Caplin Point Laboratories Ltd
NSE:CAPLIPOINT
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Caplin Point Laboratories Ltd
Earnings Call Analysis
Q1-2024 Analysis
Caplin Point Laboratories Ltd
The company's first quarter was solid, aligning with their own forecasts. They have set expectations that Q1 and Q2 will maintain a consistent performance with a significant uptick in growth anticipated during the second half of the year. This optimistic forecast is tied to the introduction of a new production line, Line 5, which is dedicated to terminally sterilized products. Given that over 70% of their products fall into this category, the launch of Line 5 is projected to substantively boost product output in Q3 and Q4.
The company's development pipeline continues to be strong, with 55 products in various development stages, covering a range of formulations from injectables to ophthalmic solutions. The company's filings in international markets such as Canada, South Africa, Mexico, Australia, and the Philippines suggest a strategic expansion into regulated markets, with approvals expected in the coming years. Furthermore, the company has taken on the development of complex drug-device combinations, anticipating a minimum of price erosion thanks to the complexity and specificity of these products.
Financially, the company has delivered impressive growth with revenues up by 13.1% compared to the same quarter last year. Profits have increased, with EBITDA growing by 19.3%, PBT by 20.8%, and PAT also showing substantial growth. This demonstrates solid cost control and expanding gross margins. The EBITDA margin reached 34%, with PBT at 31.2% and PAT at a remarkable 25.6%. Reflecting the escalation in scale, the quarterly turnover surpassed the annual turnover of five years prior, signifying a five-year growth leap in a single quarter.
The company's financial stability is underscored by significant cash reserves, demonstrating consistent growth from INR 152 crores in 2017 to INR 807 crores as of June 2023. This robust cash position highlights the emphasis on liquidity management and the ability to generate healthy cash flows, a key part of the company's financial strategy.
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Ladies and gentlemen, good day, and welcome to the Caplin Laboratories Limited Q1 FY '24 Conference Call hosted by Dolat Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Rashmi Shetty from Dolat Capital. Thank you, and over to you, ma'am.
Thank you, and good morning, everyone. I'm Rashmi Shetty, Healthcare Analyst from Dolat Capital. Extend a warm welcome to everyone joining us today to discuss Q1 FY '24 Earnings Con call of Caplin Point Laboratories. On this call, we have with us Mr. C.C. Paarthipan, Chairman; Mr. Vivek Partheeban, COO; Dr. Sridhar Ganesan, Managing Director; Mr. Muralidharan, CFO; and Mr. Sathya Narayanan, Deputy CFO. Over to you, sir.
Thank you, Rashmi. So hello, and good morning to everyone. Welcome to our earnings call to discuss the results of Q1 of FY'23, '24. Please note that a copy of all our disclosures are available on the Investors section of our entities as well as on the stock exchanges. And please note that anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. The conference call is being recorded, and the transcript along with audio of the same will be made available on the company's website as well as the exchanges. Also, do know that the audio of this conference call, a copyright maintaining of Caplin Point and cannot be copied, rebroadcasted or attributed interest or media without specific written consent of the company. Now I would like to hand over the floor to our Chairman for his opening remarks.
Good evening, ladies and gentlemen. Welcome to our investor's call. So the thing [indiscernible] the good effect in the case is not an indicator of good results in future but a good processes. Now let us look at our sustainable progress and process of our business. Revenue refers report on June 2022 rate. Caplin #1 in India, our most consistent profitable growth across the last 10 years. Further, [indiscernible] noted Caplin has the second largest fourth quarter for the decade ending 2020. Then our ROE and ROCE has been unique in the last 10 years compared to [indiscernible]. Currently, the liquid OpEx of Caplin Points stands at INR 1,540 crores as on 30 June 2023, which includes INR 807 crores of cash and cash equivalents. It's not the profit in the book, but cash in the bank. I'm also sure that [indiscernible] does not recur main tenants and crude cannot be day traded. Our operating manner for logility, with retail support has been completed and what we are currently doing, which is in the form of work in progress and how it will strengthen the company in the years to come. Now let us look at Caplin Plant 1, we call it a CP1, where we manufacture and export our products to Latin America. Here, we created a second line for Softgel formulation, and we just started the started to increase the revenues. We also have registered 92 products in Chile using our CP1 and most of the products in addition to that more of our products are also in the pipeline. We are moving one of our marketing guys from Central America to Chile to start our ROCE business model in Chile. Now Caplin Sterlies. Were over the review with the FDA instruction is completed successfully after 4.5 years. Our Phase 2 will become operational in October, and we'll be shipping most all the similar sterilized product to Phase 2. The percent state of the ad machineries will increase the production multi-floor, with strata of our Phase 2 -- Phase 2 of Caplin Steriles and our creation of U.S. pentenand digitalization will be detailed by CEO after I complete speech. Now we are in the mid of the good growth story and the fundamentals Steriles follows, just the one that are completed and also the one that are work in progress. R&D for API, which is for general APA and Onco API. We have already completed a PPD with transfer documents really for editors once we complete our API facility, the general one in 6 months and the oncology one in 1 year right now. R&D for investable for a year or over that we have been actually filing the documents, we also acted in this facility R&D. Now the rest of it in the form of actually the pros that are ready will be detailed by the CEO. The Onco injectables is a work in progress will be completed at least 24 to 20 products in the next 2 years from now, both for onco injectables and onco OSD in the form of tablets and capsules. The