Q1 2027 Viyash Scientific Ltd Earnings Call
Speaker #1: Ladies and gentlemen, good day and welcome to the Viyash Scientific Limited Q1 FY27 earnings conference call, hosted by Cequence Scientific Limited. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Speaker #1: Should you need assistance during this conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded.
Speaker #1: I now hand over the conference to Mr. Abhishek Singh from Cequence Scientific Limited. Thank you, and over to you, sir.
Speaker #2: Thank you, Parin. A very good evening to all of you, and thank you for joining us today for the Viyash Scientific Limited earnings conference call.
Speaker #2: For the first quarter of the financial year 2027, today we have with us Dr. Haripabu, Managing Director and Group CEO; Mr. Rajaram, Executive Director and CEO, Animal Health; and Mr. Ramakant, CFO of the company.
Speaker #2: To share the highlights of the business and financials of the quarter, I hope you've gone through our results release and the investor presentation, which have both been uploaded on our website as well as the stock exchange website.
Speaker #2: The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to our business.
Speaker #2: At the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team. I will now hand over the call to Dr. Haripabu to make his opening remarks.
Speaker #3: Thank you, Abhishek. Good afternoon, everyone. Welcome to Viyash Scientific investor call for Q1, FY27. Thanks for taking the time to join us today. I'm happy to say that Q1, FY27 is again a very good quarter for us, and it shows that not one quarter story, but a company which delivers consistent results quarter after quarter.
Speaker #3: Our integration is now complete. This will be one of the few successful integrations you can find in the industry, and that too in a record time period.
Speaker #3: Starting with the quarter's performance, revenue from operations for Q1 FY27 was ₹946 crore, up 20% year-on-year. EBITDA was ₹205 crore, an increase of 59% year-on-year.
Speaker #3: EBITDA margin was at 21.6%, expanding by almost 530 basis points over last year. Profit after tax was ₹79 crore, which has more than doubled year on year.
Speaker #3: Our EBITDA to tax conversion is showing good improvement both year on year as well as quarter on quarter. Our balance sheet continues to show improvement.
Speaker #3: Net debt has come down to ₹86 crore, and net debt to EBITDA is now 0.1x versus 0.24x last quarter, and almost 1x a year back.
Speaker #3: So, in four quarters, we have gone from a leveraged combined entity to a company which is virtually debt-free on a net basis. This gives us tremendous opportunity with respect to brownfield expansion as well as exploring inorganic opportunities.
Speaker #3: Coming to segment performance, our animal health formulation business continues to grow very strongly across all regions. We believe this growth will continue, with our continuous focus on new product launches, geo-extension of our existing products to other countries, expanding R&D, and accelerating new product development.
Speaker #3: We continue to invest in expanding our manufacturing operations. We're also seeing strong growth in the domestic market as well, up to 60%, and here we are looking to expand our field force and product portfolio further to grow aggressively.
Speaker #3: Coming to human formulation, our US business has grown 60%, showing the results of our efforts to move towards backward-integrated, more complex products. That is now translating into real growth along with improved profitability.
Speaker #3: API revenue has been broadly flat quarter-on-quarter due to timing issues on account of raw material price volatility, as customers were in a wait-and-watch approach.
Speaker #3: As all of you know, the war is continuing. Nobody knows when it's going to end. During June, most of the customers wanted to wait and see how it's going to work out, but now we see good traction—a lot of orders are coming back—and I can see this quarter is going to be the best quarter for API for us.
Speaker #3: Coming to where we are investing for growth, we have signed an SPA for the Bio4Life acquisition in Italy, and we expect to close the acquisition in the next few months.
Speaker #3: Based on fulfillment of certain conditions as per the agreement, this acquisition, as I mentioned on the previous call, aligns with our focus on component animal as the number one strategic growth area for the next five years.
Speaker #3: Bio4Life gives us direct market access in Italy, one of the largest companion animal markets in Europe. It comes with a companion animal portfolio of about 85 products, which can be extended to our other core markets, and a sales force with about 85% vet clinic coverage in Italy.
Speaker #3: Plus, strong local talent. Combined with our BI partnership in India, which is now scaling up, and our own R&D and manufacturing investments in component animals, this is a very meaningful step in building the entire component animal platform across the world.
Speaker #3: And for farm animals, we are focusing on filling the white spaces in our current portfolio, as well as expanding the market for existing products to other geographies.
Speaker #3: We want to focus our new product development on molecules which have potential across multiple geographies. For human formulations, as I mentioned earlier, we'll continue to focus on first-to-file opportunities, with a focus more on high-potency complex formulations, with fully backward integration support on key molecules.
Speaker #3: In API and CDMO, the focus is on day one launch, complex molecules, and expanding our CDMO business to create differentiation. We have strong relationships built with innovators across human as well as animal health, and strong credentials in manufacturing, which help us create a mutually beneficial partnership model on the CDMO side.
Speaker #3: So to summarize, Q1, FY27 shows continuity, sustained double-digit revenue growth, EBITDA margins around 20-22% as indicated earlier, balance sheet now strong as ever in the history.
Speaker #3: With this platform and this balance sheet strength, we are very well positioned to keep investing both organically in R&D and manufacturing, and selectively inorganically wherever we find the right site, while maintaining discipline on margins.
Speaker #3: With that, I will now hand over to Ramakanth, our CFO, to take you through the detailed financials. After that, we'll be happy to open the floor for questions and answers.
Speaker #3: Thank you.
Speaker #2: Thank you, doctors. Good afternoon, everyone, and thank you for joining us. I'm pleased to present the financial performance of Viyash Scientific Limited for the first quarter of FY27.
