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Granules India Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Granules India Limited. As a reminder, all participant lines will be in 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 Mr. Irfan Raeen from Orient Capital. Thank you, and over to you, sir.
Thank you, Sim. Good evening, everyone. My name is Irfan Raeen from Orient Capital. We are an investor relation adviser to the company. On behalf of Granules India, my external warm welcome to all participants on Q1 FY '24 Financial Results Discussion Call. Today on the call, I'm joined by Dr. Krishna Chigurupati, Chairman and Managing Director; Dr. KBS Ramar also, Joint Managing Director and Chief Executive Officer; Ms. Priyanka, Executive Director, GPI and GTSA; Mr. Mukesh Surana, Chief Financial Officer; and Mr. Punit, Head, Investor Relations and GM Business Finance. I hope everyone had an opportunity to go to our investor tech and press release that we have uploaded on exchanges and on the company's website. Before starting this call, I would like to give a short disclaimer that this call may contain some of the forward-looking statements, which are committed to based upon our beliefs, opinions, and expectations as of today. These statements are not guarantees of our future performance and involve risks and uncertainties. With this, I hand over the call to Dr. Krishna Pasar, over to you, sir.
Thank you, Irfan. A very good evening to all of you, ladies and gentlemen, and thank you very much for attending our Q1 earnings call today. A detailed presentation of our Q1 FY '24 performance has been uploaded to our website, and I'm sure all of you would have gone through it by now. IP update. Firstly, I would like to update you regarding the recent cyber attack incident. Our systems were breached by ransomware Group on the 22nd of May. The effect of this included a breach of our systems and test of our data. While strict measures were taken to contain and mitigate the situation, and production activities were restored to a large extent by the first half of July, there were a lot of registration activities on the quality front, which are non-negotiable. Due to this, releases of products were delayed, and there were several scheduling conflicts that will percolate the way into Q2 as well. By early Q3, we would have made up for all the backlog, and production activities will be back to normal. The impact of these production timelines have delayed some of our launches, which will now move to Q3 and Q4 versus the original Q2, while Q1 and Q2, our growth trajectory is on track. When we are confident of getting back on track post-Q2, there will be a revenue loss for the year, which will be recoverable. The value of which cannot be entirely estimated at this time. We will continue to strive to strengthen our IT systems and processes. So we do not have an incident like this in the future. FDA inspection and product approval. During the quarter, we had 2 FDA inspections at Jeedimetla plant in Hyderabad and at Unit 4 API plant in Vizag. Both inspections were completed with 0 forensic observations. We recently concluded a pharmacovigilance product at GPI for all our products, which we went through with 0 forensic observations as well. Along the GPC audit in Q4 of last year, we had 4 consecutive U.S. FDA inspections with 0 forensic observations. During the quarter, we also received the EIR for Gagillapur facility. During Q1, we received 4 ANDA approvals. These were for venlafaxine extended-release capsules, metoprolol succinate extended-release tablets, and negative visitant tablets, and [indiscernible] paracetamol combination. The construction of our new formulation facility at Genome Vale is progressing at a good pace, and we anticipate the completion of Phase 1 by October 23 and Phase 2 by May 24. Upon completion, this plant will increase our current capacity of 24 billion units of tablets by an additional 8 million units. Along with the recently launched greenfield packaging facility in Virginia, we now have our capacity in place for us to cater to emerging new opportunities and demand in the near future. R&D. Over the past 1 year, we have strengthened our R&D and product development capability, and we now have close to 300 strong R&D team members across our various laboratories at Genome Valley, Rabity Nagar in Hyderabad, Pune, and Virginia. These are gated towards fast-tracking integrated product development, building expertise in the area of controlled substances, complex products, biocatalysis, and Enz. Shortly, Dr. KBS Ramar will take you through more and explain about our R&D. As of today, we have 57 approved U.S. ANDAs, 5 European dossiers, 3 in the U.K., 6 in Canada, and 1 in other regions. They have a total of 42 DMFs filed across several regions. Climate change and sustainability opportunity. The global climate crisis, pricing temperatures, extreme weather events, and environmental degradation have heightened the call for transformative change. Businesses that can meet the need for innovative and sustainable products will be well-positioned to capitalize on the emerging opportunities and succeed in the years to come. Granules is taking a pioneering approach at embedding sustainability within its business operations and decision-making processes. Our