CRO, which we are aware has already been completed, currently, we're being restudied for Chile. We'll also build a Mexico, U.S. and Chile in future too. Caplin Onco, the tablet and capsule will be ready in 6 months from now. And injectables will take 1 year for the completion -- and we already received an order of some $4 million from Latin America, which will on [indiscernible] in CMO and it clearly shows that we have seen the opportunity not only in the regulated market, but also in the ROW market for the oncology products that we are planning to manufacture in future. The product that we received now, although be manufactured in a CMO, the testing will be conducted in our QC and QA before export. On the general OSD, the construction is progress and is about to be completed between 18 to 24 months before we start the commercials. Once we complete the entire activities in 2 years, Caplin will be any other company in the form of good to grade, it all segments of pharmaceutical formulations and API, which is known as vertical integration. That's what is happening with all the big base in India. The role that our sustainability and reasonable scalability is already ensured without all these new initiatives. However, with all this just to -- we are about to complete in 2 years with no lot of differences. And let me give you the key differentiator as follows. We'll have new projects, and most of these projects are a regulated market, and these are bigger projects, which are likely to happen as I told you before, in 18 to 24 months, some of them in 6 months, some of them 12 months too. And we will use the bigger map tests in addition to maintaining our business in the smaller markets. Number three, we continue to be a bit company with strong cash risk. For example, we have already invested INR 500 crores in the CapEx the last 5 year, if you add the INR 500 crores with our liquid assets of INR 1,540 crores secluding the region of INR 2,040 crores, reduced in addition to the operating income for the last 5 years. Our CFO is not just a CMO like most of the companies are our size. We won 8 ANDAs and many more to come. The new normal in our company is in the form of employee engagement, for example, what I found in Caplin Steriles are found actually some of the operators and trust managers who are coming for the cash shooter from the bottom of the company. I just see some of the people as I'm staying closer to the factory now. I come to know they are leaving actually one-room houses. I have some McCain child which is tool of a pre-restaurant come and actually wake you up, actually will you work up or continue to sleep? He said, I will not do any interest here, are you having definitely wake up, which means it will create [indiscernible] when it comes to you. And I told them, we are appointing new batch, freshers, most of them are bachelors. And if you develop this bus, we will really new affiliate from the tax shift and they are very happy prospective. Now we are building a half of 120 to 130 per share, who will still here they'll be 3 times set of the field and accommodation. So we are also creating a small playground for than – for a creation also after they complete the work. In addition to that, we largely one-shoot increments, performance bonus and attractive rewards which were aware that we have been actually offering to retain the talent. Finally, our future January portion surprise and potential for all stakeholders. And it is the concept – it is not the concept of [indiscernible]. You throw a ball against a concrete wall and it just done so far. To click ATM next to mid-to-mall that the wall does not move. Our business is not maintaining the status quo. It's a journey for cash and excellence. Thank you very much. Now I move to for last year over to give us his present.
Thank you, Chairman. Once again, welcome to everyone that is part of the call. I will give you a little update on the regulated markets business and also an insight into the company's digitalization activities going up. So as Chairman said, our use of the audit has been completed, and we are satisfied with the outcome, all of the observations that we have seen were procedural in nature and nothing to do with repeat observations that data integrity. In fact, if we were to [indiscernible] cite our state's already been updated the DAI, which is what we were expecting. But of course, officially, we need to have the AAR in our hands because we can declare that you know. So obviously, this is a satisfactory outcome for us after not having an audit for the last 4 years. And it shows that we've been significantly improving our processes, automating our processes and also creating a good culture of compliance as a company for so long. An important step for us in our U.S. and regulated market journey is our establishment of a front-end presence over there. As you know, Caplin mantra in the last 2 decades has been closer to the customer. So in less prevented markets, in markets where front-winds have been few and far between, we were able to successfully do that in Latin America. The U.S., obviously, is a much more mature market. So even though we could have probably bent a little while back, we did not have the right amount of products or the right portfolio of products for us to launch a label. We feel right now is the time for that, and we're in the process of incorporating our company over there. And in the next 6 to 8 months, we should have all of the licenses in the 50 states for us to launch our own label there. Several years ago, exhibitions such as CPI, iFX, et cetera, build the gap between the markets and the manufacturers. Similar to this, there are multiple sales and needs that are available in the U.S. that we will start to participate in through our front in just to understand the unmet needs of the underinsured and uninsured population there. And sticking through to our pattern, we want to take to the bottom of the patented also in the largest market in the world. Once we established our presence over there and then sales start coming in, we expect the profitability to be boosted by this move because we are currently sharing 50% of our profits with our front-end department. We may still continue to supply existing products and even potentially a couple of the new products, 2 front in because we need to have a hybrid model of making sure that the larger players continue to operate at the GPO in other spaces, whereas we try and occupy the Tier 1, Tier 2 spaces that we've been doing in Latin America