Speaker #2: We have started FY27 on a strong note, with continued momentum in revenue growth, significant improvement in profitability, and sustained expansion in markets. Our performance reflects the benefits of initiatives undertaken over the past few quarters.
Speaker #2: Across businesses, we maintained a continuous focus on operational efficiency and disciplined cost management. Revenue from operations stood at ₹946 crore, registering a strong 19.5% year-on-year growth and a 2.9% sequential growth.
Speaker #2: Gross margin improved to 54.1%, compared with 51.9% in Q1 FY26, representing an improvement of approximately 220 basis points year over year. Adjusted EBITDA increased by 59.2% year on year to ₹205 crore, with EBITDA margin expanding to 21.6%, compared to 16.2% in the corresponding quarter last year.
Speaker #2: Profit before tax increased by 122% year on year to ₹112 crore, compared with ₹48 crore in Q1 FY26. Profit after tax increased by 115% year on year to ₹79 crore, compared with ₹37 crore in Q1 FY26.
Speaker #2: Our finance cost declined to ₹12.5 crores from ₹20.4 crores in Q1 FY26, reflecting the benefits of our continuous focus on balance sheet strengthening and debt reduction.
Speaker #2: Pursuant to the composite scheme of amalgamation and upon receipt of necessary approvals during the quarter ended 30th June, the company has granted 1.3 crore employee stock options, representing 2.8% of the post-amalgamation paid-up share capital of the company.
Speaker #2: This has resulted in incremental expense of ₹19 crore for the quarter ended 30th June, 2026. The profit before tax of ₹112 crore and profit after tax of ₹79 crore for the quarter ended 30th June, 2026 are after considering the expenses on account of these additional employee stock options.
Speaker #2: We remain encouraged by the strong start to FY27 and continue to focus on disciplined execution and capital allocation to deliver sustainable and profitable growth.
Speaker #2: With that, I conclude my opening remarks. Thank you for your attention. I would now request the moderator to open the floor for the question and answer session.
Speaker #1: Are you able to take questions?
Speaker #4: Okay, thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.
Speaker #4: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use the 'hands up' feature while asking a question.
Speaker #4: Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nirman Bagreja from IISL Capital Services Limited.
Speaker #4: Please proceed with your question.
Speaker #1: Hello.
Speaker #3: Yeah, yeah.
Speaker #1: Thank you. Thank you for the opportunity. I have a couple of questions. Starting with the EU region, if we look at year-over-year growth on a constant currency basis, EU revenue has been largely flat.
Speaker #1: Is there anything to highlight over here, and what would be the outlook?
Speaker #3: Raj, I want to explain. The EU region actually, in Q1, is showing 13% EU growth, but he's saying, actually.
Speaker #1: Okay. In terms of the EU, our constant currency, if we took 16.8 million euro would be sales to the versus 1 to FY26, 16.9 million euros.
Speaker #1: So, on a euro term, EUR terms, it has been flat.
Speaker #3: Yeah, but actually, if you look at the fourth quarter, it tends to be a little bit more of a management of how the sales have gone.
Speaker #3: Because on a foliar basis, if you look at it, the growth will be closer to 20% for the EU region. So some of it is more a bit of phasing between one quarter and another quarter.
Speaker #3: But by and large, we are growing volume over there. And the volume growth in that market, plus the pricing growth, should get us back to the levels at which we've typically been, which should be closer to the 18–20% growth range.
Speaker #3: So this is more a question of how the quarter-on-quarter looks. But really, the way to look at some of these businesses is on a year-to-year basis, because the EU is a set of markets where one market may, in one particular quarter, show a little bit of a lower sales than another quarter.
Speaker #1: So, is there any seasonality in terms of whether one quarter is lower versus, let's say, the fourth quarter is lower?
Speaker #3: Sure. Generally, third quarter is better, so we generally have a peaking around the third quarter. It's also a question of some businesses, which are tender-linked, or some of them are linked to outbreak or vaccination-related issues.
Speaker #3: So you could have a bit of a movement on that. But yes, you tend to have a higher sort of growth coming typically in quarter three, a little bit in quarter one.
Speaker #3: Yeah, than quarter four. But you're really talking about growth. So, from a growth point of view, if you look at it quarter-on-quarter, it is more a question of phasing—of what was last year, same quarter, versus this quarter.
Speaker #3: But there's nothing which indicates that this is anything disturbing. It's more like a steady volume plus pricing, plus foreign exchange growth.
Speaker #3: Yeah.
Speaker #1: Wonderful. Actually, I was comparing it on a year-over-year basis only, not just on the Q1 quarter basis. So, year-over-year also, it is flattish only.
Speaker #1: In the EUR terms. Okay.
Speaker #3: YY, I think you're saying on FY.
Speaker #1: 1 to FY26 versus 1 to FY27.
Speaker #2: In constant currency.
Speaker #3: Yeah, yeah, yeah. But that's what I'm saying. So, on the quarter, very specifically, it's more a function of the phasing of what kind of contracts may have been there in the respective two quarters.
Speaker #3: But the way to look at it is really on a quarterly basis, which is when you'll have some movements between different quarters. And so, the EU continues for us to be a market which is closer to an 18–20% kind of growth.
Speaker #1: So, 18 to 20% kind of growth on an INR basis, right? Or?
Speaker #3: Yeah, on an INR basis. On an INR basis. And also, as you know, a few of the European countries we started building in the last few years.
Speaker #3: But our major countries like Spain are doing extremely well. But a few other countries like Brema, Benelux, where we are building, that's taking some time.
Speaker #3: But we are very confident this year will grow much better.