ambition is to become an industry leader in global for remain sustainability, driving positive change in health care. Driven by a strong sense of environmental responsibility, we are announcing our commitment to a sustainable future by setting a goal to reach net 0 by 2015. Granules C Zero. Earlier this year, we announced our partnership with GreenCo to establish an integrated Green Pharmaceutical zone in Kakinada and Andhra Pradesh. Granules C Zero marks a significant milestone in our journey towards decarbonization across the supply chain, including litigation of scope 3 emissions and ending for a near net 0 carbon footprint on a cradle-to-gate basis. At C Zero, we are adopting a frugal approach to investments, prioritizing a phased and stage-gated strategy. We have identified and finalized 2 sites, Vizag with 12 acres and at Kakinada, 100 acres. The first phase will focus on strengthening our core business for backward integration of paracetamol and metformin. During Phase 1 at Vizag, we are putting up a pilot plant for DCDA and a commercial plant for PAP. The pilot DCDA plant will be completed by the end of FY '24, and commercial plant is expected to be completed by end of FY '25. The project work for Phase 2 at Kakinada will start in FY '25 after completion of the detailed feasibility report, and once we have all the statutory approvals in place. Organization transformation. Over the past 1 year, we have shared our road map for organization transformation. 3 central themes of this transformation journey are strengthening the core, R&D, innovation, and sustainability, the themes on which I have elaborated earlier in my remarks. In summary, our transformation journey, [indiscernible] steadfast dedication to creating a future-ready organization capable of thriving in the face of evolving challenges and seizing emerging opportunities.Our new purpose, vision, and values. As we embark on this transformation journey, we have revitalized our purpose, vision, and values, ensuring they embody our commitment to transformation. Our newly adopted purpose is healing lights responsibly through pioneering green light. It is just not a statement. It is the very essence of our passion, guiding us toward transforming healthcare through innovation and sustainability. Our vision is to establish ourselves as a world leader in green chemical and pharmaceutical industry by harnessing cutting-edge technologies to enhance the quality of life. Our vision is ambitious, inspiring us to push boundaries, redefine possibilities and create change that extends far beyond our horizon. With this, I hand over the call to Dr. KBS Ramar.
Thank you, Chairman. Good evening, everyone. I will cover in a little more detail the quality audits of our facilities, our response to IT incidents, and progress on our R&D-led transformation. On quality, Granules India stands as a responsible leader in the manufacturing industry dedicated to providing medicament products that adhere to the highest standards of quality and compliance. Compliance is considered essential and given utmost priority within the organization. It plays a vital road in maturing a culture of quality among all individuals, resulting in a transformation that permeates throughout the organization. The recent U.S. FDA inspections, up 2 of our API manufacturing facilities and Jeedimetla and Vizag resulted in 0 forensic. The regulatory success in the manufacturing plants was in spite of a critical cyber attack at the manufacturing side. The [indiscernible], the investigational reports, the actions taken post the cyber attack was well appreciated. A recent pharmacovigilance inspection of our Chantale facility also resulted in 0 observations. These outcomes demonstrate the management's commitment to quality. On the cyberattack and our bounce back, the issue of cyberattack and our actions have already been notified. A little bit has been rolled by the Chairman right now. I wish to present a brief summary on 24th May 23. Systems got attacked by lockwi3.0 ransomware, which encrypted the critical servers, mailboxes, networks, and endpoints. Immediate actions were taken post the incident at all of our facilities, including containment and violation. All the systems, including servers and endpoints were disconnected from the network at which level. Affected servers and desktops were switched off and isolated them from the network to contain any further step. We deserve Internet access and allow other positions will be disconnected with the accelerated government to contain any data explanation. The restoration methodology, we are in a completely new green network with new network and micro segmentation and we added all the systems into the new network. We built new servers in place of affected servers such as empowers, ADCs, operating plans, R&D servers, file servers, and QC systems. And that uprise applications like DMS, QM, et cetera, and restored all the plants, all manufacturing facilities, and the satcoms services, with this rate possible times, including qualifications as required by the regulatory engine. Serialization of 4 lines in the manufacturing were restored within a couple of weeks, timeline to include qualification and to restart our manufacturing capitals. All the backups were restored in all the Empower servers, which have created