also. Coming to numbers. We had a good Q1 and in line with our guidance, we expect quarter Q1 and Q2 performance with much stronger growth in Q3 and Q4 when our additional Line 5 comes into operation. Line 5 will be used specifically for terminally sterilized products. And today, over 70% of our product terminally sterling, and we will be focusing much more on the commercial products. So our output will significantly be boosted in Q3 and Q4 of this year. Please also note that we are continuously doing exhibit batches, which is the base before filing AMDA throughout this time as well. I mean despite having a bunch of the products that are approved and in the process of commercializing many companies may make the mistake of choosing only commercial over what is going to be driving long-term growth, which is the AMDA that we will continue to find. So in line with that, we have almost 14, 15 products that are under stability right now, which we will file over the next 4 to 5 quarters. Our overall pipeline remains robust with our 55 products that are under various stages of development. This includes injectables and suspension emulsions and bags, plastic miles, ophthalmic energy, et cetera. Additionally, we have also done several filings in Canada, South Africa, Mexico, Australia and Philippines and this will start to get approved sometime next year and the years after that. As we evolve as an organization in the regulated markets, we are also taking up higher complexity products for development shortly. We shortlisted 4 to 5 highly complex drug-device combination for development that we intend to file over the next 10 years. Being highly complex in nature, we see that there is minimum price erosion in this segment. Once they start to come through, we'll have a very differentiated market of products comprised in the entire gamut of offerings that are used in the hospital or any critical care segment. Added to this, our backward integration initiative is starting to pick up steam. We foresee completion of the API projects for the next few quarters, and we will start using the site initially to qualify as a second source API for our existing products and prime resource for our new and more complex formulations. In this day of continuing shortages in the U.S., we feel that having good control over our input materials will certainly hold us in good stead compared to peers of a similar size. I'll take a couple of minutes to explain our move towards digitalization towards the entire organization. 2 years ago, especially during the late stage of COVID, we started to take up overall automation activities at our plan. We implemented LIM [indiscernible] and capital steroids and also at Ameris Clinical, our CRO. And right now, our quality control microbiology and soon validation activities are all close to being as paperless as possible. Soon, we will start implementing the process of also having electronic batch manufacturing records and batch packing a record to become a truly paperless facility. All of our training modules, document archival and until modules, et cetera, are already automated. Our CRO has actually been completely automated from day 1 where whichever day that required manual with handle it. So the fact that we've got 3 orders without any observation is a testament to the controls that we have in place there. We've also implemented SAP across all locations, and we start to see the benefit of that as a unique player that is focused on an end-to-end business model, our supply chain strength is the blood line for the company, and this fit implementation has already started to make our processes more aligned and predictable. As the world moves towards AI and associated evolution, we at Caplin has already started iterating this shift. Our latest procurement has been towards machines and equipment with AI and Machine Learning enabled. They will -- this will be particularly useful in specific equipment related to the visual inspection of the vial age detection of the bag, testing of prices involved and continuous manufacturing, et cetera. Overall, we feel that as a company, we are on the cusp of breakout growth with some of the CapEx and R&D that we're investing in. The next couple of years will be increasing in starting our next every of growth. Most importantly, we are doing all of this with internally accrued funds and not taking external loans, and they are a little within our needs. And at the end of this, we feel that we will be similar to what the top 15 to 20 companies of India have done before. Our intention is to ensure that we remain cash focused despite this huge CapEx outflow and our bottom line and cash flow remains a benchmark during this whole process of our next level growth for the company and all stakeholders. Now I request our CFO, to give us remarks before we open the floor for questions.
Good morning, Mr. Vivek. Good morning to one and all, have taken time to take part in the call of Caplin Point Laboratories, decreasing the Q1 results of FY '23, '24. Right? We have had a very gratifying quarter – Very gratifying to because for the following reasons. The revenues have grown by 13.1% over last year's corresponding quarter. And more than that, the profit has grown by 19.3%. The EBITDA has grown by 19.3%, and PBT has grown by 20.8%. PAT is also going to this evidences that our costs are under control, our gross margins are under growth. And then on all the parameters, we have led a very good ratios in terms of their increase as compared to the last year and the previous quarter as well. The EBITDA is at 34% and PBT was 31.2% and PAT had a significant 25.6%. It is also gratifying for the falling reasons. Whatever our turnover was for the full year 2017, which is INR 401.64 crores on an annual basis, if our current is less than the current quarter turnover of INR 407.36 crores. That is we turn over of dongle in the last 5 years. Our coming to PBT, our whole PBT of INR 122 crores, INR 121.78 crores is [indiscernible]. It is already achieved in the first quarter of current year, which is INR 126.99 crores. Coming to PAT. Our whole year PAT was INR 96.16 crores in 2017. [Technical Difficulty]
Ladies and gentlemen, the line for the management has disconnected. Please continue to stay on hold while we attempt to reconnect them. Thank you.
I'm on the line.
Yes, I think we can continue. CFO is also with me.
Yes, we can continue.
Ladies and gentlemen, thank you for being on hold. The line for the management is now reconnected. Thank you and over to you, sir.