Speaker #1: Perfect. Perfect. Perfect. And in terms of emerging markets, emerging markets have actually surprised positively in terms of growth this quarter. I mean, we were expecting more of an emerging kind of growth, but on a constant currency basis, let's say if I look at it in dollar terms, it is going at 23%.
Speaker #1: But do you expect this momentum to continue, or—what I mean is, what were the drivers of such strong growth?
Speaker #3: So emerging markets mainly Turkey, Brazil, we have very strong product pipeline, of course. So few launches also happened last quarter. And both countries started growing volume.
Speaker #3: So, from last year, we are seeing volume growth. Earlier, you know, Turkey used to be only pricing increase. But in the last few quarters, we see good potential to grow volume.
Speaker #3: So, looking at the volume and all our product launches, we are confident we will grow close to that. That's how we see it. Both markets are doing extremely well.
Speaker #3: You know, these are the three countries: Turkey, Brazil, and Mexico. So all are doing extremely well in this business.
Speaker #1: Perfect. Perfect. If I may, I mean, there are a few couple of questions in terms of, let's say, the US business also has very strong growth while I mean, I'll be kind of lower base.
Speaker #1: Is there anything in particular to highlight why there was such a, I mean, almost around 45% year-over-year and 6% on a quarter-on-quarter basis growth, in dollar terms?
Speaker #3: So, as I mentioned earlier, calls also—yes, we have been trying to restructure a little bit over the last two to three years. Post-COVID, we struggled a little bit with pricing issues since we had manufacturing in the US.
Speaker #3: That's how we started moving volume products to India. And also, a couple of products we tried to fully vertically integrate. So those actions happened last year; a couple of products started shipping from India with our API.
Speaker #3: That's where the margin profile improved. And also, we were able to maintain our market share. Last year, of course, we had one good launch.
Speaker #3: We were able to make goods till we had a 50–55% market share. So these are a few things: changing the strategy, moving volume products to India, fully integrating with APIs, and adding a few new products. R&D also stepped up, actually.
Speaker #3: Our R&D revenue is also slightly improved. So, all these actions actually worked out very well this year, and we're going to continue working on that.
Speaker #3: But if you ask me, is it going to 60%? The answer is no. But it's steady, stable. We are very confident now, actually, to grow this business on that.
Speaker #3: Because almost all the products, whatever we develop or commercially launch, go as a fully integrated thing. And for all volume products, we have tied up with Indian manufacturers strategically.
Speaker #3: So we can see strong growth potential in this business as well.
Speaker #1: Okay. So just to correct. So basically, the or let's say, subsequent products, the API is now getting manufactured in India, which was not happening earlier.
Speaker #1: And hence, we saw a margin increase in FY26 versus FY25. I mean, if I look at Apple's income statement, the EBITDA margins have sharply improved from 1% to 34–35%.
Speaker #1: Do you expect this to continue? This kind of EBITDA margin for the US teams?
Speaker #3: So, we are expecting this will continue.
Speaker #1: Okay. Okay. Okay. Okay. Also, if you could highlight in terms of how the annual API growth has been and the human API growth for the quarter?
Speaker #3: So, API—as you see, it's flat because of a few reasons. We don't see any business loss in this. Basically, last quarter, especially June, everybody expected the war was going to end by June.
Speaker #3: In fact, it stopped in a few weeks, you know that. So, when the raw material prices were high in the last quarter, we also increased the price.
Speaker #3: So most of the guys, where they have inventory, they tried to actually postpone their procurements a little bit. So it happened for one month. But when they realized after July that it's not going to be over, now we are getting back all product orders.
Speaker #3: And this quarter is going to be a very good quarter for API. I can see, I think this quarter is going to be the best quarter in history for us.
Speaker #3: We see a lot of traction, a lot of inquiries to get back those APIs. It's only timing issues of a few weeks. Everybody wanted to take that advantage.
Speaker #3: Okay. If raw material or solvent prices come down, we may reduce that. But now it's stabilized. Everybody understood and realized, so now this quarter is going to be good.
Speaker #3: So it's only a timing issue; there's nothing wrong with that API business. And this quarter is going to be the best quarter for both animal health and human health.
Speaker #3: Of course, animal health—all vendors, all—we have been talking about capacity expansion and a couple of approvals. Now we have expanded capacity. We got US approval also for the Vizag site.
Speaker #3: We also expanded at the Vizag site. We just started commercialization from July, and this quarter is going to be the best quarter for API.
Speaker #1: Mm-hmm. Mm-hmm. Any color in terms of what would be the revenue configuration for the animal healthcare business? If I remember, we have crossed the ₹100 crore mark.
Speaker #3: I think, as I mentioned earlier, we'll grow 20-plus, but we'll grow a little more than that.
Speaker #1: Okay. Okay. Okay.
Speaker #3: So, for five years we are growing. We'll grow more than 20-plus, I can see.
Speaker #1: Okay. Okay. One for Dhamakanshar, sir—if you could highlight, in terms of how should we look at its cost going ahead, whether it should be like a ₹5 crore sequence ESOP, plus now the US employees getting that ₹19 crore kind of additional ESOP for this year?
Speaker #1: On a quarterly basis, or will it increase from Q2 onwards?
Speaker #3: Yeah. So, as I mentioned, this 1.3 crore additional options were granted during the quarter, with charge for the quarter at about 19 crores. I think the total ESOP cost for Q1 was about 25 crores.
Speaker #3: Q2, Q3, and Q4, the number in total would be about ₹40 crores. And from next year onwards, this will come down. So next year, it's going to be flat, small, maybe after completing this ₹1.3 crores.
Speaker #3: You know why it happened? We had an ESOP scheme in Viyash. So when we merged, as part of the amalgamation, of course, it was clearly mentioned in the budget document also.