new, stand-alone systems backups were created with only 1-day data loss, which has been recovered. All the Office 365 mails were cleaned and protected with the secondary tools and networks, Trelix and Sentinel XVR used for monitoring and protection. The mobile device management tune tool was used to protect mobile because all the data protection is installed on all the official mobile saponin. We have concentrated a team of internal and external experts and design the system architecture and controls, which enables us to focus on prevention as well as preparation from future effects. This total solution is expected to be in place in a couple of weeks. At ABN governance mechanism is established with the management to bring a sharp organizational focus on this very critical and identified high-risk area. With all these efforts, which have been relentlessly carried out and operations have been restored at all locations including the U.S., it has resulted in supply disruptions, which led to a shortage of sales in the quarter. Mukesh will brief the details. Regarding the transformation journey. Over the years, Granules India R&D strive towards establishing the company's dominance and select generic products and has been very successful in the endeavor, and the effort continues to be the dominant leader in these products. However, in the last 1 year, there has been a parading shift in focus of R&D. The company has shifted its focus on portfolio to ensure that we leverage our potential and build the future plan. This shift in focus call for bolstering the R&D strength, both in terms of manpower, infrastructure and analytical equipment. This has resulted in setting up a state-of-the-art integrated product development center in Genomali in Hyderabad.This center is where both [indiscernible] seamless inhibition of projects has happened. The anti-development at the center is based on green and coprincipal as mentioned by the Chairman just now as a purpose that we want to leave.
Sir, we are unable to hear you clearly, sir. We are losing the audio in between.
In our earlier calls, I mentioned that the renewal focus of [indiscernible]. It's time also to talk a little about its nature and a bit of quantification of the effort. And so then, there are more than 30 products which are on various stages of development in our center, which includes oncology controls and other therapeutic categories. A majority of these projects are scheduled to be filed in the next couple of quarters. The mix of the portfolio included launch and approval product, A11 launches and first-to-launch products and LCM. The portfolio set launching these products globally in all the geographies of our business interest. Yet another significant aspect of R&D is its focus on sustainable new technologies. The company is laying special focus on products where biocatalysis can be successfully employed. To create a differentiation, R&D has joined hands with prostate specialized in enzyme reside and gen synthesis, and we're successful in developing proprietary enzyme solutions for desired clinical transformations. We have had initial success in getting cost-effective donating [indiscernible], and have been successful in scaling up at our 1 facility, which we acquired a couple of quarters ago. We expect the commercialization of these products using the in-house events to happen in the next couple of quarters. This is an outcome of the transformation the company is presently undergoing in the area of science, technology, and innovation. Thank you all, and I'll hand it over to CFO, Mukesh.
Thank you, CMD and GMD. Now let me take you all through the top financial parameters now. The first quarter revenue were INR 9,855 million as compared to INR 1,196 million in Q1 FY '22, a decline of 3%. This decline is primarily on account of business interruption due to the IT incident that happened during this quarter. Despite the IT trend, which has impacted expected revenue growth in all debates and price erosion across markets on a year-on-year basis, North America registered a 10% value growth and Europe registered a 5% value growth. Latin America and ROW revenue decline was deep year-on-year, which is also on account of inventory correction by customers in these regions. Our API business grew year-on-year to volumes despite the impact of the IT incident. Share of par business has reduced as more customers are converting into FD from GFI, coupled with corrections in inventories in the LatAm and ROW markets. The Q1 FY '24 revenue declined by 18% sequentially as compared to Q4 FY '23. We are carefully assessing the loss of sales in Q1 FY '24 due to this IT incent and our percent estimate is more than INR 1,500 million. The sales breakup details as per business division and inclusion is presented in our investor presentation, which is available on the website. Value-added. Our value-added as a percentage of sales for Q1 FY '24 was 51.4% as compared to 49.6% in Q1 FY '23. Value-added percentage as compared to Q1 FY '23 has increased by 1.8%, points primarily on account of better product mix and reduction in rates of key raw materials. Value added as a percentage of sales for Q1 FY '24 was up by 3.6% points from Q4 FY '23, primarily on account of better product mix and reduction in rates of key raw materials. EBITDA and