Yes. Our CFO will continue his comments now, and then we will open the floor for questions after that then. Just half a minute, please.
Yes. Sorry for the disturbance. Actually, I don't know where it got disconnected. I don't mind repeating what it said. I think it's a very gratifying quarter in terms of all ratios, be it revenue growth, be it gross margin percentage, our EBITDA growth. So we have delivered a very good quarter. I was just mentioning that whatever the annual turnover annual profit before tax, annual profit after tax, we achieved the first quarter of 2023, '24 itself against the -- the turnover of INR 401 crores in the whole of 2017, which we delivered in the first quarter reduced to INR 407.46 to 36 crores is got realized in the first quarter of current year. Coming to profit before tax, INR 121.78 crores whole year profit before tax for the year 2017, which evaluated in terms of INR 126.99 crores first quarter of current year. And coming to PAT, whole year's PAT was INR 96.13 crores in 2017, we are at INR 104.23 crores and a wonderful 24.3% PAT level, which is a very significant milestone. And in terms of cash and cash equivalents, which we last check has more than grow pipeline what we had INR 152 crores in 2017 in 2019, we have a INR 772 crores, and it has grown to INR 807 crores as of June ‘23. This has been our strength and our Chairman has put it and we as reinstated, we will always lay focus on our cash and cash flow and then be working profits. So this is from my side. We would be glad to take any questions and over to Mr. Vivek for its comment.
Thank you, sir. So we can open the floor for questions now, please.
[Operator Instructions]. The first question comes from the line of Sudarshan Padmanabhan from JM Financial PMS, please go ahead.
Thank you for taking my question and congrats on [indiscernible] number. Sir, my question is on Caplin sterile. It's been hard to see that we are INR 45 crores, let's say INR 50 crores. And the addressable market is FI do in balance for the [indiscernible] we have filed and what we have. My question is beyond the Slide #24. If I'm taking a 3 year, you -- why do we see this division because we will also see oncology scaling up and in terms of scale and profitability. And how are we looking at investing into this? I mean, I'm talking about investing in the front end because companies as the scale, you invest their resources back into the memento keep profits and improve their own business in terms. [indiscernible]
Coming to an Caplin sterile, the most important one is actually our Phase 2 uncerty. The reason being, the last 10 years, we have been actually continuing to do business with legacy nations. And the one everyone when you start the project, especially the man taken attract, humanity very thorough actually in terms of selection of aging, missile some people. Now after having been in this business for 10 years, and the 2 currently, I am next to the factory. And in the patient to understand the character and quality of my people, and I'm also in the process of building a culture. Second, the misses that we have is across state of the art metiers of some of many of them are from Germany and some of them are Italy and the best of the good culture from India. So the capacity of the machines are going to be manyfold out. So we are very sure that the protein capability will increase. And that alone actually can give us a bigger advantage in terms of expert A, B. Whenever people say there is a shortage in U.S. market, especially in January, it will seem to literally mental arithmetic. But when there is a shortage of the product, the price has to go up because the shortage means supply is less than the burnel is more. It is true that basically there is a shopping but the profit doesn't actually increase the manufacturing. The reason being the one future has not set the rent tax. That's what we are planning to do about. We've already sent a person to create our actually front-end office there and the COO of the company will be on the 20th. And every 2 months is 10, 15 days actually in U.S. to understand how exactly we will be in a question to identify the uninsured and underinsured. In addition to that, currently, we have 5 people out of which 540 lattes. And many of them, they have their own groups actually in U.S. And the second largest population in the U.S. in Latin Satil. We already identified some people from our Latin American team to go and work in the market to understand which are the products that knows well. This will also help us to change on. One, we will not be in a portion to register a product, which may emanate our scope in future. B, we will get the information from the market, not from that, not in addition to IMS and the other one. Mostly, the data that we see that comes achieved from the -- not from the bottom of the promise more of actually the one which is in the form of tender business are from the one which who import actually.. If you look at you as there are 3 or 4 major companies that import the product and the data is separated in IMS. But when we work in the market, when we attend the exhibitions at actually the COO too, that is the time we will come to know what kind of customers you come to the exhibition, what type of information, which is the real knowledge because you know very well information is not knowledge and opening is not a fact. So all these things will come to know as we enter in the market. This is [indiscernible] Caplin steriles. Coming to Caplin Onco. Today, the ROW business is very, very attractive, and we will enter into markets to growth in Europe also, but the focus will be on ROW until we get the regulatory approvals. As a total, we in fact we have tried to see how exactly the market responds. And he is very important to tell you also that we receive, we have a loan license company with a new upgrade facility in Lana. And this one, we already registered also 20 to 30 products and some countries and 40 products for it. We received a very good order we are planning to manufacture as well next 3 months a year or more. And in addition to twisting in their own land, as I told you before, we've also tested on our lab and Samalayuca -- we always value quality is very important because the reputation, especially the character and reputation in force industry is very, very important. Otherwise, you are aware, actually, what is happening worldwide to date, we don't enter things to happen and we manufacture a product whether it is oncology product or any other products that you outsource in India or China. So this will [indiscernible]. The work in progress is much more actually a bigger opportunity than the current one Luca, the market, all 6, 7 markets put together where we are in Central America, as I told before not even the population of Tamil Nadu. This is the business which have about INR 1,300 crores with sufficient cash flow on good profits, remaining to INR 300 crores, INR 200 crores has come from U.S. and another undercome from the at Africa. And how do we receive INR 200 crore in year, which is going to be, as you know, in the go standard of the international in the oil market, one day, this will definitely be the best market for us, although we are not all entrants. We may be the last man intending and we will sure be the last one to get affected and believe strong to be a factor. Thank you, I hope I answered your questions.