Speaker #3: Since actually, it's allotted, it's delayed. So when the share price was high, it was at ₹230. That's the reason it's growing more.
Speaker #3: But it's going to be completed mostly this year, and next year, in the first quarter or so. But after that, it becomes routine—very small. We don't see any big items or one-time things after that.
Speaker #1: Next question.
Speaker #2: Thank you. The next question is from the line of Sahil Senji from Monarch Network Capital. Please proceed with your question.
Speaker #1: Okay, thank you for the opportunity, and congratulations on an excellent set of numbers, sir. With respect to the kind of traction you're seeing on the API side, sir, is it possible that we will exceed 20% growth for, say, maybe a couple of quarters going ahead?
Speaker #1: And would that mean you would do higher on the whole-year basis on your guidance?
Speaker #3: So, API mentioned animal health, okay, we are going to grow 20-plus percent. But overall, I mentioned actually double-digit, 13 to 14 percent this year. Mostly next year it's going to increase.
Speaker #3: We have a few launches, but this year we can expect double digits—maybe 15 or at that level—together. Because the other API business is bigger, much bigger than animal health.
Speaker #3: But we see good traction. But in human health, most of the big product launches are going to come in the future. So, this year we can expect around 13 to 15 percent growth overall.
Speaker #1: Got it. Secondly, during the Investor Day, you also alluded to adding new tablet capacity for companion animals, and building some more R&D capabilities as well.
Speaker #1: How are those things tracking? I mean, progressing?
Speaker #3: R&D already initiated last quarter. We hired people also, whatever approved, and equipment also we placed out there. So, coming to the manufacturing, we finalized the design.
Speaker #3: Mostly, it's going to start in the next few weeks or next month. And the target is to complete by January-February, to be ready for taking the exhibit batch.
Speaker #3: So we are on track with that. Mostly, it will be done by January–February.
Speaker #1: Got it, got it. And just one clarification from Dharmakanshar: I think what you said is that the ESOP cost could be roughly ₹40 crore for the nine months.
Speaker #1: Is that correct understanding?
Speaker #3: Yeah, for FY27, the total would be about ₹150 crores. For FY28, it will come down to around ₹25–30 crores.
Speaker #1: So, remaining three quarters—₹40 crore each, around. That's right.
Speaker #3: Okay. Yeah.
Speaker #1: Yeah, I get it now. Thank you. Thank you, sir.
Speaker #2: Thank you. The next question is from the line of Bharat Seth from Quest Investment Managers Private Limited. Please proceed with your question.
Speaker #1: Good afternoon, and congratulations, Hariprabhu Rajaramji and Dhamakanshi, on your excellent performance. Hello.
Speaker #3: Yeah, thank you, Bharat Ji. Please continue.
Speaker #1: Yeah, sir. I have only one or two questions. One is that you stated in your opening remarks about, I mean, growing the business of high-potent human healthcare.
Speaker #1: So, if you can give a little more color: what kind of current run rate is there, and how do we see what is the capability that we have, and the capacity we've built up? Also, how do we see that high-potent — I understand it's more complex and will have a better EBITDA margin as well.
Speaker #1: So, if you can give a little more color on that.
Speaker #3: Sure. So high-potent is mostly oncology products.
Speaker #1: Correct.
Speaker #3: We started building that capability two years back—API, so about 18 to 24 months ago. We built an R&D pilot lab. We built manufacturing, of course.
Speaker #3: We have three modules, and we started developing a lot of products in the last two years. That's our API thing, and we've started selling. We also partnered with many customers in the form of partnerships, CDMO, or direct selling.
Speaker #3: That's one of the core business for future. And recently last four months, we also initiated formulation development and partnering with that. So as I indicated earlier also, we are investing on formulation R&D high-potent lab.
Speaker #3: It's done now. It's going to be operational. In fact, last week we completed the high-potent formulation development lab. So, we have actually started all high-potent product formulations now.
Speaker #3: And also, we tied up with one of the strategic manufacturers who has an oncology manufacturing site. So, we aligned with R&D and manufacturing. We started working with partners.
Speaker #3: But these things, you have to keep in mind, it's a long-term. All these products, high-potent products, unless you start developing minimum five, seven years early patent expiry, we'll not able to get the business.
Speaker #3: So most of the revenues, whatever we developed—APIs and partners—it's going to start from '29. And the big products' revenue with the formulation, it starts after '13, 2013.
Speaker #3: So we are geared up now. We have R&D, we have manufacturing, and we also have a couple of partners. But we are waiting for filing and patent expiry.
Speaker #3: Most important patent expiry—we filed at least five or six product APIs already. The first product, we are expecting in '29. If we get there, also there's an opportunity for exclusivity with that product.
Speaker #3: If you are lucky, if you get exclusivity, that's a big thing. But the majority of revenues are going to be long-term, after year 13.
Speaker #1: Okay. So how many products are we saying are in that pipeline, first to file, also, which you said?
Speaker #3: I think last time I indicated API, multiple products—first to file and a few formulation. But I don't have the number. But at least 50% of our portfolio is either first to file or first to launch.
Speaker #1: Okay. And one more question just only for Dhamakanshi. So Dhamakanshi, how do we see interest cost from year onward annualized and time Dr. mentioned that we see depreciation side.
Speaker #3: I'll—okay. I can explain to you a little bit. I'm also learning a little finance now, so the depreciation, goodwill, amortization—you must have seen every quarter, ₹25 crore.
Speaker #3: So this year, first quarter, ₹25 crore. Next quarter is going to be ₹10 crore—so close to ₹10, 11 crore. After that, you can see that ₹25 crore is not going to reflect depreciation.