EBITDA margin. EBITDA for the quarter was INR 1,378 million. That is 14% of sales as compared to INR 2,015 million, that is 20.7% of sales in Q1 FY '23, a decrease of 35% over the previous year's EBITDA value, mainly on account of a reduction in revenue due to the IT incident, an increase in operating expenditure in line with the expected revenue increase coupled with increase in R&D spend by $94 million. We were infected by a failure to supply penalties of INR 211 million in GPA this quarter. We have incurred so far about EUR 50 million related to the IT incident and its incidental expenses, such as retention and demergers due to the business interruption. We have been incurring operating expenses and depreciation of our new packing facility in the USA, whose savings will start from Q2 FY '24 in the form of improvement in percentage. Our R&D spend for the quarter was $413 million, that is 4.2% to sales as compared to $319 million in Q1 FY '23. That is 3.1% of sales and INR 369 million in 3.1% of sales in Q4 FY '23. We are going to continue to spend on R&D in the coming quarters as well for the planned R&D pipelines for our future growth. Net debt. Our net debt was at INR 8,559 million as compared to INR 771 million at the beginning of the year. The net debt has increased by INR 899 million, primarily on account of the reduction in operating cash due to reduction in revenues and operating profit and also resulted in higher cash defect cycle. Cash to cash cycle was at 170 days in the current quarter as compared to 132 days at the beginning of the year. The increase is finally account of the increase in inventories as we could not sell as our expected plans due to the IT incident.Operating cash flow. Despite the business interruption, we ended operating cash flow with a positive $35 million as compared to INR 187 million in Q1 FY '23. The reduction is primarily on account of lower revenue and operating profit and resulted higher cash-to-cash cycle. CapEx spend during the quarter was INR 741 million. It is in line with our plan for FY '24 as guided in our last call. ROCE. ROCE for Q1 FY '24 is 9.4% as compared to 21.1% in Q4 FY '23, primarily on account of a reduction in EBITDA due to the reasons mentioned earlier. With this, I open the floor for questions.
[Operator Instructions] We take the first question from the line of Rahul Veera from Abakkus.
Sir, just wanted to understand one thing that since you mentioned there was some delay in launches of products from Q2 to Q3. Are there any commitments in terms of supplies for Q2 that you are expecting from these products? I mean, is there a possibility of one more FTS coming through failure to supply in Q2 as well?
Rahul, we have not committed to anybody ever in terms of a preliminary discussion with customers. And of late in the product reaches the U.S., we have not been making any commitments. So definitely, there's no possibility of FCS on account of late launches.
Sure. Fair point. And sir, all the FDA that was required to be accounted for this quarter has been done or any pending as is expected in the coming quarters?
Yes. I'll just clarify. All failure-to-supply analogies have been taken into account in quarter 1 and the rates added, but I just want to clarify also the quarter 2, we see that there is a major improvement in the new 3PL and we don't foresee a major expenditure of 3PL supply in Q2.
Sure. And what is the amount in Q1, sir, for FDA?
211 million.
[Operator Instructions] We take the next question from the line of Rashmi Sancheti from Dolat Capital.
Just to follow up on the earlier part. You mentioned INR 21 crores of FCS is sitting in other expenses. Is this related to only U.S. geography or with the other markets also? And was it an API particularly applies or this side across the segment?
So this is largely in U.S. And it is -- it has happened in GP entity. So this is not related to our control substances and some of those products.
Okay. And you mentioned that in quarter 2, I mean, this is all done in quarter 1. Right now nothing is expected in quarter 2.
Yes. So the migration of the new retail happened around quarter 3 May 23, and third week of May 23, and it has significantly improved returns on TL now in quarter 2. No, we don't expect too much, it could be very minor TA rationalist, but they could be very minor.
Okay. So if I exclude this INR 21 crore from your other expenses, excluding the R&D cost of INR 43 crores, then your other expenses are actually coming down quarter on quarter. So any specific reason for that, that you are taking anything, any cost initiatives, or anything with that?
See, other expenses also include price cost and also selling commission. So those are related to sales. And in addition to that, the freight rates also have slightly reduced sequentially also. And there are some failures to supply expenses in quarter 4.
Okay. Got it. And can you also quantify what is the loss of sales due to this IT incident during the quarter?
Yes, just covered in my speech, we are currently carefully assessing our current estimate is more than INR 1,500 million.
No INR 1,500 million 150 million. Okay. And so when you said that all the systems have been restored in July month, is it fair to assume that in the second half or also, we will have some 15, 20 days impact coming in the quarter?