Sure, sir. In terms of scale of previous, the U.S. currently, we are running at around INR 45 crores a quarter, given that the addressable market on our product side…
In fact we have a lot of orders from the U.S. market. As I told you, the Phase 2 production will start in October. And whatever leased in the first and second quarter is asset in [indiscernible] first quarter. The mission as I told you before, our general nation and the state of the art missions from India and Italy. The missions are capable of doing something extraordinary compact to our legacy machines in our Phase 1. So the sale of INR 45 crore in the past, it is not the one which we are going to continue this election will double from the third and fourth quarter.
Sure, sir. And sir, can you talk a little bit on the PSF opportunity in Latin America, sir, that 8 products that we have filed?
So similar to our -- I will just -- so similar to the softer segment that we had launched a few years ago, which we've seen quite a lot of growth in it a lot of profitability coming out of that segment. We realize that the PFS segment is something that is very, very underpenetrated. In fact, outside of the very large branded companies, almost there is no competition in the space because it's a highly technical area also. We started out with a couple of products last year, and we've seen that there is a significant amount of interest, and there is a lot of repeat sales as well. So what we typically try and do is wherever there is a product that is available as an anti or a vial and it can be administered directly with clinical such, we try to replicate this into the form of a pre-fulfilling so that you remove long step at the equation. And number two is also the fact that many of these products that we have launched also have an oral equipment optic. So that's how we have looked at it. It's still very early stages in this segment, but we remain quite positive one on the overall profitability of this segment.
One final question before I get back to the queue, is on profitability. Already in this quarter, we have seen that below the gross margin. We've seen a good 180 bps expansion, which I would assume is primarily operating leverage to cost control. So given that the base of infrastructure is in place and the growth is just taking off. Where do we see the margins expanding even somewhere? Or do we see that, like you mentioned in the front end that they're going to create infrastructure in the U.S. that a part of the margin will basically be invested into the front end. Just wanted to understand how the market trajectory would be over the next year?
Yes, I would like to answer to the question. The margin comes not look at to the market, but because of the model. If you look at the companies, most of the companies of our size, they export their product to be imported. If you sell your product to the importer, the input buys products from many companies of our size. And all of -- we did the same thing, and we want our bridges. It's a turnaround story. That's why we understand that we should renew the intermediaries. Whereas [indiscernible] some of the market, set for the people who entered early for them actually it was extraordinary. Today, the prices are eroded in every market. But it's new markets, which we can say like you can come with the product and you're 100% sure of actually making a lot of pie. So the models are the one which is going to give you the best returns. Everyone is motor customers. If hear the concept of what we call an ideal lead comes, this is a prospect who is interested in what your grave. So if you're happening something to the need, as you know well, the only thing we call it the one which we call is permanentle change. In addition to that, there is one more which is permanent is power. We feel something in the form of a strategy to address actually is pain fine, then this 2 will become your 3 layer and that will give you the profit, which we have already experienced in Central America will be the same in the other parts of the world asset. Yes, please.
Sure, sir. Thanks a lot. Thank you very much.
Thank you very much.
The next question comes from the line of CA Garvit Goyal from Invest Analytics, please go ahead.
So my question is on the API expansion side. So our API expansion getting delayed quarter-over-quarter. I remember in quarter 1 FY '23 quarter, you mentioned about the inorganic facility expansion at Vizag. So at that time, you mentioned that the inorganic expansion will be completed in 3 months and the organic will get completed in 15 months from then. Going forward, each quarter, you could delay to the time lines. And now we are saying that the onco API will get completed by Q1 as a ‘25. And I think Vizag thing is needs to be refurbished by Q3 FY'24. What I'm not understanding is that why such delays are happening. It is not like some COVID situation if there or any hindrances there because CapEx are happening across the industry. So why are we not able to execute the projects in a timely manner? I understand 1, 2-quarter delay might be there, but it almost, I think, 2 years delay, sir. So kindly put some color on it and give the firm time line to the investor community by which sees expansions will get completed and start contributing to the [indiscernible] or post [indiscernible].
Which one is 2 years delay, please?
Question... I think the question is on the line of Vizag API plant. So of course, I'll let Chairman at this. I'll just clarify one point. A couple of years ago, we had the opportunity to acquire a company that was already in emanating intermediates and API. But towards the end of that, it fell through because of valuation mismatch among so, the fact that we were not very comfortable in terms of turning that around into a regulated market plan. So we have to almost go back to the drawing book. So we lost around one year that and the rest of the in time lines, I'll let Chairman answer this.