Speaker #3: So, third quarter onward – next quarter – I think you can see a ₹15 crore benefit. Third quarter onwards, the ₹25 crore is going to be PAT conversion.
Speaker #3: And the interest rates today—we are working and optimizing a lot on those things. Of course, you can see our finance cost is also coming down continuously.
Speaker #3: We are trying to restructure where I interest cost. Last year, we did sequent India debt. We restructured. Now we are currently working with Ireland interest restructuring.
Speaker #3: So, we are working on various things to reduce the interest burden as well as the tax portion. I think you will see next year it's good.
Speaker #3: But we are at par with any big companies in terms of interest. We are not paying too much on those things, even today. But we are going to save more on that.
Speaker #1: Okay, thank you. And all the best, sir.
Speaker #3: Thank you. Thank you.
Speaker #2: Thank you. Ladies and gentlemen, anyone who wishes to ask a question, please press star one now. Thank you. The next question is from the line of Sejal Kapoor from ND Fragile Thinking.
Speaker #2: Please proceed with your question.
Speaker #4: Yes, thank you for giving me the opportunity. Good afternoon, team. I have just a couple of questions from my side. First, as Viyash moves from integration now into a much more complex phase of R&D, manufacturing, geographic expansion, and M&A, hopefully, what are the few non-negotiable principles that management uses to ensure that growth does not compromise execution quality and cash generation?
Speaker #4: Thank you.
Speaker #3: If I had to put it to three things: one is compliance. No. Second, third, and discretion, whether it is regulatory compliance, finance, statutory, or quality compliance.
Speaker #3: Or EHS, there's no second thought on that. The governance thing. And, as you mentioned, we are actually going into multiple complex areas. But, in fact, it's not that we're just starting—we are already in most of these things.
Speaker #3: And most of our team is very well experienced in those things. If you see complex products like Onco, we have been doing this for the last two, three years.
Speaker #3: And the entire team is very experienced. We know the market. We know the products. So that's not the issue. Then the second thing, if you see, the combined company overlap is very limited to the API.
Speaker #3: And the formulation is still, animal health and human health are going to run in parallel. So these are the two or three things. Compliance—we never compromise.
Speaker #3: Governance—we never compromise. Of course, financial discipline is also most important. After seeing the sequence story four, five years back, we know what we can do.
Speaker #3: And we can see a lot of opportunities keep on coming in M&As. But we always look at only whatever is going to fit into our strategic direction defined.
Speaker #3: Even our analysts say, whether you compare an animal or CDMO or actually complex areas, we are going to stick with that. It's not just go and acquire since our balance sheet is strong.
Speaker #3: Go and acquire just to add numbers—that's not the plan. It's only whatever is going to fit into our strategic direction; it's going to be that.
Speaker #3: Whether it is inorganic or organic expansions, I hope I have clarified your question.
Speaker #4: Yes. Yes. No. That explains it. M&As is one of the key areas, obviously, because if you see the history of Sequent, the earlier management used to pay single-digit EV/EBITDA for most of the acquisitions.
Speaker #4: But again, it depends on the quality and the strategic fit. So, valuation alone can never be the only criterion. But you answered all my questions, and Dr. Haribabu, thank you.
Speaker #4: My second question is, given the long gestation periods and uncertainty in pharma where uncertainty in terms of where the downside from major capital allocation decisions can take years to emerge.
Speaker #4: Because the game is, the clock speed is such that it's a long cycle game. So capital allocation today may not deliver the desired outcome, or may not even signal green or red for many years.
Speaker #4: What do you—in that context, what do you consider an appropriate level of personal economic exposure for those making such decisions, and does the current ownership, senior management—I know Carlyle has got significant ownership.
Speaker #4: How do you reflect that principle within the organization—not just at the senior management level, but also at the middle management level? Because whatever decision is being made as a team at the management level, and then presented to the board, the downside—if any—may not emerge immediately.
Speaker #4: That's the kind of question I have. Thank you.
Speaker #3: That was a long question. Thank you for that. The first thing is, whatever decision we take as a company, we always consider the long-term growth of the company.
Speaker #3: Not based on the investor. Whether the management or Carlyle or vice versa. Whatever we have been doing last two years, investment. We never compromise on the short-term and long-term benefits for the company.
Speaker #3: So, when you say the long gestation period—okay, use capital thing—when you are doing for new company, new setup. For example, if I am doing only hypotense separately as a separate vertical, okay, that investment is used; there's a lot of risk involved in that because the gestation period is high.
Speaker #3: But in our case, if you see, today 90% of the business is a mature business, where we don't need to do too much capital allocation.
Speaker #3: And whatever we are doing, actually, if you look at the existing business versus what capex we are going to put in, it's not substantial. The existing business is able to take care of all these things.
Speaker #3: So, because of that, we have a large portfolio, and we have multiple geographies and multiple businesses where there's no dependency on either one country or one product or a few products.
Speaker #3: That's where risk is already mitigated. And our new capital allocation is not that much compared to our existing business. That's where I don't see much risk.
Speaker #3: Whatever you are putting in the capex, whatever we indicated—I think 250, 300 RPOs for a year—that's not that big, looking at the company's size and business.
Speaker #3: So that's where I don't see any risk on that. One is investor perspective. Other company perspective. I don't see any risk on that perspective.
Speaker #3: Looking at the size of investments, I don't see that. Thank you.
Speaker #4: Yeah, no, thank you, Dr. Haribabu. The clarity of thought is amazing and really appreciated. Thank you so much. That's all from my side.
Speaker #3: Thank you. Thank you.
