customer demand.
So we can't give you a specific number, but see, is the asset turnover ratios if you look at is about between 1.25 and 1.5.
So it'd be in that level.
Krish Mehta
Okay.
Thank you.
Moderator · Conference Operator
Thank you.
We'll move on to the next question that is on the line of Aejas Lakhani from Unifi Capital, please go ahead.
Aejas Lakhani
Hello, Yes, thanks, Dr. Chava.
My questions are answered.
But since I have the opportunity, just wanted to understand that from a gross margin perspective, and EBITDA perspective, can you give some guidance for or how you are thinking about FY 2023 and FY 2024.
Dr. S. Chava
For the last several quarters, we were saying, although we had a much higher than 30% EBITDA, but we were talking to our investors, saying that we are confident to maintain 30% EBITDA for FY 2022 and beyond.
If you look at our nine months, we were very close, we are more than 29% and I think 29.5% EBITDA for nine months.
And then Q4 we are also confident to achieve the 30% EBITDA.
So we are comfortable to say again, that our business now is capable of generating EBITDA margins of 30%, around 30%.
Aejas Lakhani
Got it.
Thanks a ton, Sir.
I am done.
Laurus Labs Limited January 28, 2022
Dr. S. Chava
Thanks
Moderator · Conference Operator
Thank you.
The next question is on the line for the Ritesh Rathore from Nippon India.
Please go ahead.
Ritesh Rathore
Yes, thanks for giving opportunity again.
In ARV API, how has price movement happened from the peak?
How much would have been the correction from the peak?
Dr. S. Chava
It is 2% to 3% lower than the earlier.
Ritesh Rathore
Okay, okay.
Dr. S. Chava
It is not big.
See it is a highly matured products.
So none of them are newly launched products.
So products are matured.
So, price fluctuation is not significant.
Ritesh Rathore
And sir in terms of both API, ARV API and formulation, are there any new players which have got impaneled by the global tenders of PEPFAR and all the old players who are impaneled are they becoming more active?
What's the competitive scenario you're sensing for next 6 to 12 months?
Dr. S. Chava
In the formulation space, we can expect one or two new players coming in.
But then the API space, at least in the next 12 to 24 months, we haven't seen anyone investing big infrastructure to get into the ARV API space.
Ritesh Rathore
Okay.
That's it sir.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Prashant Nair from Ambit Capital, please go ahead.
Prashant Nair
Yes, hi, Ravi, just one clarification on your margin comment which you made earlier.
So when you said that you're confident of maintaining 30% Laurus Labs Limited January 28, 2022 EBITDA margin.
Was that for the fourth quarter or was that for the full year as a whole?
V V Ravi Kumar
Full year.
Prashant Nair
Okay, so you believe you can make up some of those over the nine months, I think you're at 29.2% or 29.3%.
So that you can make up in the fourth quarter?
V V Ravi Kumar
Yes, that we can make up Yes, yes.
Prashant Nair
Okay, fine.
And secondly, just a follow up question to what the earlier participant asked on pricing.
So, on ARV formulation, while volumes have been lower in the tenders has pricing also corrected to the last say 3-4 quarter?
Dr Satya
Pricing corrected in the ARV formulations.
See here when we are saying pricing is not like 5%-10% reduction, like what we are here in other regions, it is the 1%-2% reduction in the pricing.
Prashant Nair
Okay, fair enough.
Thanks a lot.
That’s it for me.
Moderator · Conference Operator
Thank you ladies and gentlemen due to time constraint we will be taking the last question that is from the line of Dhaval Shah from Svan Investments.
Please go ahead.
Dhaval Shah
Hello, Hello Dr Chava.
Just I am not understanding, on the ARV side like when we’d be discussing about ARV business in the past couple of quarters and years, we always had a good visibility of our volumes.
So, in last three quarters what happened in terms of the procurement by the agency is that we saw this dip in our volumes.
Just for from my understanding if we could please explain.
Laurus Labs Limited January 28, 2022
Dr. S. Chava
See if this decline is only for Laurus Labs, then it is a concern that means we are losing market share and somebody is gaining.
This you might have seen from our listed companies, how much the ARV revenue decline they have shown.
Then we have done better when compared to them.
So this decline in ARV APIs is only transient.
Our ARV APIs depends on how our customers are successful in tenders.
Whereas our formulation sales follows the general trend of the other formulation company.
So if you look at our decline in ARV formulations sale is less when compared to the ARV API sale.
Dhaval Shah
Yes okay.
So, I mean, you mentioned you may maintain around INR 1,500 crores- INR 1,600 crores of aggregate on the ARV API which will be on a quarterly basis will be much lower than what pace we had around INR 550 crores odd.
Why is less number?
So what is changing in the end market?
Dr. S. Chava
Maybe we're cautious in saying that numbers.
Dhaval Shah
Okay.
Okay, fair enough.
So thank you.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen.
That was the last question.
I’ll now have the conference over the management so the closing comments.
Dr. S. Chava
Thank you, everyone, for your interest and patience and asking some very insightful questions which will help us to reshape, realign any of our priorities.
Thanks to Monish and Mr. Vivek.
And Ravi Kumar.
VV Ravi Kumar
Thank you, everyone.
Thank you.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, on behalf of Antique Stock Broking that concludes this conference call.
We thank you for joining us and you may now disconnect your lines.
Thank you.