Yes. This is not -- as we rightly said, actually, it's not the facility, which you told you sometimes back. And here, and the one important thing we the facility, which you are trying to take it to the U.S. market for our formulation injectable. And later, we also found there is an opportunity for us to go for OSD also, API for OSD. That's one of the reasons there is a slight delay in the form of 3, 4 months. And we're also aware, actually, if you are a first generation entrepreneur and that to non-technical person, delays are bound to happen. But delays will not actually in the form of actually create shift to the company, which disturbs the bottom line of the company. I don't think this is such a big issue in the form of that CapEx to the bottom minus countries. And more actually with factory, which we have talked to earlier.
Yes. Just to certainly entire note, while we mean that this is not going to affect the company, adversely or anything like that be small delays is that we are not derailing our projects or anything. Our R&D continues to grow at a very high rate. And wherever we feel that the opportunity is tied down, we actually buy the API from outside, and we will use our own API as a secondary source, which is why during the course of my speech, I explained, most of the initial targets that we'll be focusing on in terms of VMware filing, et cetera, will be on secondary source. So technically, we're not really losing any time, even if it is delayed by another quarter, the API [indiscernible].
One more issue. We don't borrow any money out of the bank because it has a cost rate actually in the form of interest or we -- the repayment of time loans. Yes, please.
And sir, secondly, on the U.S. growth, like while I know you explained earlier as well from quarter 3, quarter 4, I think the revenue is double done. But the thing is, is there any specific reason why there is a Y-o-Y slower growth on the U.S. side in this particular quarter? Or it's like we will get to quarter growth over Q3 and Q4 from Phase 2 and 3?
So as I -- as we explained, even prior to this, we have given a guidance that Q3 and Q4 are going to be much stronger compared to Q1 and Q2. This is specifically to do with the fact that we are going to be transferring many of our commercial products, as I said, over 70% of our commercial products sustained and sliced product. And we will be transferring them onto this 95%. Now 95% individually has higher capacity than all the other couple of lines combined, right? So number one. And number two, we also do balance our commercial products and exhibit products. So what happens is if you focus only on commercial products, what will happen is in 2025, our pipeline might start to look still. So we need to make sure that we have our longer horizon aspirations are in place, and we're not missing out on some of these time-bound opportunities that we focus on. So quarter 1 and quarter 2, as we explained before itself, it's going to be slightly more moderate compared to 3 year and 4.
Sir, once again, I would like to repeat what I told the cost of [indiscernible]. So would be felt in the person, if not an indicator that will result in future but a good processes. So the process, which I mentioned at the COO and CFO mentioned, that really matters actually compared to what actually assist which is not something in the corner for this actually impact to the bottom line.
And lastly, sir, on the pipe as balances are you guys considering any kind of buy back approval to shareholders in terms of like these high balances are basically generating lower terms than you are generating from the business. So overall ROC is getting debated sir?
[indiscernible] board making and takes it is.
Okay, sir. That's questions from my side. Thank you, sir.
The next question comes from the line of Alisha Mahawla from Envision Capital, please go ahead.
Hi, sir, good morning. Thank you for the opportunity. Couple of questions. First question, in your opening commentary, you mentioned that we won a tender for $4 million? And if yes, so which market is this?
Were in a suspender in the north of $2 million is the dimiss that we received for oncology products. And it's definitely a good business considering the size of [indiscernible]. And then these are markets which are not resulted, it's ROW market. That's why I specifically mentioned the volume of the business really matted for a facility, which you are planning to complete, say, 6 months from now, 1 year from now.
Is this order for onco product $4 million ROW market will be for supplying from H2?
Yes, you're right. Some of them will start actually a 15 to 20 days from now also some 7, 8 products.
Okay. And just a clarification on page 1, Phase 2 for the Caplin sterile [indiscernible] Phase 2 will be the wires and precising synergies facility, which is coming is commercializing next quarter? And what a Phase 3 be?
Net commercializing PFS in the Phase 2. And in fact...
Go ahead.
Yes, by October, we haven't start. As I told you before, we are starting Line 5 in October. Of course, PFS will start. PFS is on a something that you start in a year to do the scale up and exhibit. Not that we are going to start the commercial part. So that will not create any impact bottom line with us we'll have to complete the scale at again you have to keep it in 6 months and file it to with the registration [indiscernible].
Yes, phase – as Chairman said, Phase 2 has 2 lines, which is Line 5, where there'll be direct commercial supply from there. And Phase 3, right now, we have one lifilization line, is a high-teen line, and we have provisioned to add another 3 to 5 lines over there, which will not get decided on what lose because we also want to make sure that we have complete control over the entire operations. We don't want to stretch ourselves to within. So Phase 3, as we stand, we'll have 1 Lioline and provision for additional injectable line.
And Phase 3 will come in Q4 of FY'24?
So right now, the physical completion of the structure is done, and we expect overall completion by March to June of next year.
And on our LatAm business currently, we've been talking interval and train Mexico and Brazil, which like you mentioned last time will probably be some 1 to 2 years some time is any update on that? And for the next couple of quarters, will growth only be driven by this new onco that we have received?