Speaker #2: Thank you. The next question is from the line of Chintan Sheikh from Greek Capital. Please proceed with your question.
Speaker #5: Yes, thank you for the opportunity, and congrats on the excellent set of numbers. Sir, one question is on the minority interest. Last year, we had an 18% minority share pre-INDA—sorry, pre-minority profit, right?
Speaker #5: How should one look at minority interest going forward?
Speaker #3: Sir, we are evaluating—no, we are evaluating continuously. We have a minority share in two geographies: one is the US and the other is Spain. As you know, for the last four quarters, we were busy with integration.
Speaker #3: We were busy for a few quarters actually, to finish our roadmap for strategic direction. Now we have clarity on what we are going to do.
Speaker #3: So we are evaluating continuously whether to we can buy back. That's not an issue today. But still we are exploring whether to buy back today or actually when there is an opportunity to invest M&A to do that now, we are exploring.
Speaker #3: But next one, two years, it's going to be acquired 100%. That's what our plan. Next one, two years. We never know. It may happen soon or but outer limit I can say two years.
Speaker #3: So we are going to do that. Meanwhile, we are looking at various opportunities, like Biofor recently. We’re also exploring if something comes up to accelerate our strategic growth areas.
Speaker #3: So we are exploring those things. Maybe we'll come back soon on those things.
Speaker #5: But annually, how much outlay should we expect for this year or next in terms of pre-minority-charge profits? Last week, it was around 18%.
Speaker #3: How much? I don't know.
Speaker #4: Minority interest, if you look at further quarters, is around 17%. And last year, the full year was about 20%. You can assume that it will be in the same range, around 16–17% of the total profit.
Speaker #5: 16 to 17%.
Speaker #4: Yes.
Speaker #5: Oh, got it. Got it. And the capex you mentioned—about $250 to $300 million per year, right? That should be the number we should work with.
Speaker #4: Perfect.
Speaker #3: Capex at minority thing?
Speaker #4: No, no, no. The total capex is...
Speaker #5: No, no, capex overall. No, no. Total investment on the broad stock—you mentioned around ₹250 to ₹300 crore. So that should be the number.
Speaker #4: Yes, yes.
Speaker #5: Okay. And sir, if I want to look at the business API portion, basically, can you just flip between the human API and the animal API within that?
Speaker #5: And for formulation also, if you can provide, how much is human and how much is animal health?
Speaker #3: No, you can see the formulation, whatever we reported, even with analyst tech. Europe, emerging markets, and India together are the animal health. Only US is the human health, what we reported under ₹26 crores.
Speaker #3: Out of 383, out of actually 554, under ₹26 crore is the human health formulation.
Speaker #5: Okay.
Speaker #3: And API, at this point, is actually under gross run rate at animal health, but it's going to grow now. So today, a bigger portion is human, but animal health is growing very fast this year.
Speaker #5: Got it. And within the Animal—sorry, Human API, do you see the growth rate increasing? You mentioned some positive impact likely to be happening in Q2.
Speaker #5: But do you see stronger growth over there versus the overall business?
Speaker #3: So, human health, as I mentioned earlier—also, since we moved to more complex areas where products are coming out of patent a little later.
Speaker #3: Okay? But major growth is going to come from 28, 29 onwards. But till that time, we are anticipating 13, 14% growth. Okay? Sometimes if you are lucky, to get one or two products when you're targeting for day one launch, it's ended up actually one player or 10 players.
Speaker #3: If you are lucky, one player actually is a bigger. But looking at my experience, we expect next two years, 13–14%. But later, 29, since most of the complex products, more than 50%, are up-to-launch kind of things, we'll have bigger advantage on that.
Speaker #3: Animal health, since it was not—yeah, sorry.
Speaker #5: Sorry, the 13–14% growth you are talking about—is that overall consolidated revenue or just Human API?
Speaker #3: Yeah. API. Human actually, it's overall it can you can talk to 13, 15, whatever it is. Animal health, it's going to be 20 plus but since it's a contribution is small actually.
Speaker #3: On average, you can take 13–15%—that kind of range. As I said, most of the products are products which are coming off patent later. We don't do too many mature or commodity products.
Speaker #3: That's not our thing. So, we stopped developing high-volume mature products. We are more focused on differentiated products where we can have good margins from that perspective.
Speaker #5: Right. And in animal health formulation, how should one look at overall fees growing?
Speaker #3: It's good, but we mentioned to you a billion dollars in 2032 altogether—it's going to happen.
Speaker #5: Got it, got it. All the best, sir, and thank you, sir.
Speaker #3: Thank you. Thank you.
Speaker #2: Thank you. The next question is from the line of Shubham Agrawal from Berman Capital. Please proceed with your question.
Speaker #5: Yes. Hi, sir. Thank you for the opportunity. Sir, I just had one question on Europe. We heard about 18–20% growth this year.
Speaker #5: Is that including the benefits of the new acquisition, the Biofor Life? Or will there be growth over and above this 18 to 20%?
Speaker #3: As I want to answer—no, this does not include anything from the acquisition. The acquisition is not yet closed. We expect it to complete.
Speaker #4: By 2020 growth plan.
Speaker #3: Yeah, it will in FY27. I think a general sort of growth of volume plus price, even leaving out the forex, should take us into double digits.
Speaker #3: And then we'll see what comes out of the forex.
Speaker #5: Understood. Understood. And sir, one more question. The emerging markets business, this quarter grew by 36%. Is it possible for you to take out this between what was the volume growth and then the pricing growth and then there is some benefit from currency favorable currencies?
Speaker #5: You can break that out.
Speaker #3: So, we saw good volume growth last quarter. Emerging markets volume has grown by over 25%. So, the majority of growth came from volume, okay? Of course, there were one or two new launches, but don’t expect that volume is going to grow every quarter by 25%.