Yes. Mexico and Brazil, mainly Mexico, our focus will be on Mexico in the next 2 to 3 years. But the issue Mexico, these are markets which are actually, as you know well, the regulator market probably mix this after U.S. entrance. The aforesaid takes a long time. Something happens, see, we do want to contend the product goes to the market, they keep the product and the foot and get the product tested also. So we have to be very coy in selecting the product. And on we are filing the gross, which we registered in U.S. On the other side, we are doing actually the market survey. But alone will help to identify the right product for the station. These are markets which we take that and we make it, these are the markets which will also change the – change it. This is going to be a game changer for the company in action to what we do currently.
So contribution from new markets is not expected, say, this year or next year?
New market correctly, what we are doing is we started doing business with more geographies like actually in Southeast Asia of Cambodia and Laos, when we started with [indiscernible] CAA. And we are also doing business actually in Chile in bits and present that big becomes will start once we open our warehouse in Chile, and we are also getting some orders from Peru. Peru increasing the number of registration. The business which we do. And as I told you, we had the maximum amount of business countries where we have our stock and sale. That's a model which increases the profitability, that's the model which gives us actualities and large scalability. So we will do this net from the bigger geographies after we complete the registration. Smaller geographies in some countries where we do not want to go for actually our own whereas the reason being, for example, the input beauty in countries like Peru very high. Then [indiscernible] also is quite high, which means in addition to investing in your own product, we like to invest also duties and other tests. If the profitability is quite high. And if your number of registration is very high, then of course, you have can do it. We can take the products to our mutual areas and where we can separate to the market. So we are working on various methodologies to get into these step-up market. So simply doing business, yes, it's really easy to lead the business, but that's not going to be lockeret. But at the top line will grow, not the cash flow at bottom. Yes, please.
Ms. Alisha may we request that you return to the question queue for follow-up questions as there are participants waiting for their turn. [Operator Instructions]. The next question comes from the line of Harshit Jhaveri from Paysquare Investments. Please go ahead.
My questions are answered. [Technical Difficulty] It's not audible, please.
Mr. Jhaveri, please go ahead with your question. Your line has been unmuted.
My questions are answered. Thank you.
The next question comes from the line of Naysar Parikh from Native Capital.
Thanks for the opportunity. My first question was on the emerging market side. Can you give us a sense of what is the growth in our top 3 kits. I'm just trying to understand, we are entering a bunch of new markets. So how is that core growth on a like-to-like basis?
So I told you before, the new market move the bigger geographies, local market is one path. As there no is in the form of a first selection of products, then, of course, the restatement over it takes time also. Then we start the barites, depends as I told you more that the market is the model, but do you see the profit and cash flow than the topline. So what we do, we will continue to grow the way we are growing for the next 2 to 3 years. After our growth will be many so. Satisfaction will complete our ascites. And then some of the advantages this stability will create once we see patients. Even if you participate in CPO check, the digits we come to CPAC will understand the difference between other companies and that the company or source not all actually in the form of time from starting materials, intermediates then formulations, then front-end persons in some areas and also CRO and other can. That gives us a key opportunity to choose the customer even if it is actually not the warehousing model in the form of stock and so, we can still treat the customer, if we prefer to buy a quality product -- and we definitely gave us actually a better margin compared to some of the general plan. So we will continue to do our homework as the way we have been doing. And the growth will be something similar to what we have occurs netted to on the promise and overachieve. So as I'm giving you a number.
No, sorry, my question is a little bit different. What I'm trying to understand is if you exclude the new markets that we've entered in the last 12 months, what is the growth in your core emerging markets, your top 3, top 5 emerging markets, what is your growth?
Last 12 months, of course, we are not tanked in many markets. On the contrary, we increased the product hopefully growth has come mainly because of actually first subjects, as I told you in question stage. Second, the growth is happening because of some of the orders which we are getting actually in the oncology products. And if you look at actually the one country where we entered and we do the business up to too year, and there will be some 40% to 50% increase in U.S. market in the current year. Again, on that, our growth is coming mainly from the existing markets.
Got it. And a distribution perspective, how do you see the share of direct sales increasing in the emerging markets, so where you want it to be in the next 2, 3 years?
So direct sales from India to direct to the input -- are there other payments...
I think the question is -- I think it's questions towards our breakup of sales between wholesalers and distributors and retail.
Is it your tends to convey?
Yes, please.
Yes, that's, of course, we won't disclosing everything is to sell it in a session. Because what is important, see, how much sales we do that we want to come in. So when I say what is the exact sales of actually distributor, retailer and other things in smaller geographies like 5, 6 countries. I think that cannot be like I don't want to give those details, which helps some other competitors also. Your intention may be good, but at the end of the day, I'm sorry I will not be interested to give that detail, please. We are simply -- one thing would like to comment, we are increasing the last mile connect. We're increasing the sale of retailers because we can renew the intermediaries in the form of importer and distributed, but the cash flow has increased. If I give the breakup I want to give you something which is first and is better to say I don't want to disclose it on [indiscernible] that's our strategy.
Okay. No, what I was asking is that today, you're around 20% is direct sales, right? So what I was trying to understand is that over the next 3 years, what is the potential for these direct sales? And when you go direct versus when you go through a distributor, is there a difference in terms of sales?
Actually, the truth is that the breakup remains the same, and we are not going direct, right? We've always been direct in this market. From day one in Latin America, we've been directly present. So we need to create the right balance between what we have to do with results to distribute to face what we have to do with us through retail. We don't also want to trade it to each other parts and then once it becomes lopsided after that. And also, some of these places are not the safest place in the world as well, right? So you need to make sure the [indiscernible] balances truck. We would like to leave it at this stage, please. Like Chairman said, our focus has always been to hit the last mile, and that's something that we continuously work on that's about it.
Okay. And on the mix, which is there between some of our specialty products and oncology. So going forward in your emerging markets, what percentage do you see coming from oncology for high-potent APIs? If you could just throw some light over that?
So also the API is going to go for our own consumption. I mean what we invested to commercial likes to start with because these are APIs when it adds value to a formulation and we go for our own fintech. Usually, we much economies have scale in the form of no manufacturing huge quality of the APIs. So it is difficult to quantify overall, actually, the best set of formulation will get increased. So as one in the form of actual capital consumption, that's it.
Okay, thank you.
Due to time constraints, the last question comes from the line of Rushabh Shah from Anubhuti Advisors LLP. Please go ahead.
Thank you so much for the opportunity. Sir, my question is we'll be spending around INR 550 crores on CapEx in the next 1.5 years. Our FY '23 operating property is around INR 450 crores. So which is enough for to fund the CapEx. So why you're holding INR 800 crores of cash in our books which is causing it in our [indiscernible] ROE from [indiscernible]. As ROE was roughly 46% in FY '18 and which is 22% FY'23. So can we consider rewarding shareholders in terms of providing any special dividend or a buyback?
Okay. On the first question is you're right that now you're applying to send INR 550 crores to come from all the projects. Second one throughout the shareholders on a short term and long term also. Short term, of course, I think you see the final dividend will be rewarding somewhere around 12% and 25% this year. And concerning the cash is going to help us in the long run in the form of growing factually in organic growth. For example, if you find some countries, if you look at news to the companies which are grown, they've grown organically then they started actually acquiring companies in the form of meaningful fit. So the money that we consume now when we know to help , that is going to help the shareholders in the longer.
Okay. But sir, our annual operating profit is sufficient enough to cover the CapEx, but -- so...
You could somewhat – see, API inorganic actual opportunity, the organic opportunity can be in the form of INR 100 can be in the form of INR 1,000 crore house? It's all different. We don't know what kind of opportunity we get. We'll grab the bridge when we reach that. When we get an opportunity that's going to actually double the profit and cash flow more than the sale. We would profits see more also. That kind of a situation will happen maybe 4 to 5 years after from now.
So we are looking for any organic growth. There is something in the pipeline?
We are looking for what?
Inorganic growth? And do you have any equation in the pipeline?
Any company [indiscernible], what will happen now the balance is to consolidate and expand. Now consolidating -- the consolidation in the form of actually completing the project ongoing for the best talent. And then now have to think customers and iterate as -- that's what happens in every industry, especially in pharmaceuticals industry.
Okay, understood. And sir, one more question. We have guided -- we have achieved the target that we have guided that 2016 top line will be bottom line of 2022. Same we have guided for 2028 also that 2020 to both top line will be the bottom line of FY '28. So can you share how -- what will be the part that will be go through to achieve this targets?
As we grow actually to tell you honestly, we will grow very -- we will have a very healthy growth. And coming to these types of things that happened in the past [indiscernible] fintech. But the growth actually in the form of what we have been growing and career and CAGR other things, we continue to do that. And it can even go beyond that also after 3, 4 years. That is for sure. So year-on-year...
Because of my question was the base has also increased. So growing on the higher rate...
What is increase as you said?
Sorry? We said as the base has also increased. So 2022 was a much larger base, yes.
That's what I'm telling when the base increases -- it's not easy for us to give you a promise in the form of the top line of sterlie to become the bottom line as future.
Okay. But, what will be the part, what are your plans for the next 5 years?
I already told you in [indiscernible].
I might have mixed.
Is this company is the current whole, current actually, what we are doing in the current level? See, most of them it is clunkily. The smaller geography part the one will drive the company where it is today. Now the web progress is in the form of all kinds of pharmaceutical formulation manufacturing in addition to API and others. That means, the markets will be larger as you move forward. The factories will be bigger, and we love the best of the best talent to manage the facility. -- when the market on a -- also if we told you, although the market softer, it is a model of the business that makes us actually more profit and the cash flow also reset effect, right? So that's what I told you it.
Okay. Understood. Thank you so much.
Thank you very much.
Thank you. I would now like to hand the conference over to the management for closing comments.
Yes. Thank you, everyone, for joining the call. Thanks for Dolat Capital also to organize. It's for the pleasure interacting with you all, and we hope to be million times. Thank you very much.
Thanks to all of you. Thank you. Thank you very much. Thank you.
On behalf of Dolat Capital, this concludes the conference. Thank you for joining us today, and you may now disconnect your lines.