Speaker #3: But we can see the good volume growth in these countries, markets.
Speaker #5: Understood. Thank you, sir, for answering my questions.
Speaker #2: Thank you. The next question is from the line of Gaurav Shukla from Finland Investors. Please proceed with your question.
Speaker #5: Thank you. Thank you, sir.
Speaker #3: Yeah, please go ahead. Please, go ahead.
Speaker #5: Sir, may I?
Speaker #2: Mr. Gaurav, we can't hear you. Can you speak louder?
Speaker #5: Can you take the next question in the meantime? May I answer, sir?
Speaker #2: Okay.
Speaker #5: May I answer, sir?
Speaker #3: Still, it's not clear.
Speaker #5: Take next right now.
Speaker #2: The next question is from the line of Kumar Saurabh from Scientific Investing. Please proceed with your question.
Speaker #4: Yeah. Congrats on a great set of numbers, sir. My question is regarding human API. You said we have almost 50% of first-to-file opportunity. If I'm not wrong, some of those APIs are matter nearer to me.
Speaker #4: With brand TAM at around $2 billion, if I'm not wrong, could you highlight what the target opportunity is for us, sir, in terms of opportunity size for this first-to-file? Also, what kind of market share do we plan to take in the initial years?
Speaker #3: When you compare brand for API, that may mislead you. Okay? If I put all our products that are in the development pipeline today, brand is more than $20 billion kind of thing.
Speaker #3: But with API, you always have to discount depending on the API, how much actually it's going to price erosion when it comes to generic launch.
Speaker #3: Generally, APIs are going to be priced eroded by 95%. When it comes to oncology or these hypotensives, we can expect at least 50–60% price erosion.
Speaker #3: And API contribution is around 20% of the formulation segment. So, with all these things, for every product, whatever we try to do, we want to do as much as possible.
Speaker #3: Majority market share—at least 25, 30%. But on average, we are expecting 10–15% market share. When one product actually can do bigger, other products maybe, actually depending on the competition, we can expect—we target always 10–15% market share.
Speaker #3: But it's very difficult to see, based on the $2 billion actual brand today, then formulation price erosion, then API contribution, then 50-60% erosion.
Speaker #3: That we need to do product-wise. But we see our target is actually to try to do day one, where we take reasonable market share, and most important, it's sustainability.
Speaker #3: So, if we enter on day one, the chances of sustainability are higher compared to coming in as an alternate API supplier.
Speaker #5: Got it, sir. And sir, my second and last question is, so as you said, over the next two years, we should expect around 15% to 17% kind of growth.
Speaker #5: And then some of the first-to-file launches will happen. So, is it like we will have a better runway of growth from 2029, given our 2032 aspiration?
Speaker #5: And this 2032 aspiration, is it something which we are fairly confident of, or is this something which is highly aspirational? Or do we feel this is a bare minimum we will do, given things will go on a better track from 2029?
Speaker #5: We'd better mean some of these molecules going live.
Speaker #3: So I will not go either way—either too ambitious or too conservative. But we see the realistic scenario: if you calculate from FY27 numbers, $1 billion is actually working out to 18% CAGR.
Speaker #3: And we feel that's a very comfortable, practical aspiration. So, we have clear plans on that—both organic and inorganic. There are two things if I may elaborate.
Speaker #3: One is 18%. Second thing is, looking at our balance sheet, we have flexibility to do some M&A—not just to set up for doing M&A.
Speaker #3: Doing these two things together, I am personally very confident that we will achieve that, okay? If not more, then definitely that.
Speaker #5: Thank you. Thank you, all the time, sir. Thank you, and wish you all the best.
Speaker #3: Thank you.
Speaker #2: Thank you. The next question is from the line of Mehul from 40 Cents. Please proceed with your question.
Speaker #5: Hello, sir. Good afternoon. Thank you so much for the opportunity. Sir, my first question is regarding the acquisition in Italy. Sir, once the acquisition is complete and we are able to leverage the capabilities in other parts of Europe, how much would it add to the top line in the next one year, and in the next two years?
Speaker #3: So, it normally takes two years. How is the process? It works once we complete the acquisition. Mostly, it will be done in the next two to three months.
Speaker #3: Once you start that, you have to start registering that product in other countries. So our first phase of doing that is, wherever we have front-end presence—like Spain, Turkey, Brazil—whatever is accessible and where we have a market, we are going to do that.
Speaker #3: So all these process normally takes 24 months odd. Okay? If you're lucky, few things can happen early, but the minimum expectation is 18, 24 months.
Speaker #3: We can see whether revenue is coming in after 24 hours. There's a two-way strategy. One is expanding those products into other regions wherever it's possible.
Speaker #3: And we are doing a lot of new products we started. Like we said, actually, R&D is ramped up now. It started developing company and any products.
Speaker #3: We are getting ready our manufacturing plant by January, so we are preparing all bigger launches with full integration from 2029 onward. These are the products—mostly one or two products are coming in 2027.
Speaker #3: We are also targeting to launch that one. So that's the two-way. It takes two to three years, practically. So, you shouldn't expect an actual jump by next year.
Speaker #3: Whatever it is, the natural growth from Italy, that's going to grow double-digit, but bigger growth is going to happen after two years, by the time we complete all these stations and prepare for marketing.
Speaker #5: Yes, sir. After two, two to three years, what kind of top line will it contribute to?
Speaker #3: All put together, we mentioned 150 to 200 million company and animal by 32. So, we didn't work out this particular thing, because one is that this is going to be used as a launch pad for Europe.
Speaker #3: Europe at COVID is going to work. When you develop and file the product, you have to start filing one product, and that country, when the regulator is reviewing, it extends to other markets.
Speaker #3: So this is going to be the bigger portion, not only bio for products. The intent of acquisition is not only promoting those products; it's using it as a launch pad for all those things.
Speaker #3: I may not be able to give you those bios for products separately, but we are going to grow bigger. Actually, you can expect—actually, definitely—a 25% to 30% growth after '28, '29.
Speaker #3: Of course, today also we are going bigger than that, but the base is small. So we see good potential there.
Speaker #5: Sir, this is very helpful. Sir, how much does the API contribute to our top line overall?
Speaker #3: Overall, API contributes—if I put, okay, it's called ₹383 crores is what you... it's all maybe put together, 40% yearly, maybe 40%, around 40% you can expect.
Speaker #5: Around 40% is the current contribution of API to our top line.
Speaker #3: Yes, yes. Whatever we assume this year, close to 4,000—so you can expect 40-plus percent, around 40 to 40, 40 to 40.
Speaker #5: Right, sir. And sir, this API—it's partly animal health and partly human?
Speaker #3: Yes, yes, yes. Majority human at this point, but animal we are growing. So today, it's maybe two-thirds human, one-third animal. Animal is going to grow faster now.
Speaker #5: And, whatever products we have for animal health, is it only 100% API, or is there anything else as well?
Speaker #3: Animal health, you have bigger formulations, right?
Speaker #5: Okay.
Speaker #3: I'm not getting your answer. Animal health—if you see, our bigger portion is the formulation.
Speaker #5: Okay, sir.
Speaker #3: We are expanding API now. We have API, but our bigger focus is formulation.
Speaker #2: Thank you.
Speaker #3: All right. Is that a question or something? Okay.
Speaker #2: The next question is from the line of Kiran from Table Tree. Please proceed with your question.
Speaker #5: Sir, thank you so much for the opportunity. I have a couple of questions. The first question is about our acquisition—Bio for Life. Last time, when we acquired Cequent, Alvira, I mean, apart from the purchase price, obviously, we had a lot of issues: structural changes, local market stresses.
Speaker #5: There was restructuring, an insurance payout. There were too many issues. And that's an experience that India Inc—not just pharma or Viyash in particular, but everybody who acquires in Europe—has an issue with, right?
Speaker #5: The purchase price looks too cheap. But eventually, the costs are too high to pay, eventually, right, in the life cycle of the business. So, in general, what are the guardrails you have had to purchase by or for life?
Speaker #5: Because our past experience, both in Cequent via the Alvira acquisition and in India Inc's experience of acquiring in Europe, has been terrible.
Speaker #3: Yeah, you’re right by 10 years back. So, all we experienced from that, right, even from my side also, we have seen one acquisition. So, in those days, always, Indian companies, we want to acquire cheaper and try to manage like India car.
Speaker #3: It never works out. Now, all we experienced on that—what is the complication if it actually works? You can't actually Indianize European operations. So, when you are working in Europe, you have to understand the European business, right?
Speaker #3: And do it that way. So, earlier, 5 or 10 years back, when everybody acquired, we thought products could move to India. And it never happens.
Speaker #3: So, we have a very clear strategy on that. Of course, it's a small thing. Most importantly, it utilizes our launch pad, and we know. Also, there's no manufacturing; it is mostly a brand there.
Speaker #3: We have a clear idea with earlier experience; we have taken care of everything. We don't see any issue on that. But now, you can see—last, I don't know whether you have reviewed the last few years.
Speaker #3: Indian companies operating in Europe are doing pretty well. So it's not only us, but we are fully aware of that sensitivity.
Speaker #5: Got it. Got it. Very heartening to hear, sir. Sir, second question. Sir, the rate of growth will increase because of taken clips both on the animal side and the pharma side and animal side taken clips is happening 28, 29 and pharma side is 29, 30.
Speaker #5: Is that the right way to think about why the growth will accelerate beyond this year?
Speaker #3: So, talking API, most of the human API we have is a portfolio under development. It's up to 2040. Most of the products are coming after 2030.
Speaker #3: Animal health API—since there was some lag, we have taken product quick development up to 2035. The majority of the products in animal health, the bigger products, are coming out of patent from '27 to '30 to '33.
Speaker #3: After Q3, mostly biological is going on. So we are attacking both, actually animal health, as quickly as possible. And most important, try to vertically integrate also formulation in that.
Speaker #3: But any product API, whether it is human or animal health, once you start developing the product, its minimum gestational period is three to five years.
Speaker #3: So this company is a new company. We started two years ago. We can expect that the gestation period will be a minimum of three to five years.
Speaker #3: So that's why I always say the majority of revenue is going to come from '29. We can develop and manufacture—that's not the issue.
Speaker #3: But the registration tying up is somebody all, and more than that, patent expiry—these things will take their own time. It takes a minimum of five years, that kind of thing.
Speaker #3: That's where we see, from '29 onwards, real new product revenue is going to come for us.
Speaker #5: Got it. Got it. Very helpful, sir. Thank you so much. Congratulations.
Speaker #2: Thank you. Ladies and gentlemen, that was the last question from the participant. Now I would like to hand over the conference to the manager for their closing comments.
Speaker #2: Over to you.
Speaker #3: Thank you. Thank you, everyone, for your continuous support. I can tell we are in a good position, so our team is committed. We are going to do well.
Speaker #3: That's what I can tell you, guys. Thank you so much.
Speaker #2: Thank you. On behalf of Cequence Scientific Limited, that concludes this conference. Thank you for joining us and you may now disconnect your line. Thank you.