There is some spillover on due to the quality systems rate. There would be some effects in Q2 also. And Q2, not only in a lot of some dispatches, the main hit will come from the anticipated launches. What we planned in Q2 will now move to Q3 and Q4. So there will be some impact of IT that's coming into Q2, mainly the launches.
Okay. So sir, then any guidance you would like to give for FY '24 on revenue numbers or specifically on EBITDA margin? Because of this IT incident that you are downgrading your earlier EBITDA marketing guidance that it would not be in the range of 18% to 20%. For anything you would like to say? Or do you see that quarter 3 and quarter 4 are sufficient to exist the guidance?
So Rashesh mentioned, we are assessing how much of the lost sales we can recover, and some of it is definitely not recoverable. So it's a little difficult to estimate right now, and we would definitely not like to give any guidance.
Okay, sir. And sir, last question to Priyanka. If you can revise the number of what are the commercial commercialized launches in the U.S. market? And how many launches are we expecting in quarter 3 and quarter 4 for the entire FY '24? And what is the price erosion currently looks like, whether it is still in high double digits or due to supply disruption, it has come down?
I think if I asked your question right, your first question was how many launches, how many overall products we have in the U.S., correct?
Yes. What are the total commercialized launches in day and how many are you planning in FY '24? And what is the price deration or entry looks like whether it's because stabilized from the high double-digit price edition or we are still in double digits?
Okay. So to answer your first question, in total in the U.S., we have about 37 to 39 products launched already. Over the next 2 quarters, we have closed -- we are definitely going to launch 3 products. But if everything works that we launched close to 6 products, the effect of which we see primarily in FY '24, FY '25. My apologies. And in terms of price erosion, there has been a sign of things easing up. I said this even in the last investor call. This over the -- the beginning of this FY calendar -- sorry, this fiscal year, I would say it's been pretty much stable, I think for the last 4 months has been stable.
[Operator Instructions] We take the next question from the line of Tushar from Manudhane Oswal Financial Services.
Just on this, so given that if I -- just for this INR 21 crores supply, then broadly, we should be INR 200 crores sort of a run rate for other expenses it on an absolute basis in the coming quarters?
Yes, 200 you were asking about the payer to super INR 21 crores.
Excluding tenure to supply.
Yes. Excluding to failure to supply the other expenses, we cannot take simply a run rate because some are related to sales expenses just clarified right and sales commissions are also there. So there are certain variable expenditures also in other expenses.
So as a margin trajectory, we'll have a gradual uptick in EBITDA margin, or we'll see a good improvement from consumer sales?
Of course, there will be a gradual improvement in EBITDA.
And secondly, just on the CapEx with INR 74 crores in Q1. Is there any revision in the full year '24 CapEx guidance? Even that we have these issues...
We are seeing -- we are in line with whatever we have guided in our last call. So we are in that plan.
[Operator Instructions] We take the next question from the line of Deepak Poddar from Saphire Capital.
Sir, I just have one question on R&D expenses. So I think this current quarter, it was around INR 43 crores, right?
Yes.
And so how do we see the trend in coming quarters on R&D expenses?
I think the R&D expense is only going to go up in the next 3 quarters because as I told in my speech, we are going to really look at filing the products in this year, which will be of a much higher level compared to what we used to do in the last couple of quarters. So therefore, R&B expenses definitely will go up.
Go up to INR 43 crores can -- I mean, around INR 50 crores maybe in the next 2, 3 quarters, right?
Yes. So quarter 2 can be more than -- a little more than 2%, but for quarter 3, quarter 4, we might spend more.
We might spend both?
Yes, more than 15 quarters... Quarter 4.
Quarter 3, quarter 4 will be more than 50%, I understood -- and then on EBITDA margin, you mentioned that we expect a gradual improvement in EBITDA margin, right? So any numerical sense would you be able to provide? I mean, so that we get some understanding.
We don't give guidance, but you could see our gross margin has improved in Q1, and we are looking quarter 2 also the gross margin would improve.
No, at the EBITDA level, I was just wondering on the...
So accordingly, our EBITDA margin will also improve. But we don't give detailed guidance.
We take the next question from the line of Mr. Aditya, an Individual Investor.
Sir, my question is related to this pricing erosion, right? When you talk about the pricing revision, but I don't see that in the numbers. So how one should understand the pricing revision in our scenario?
I will just clarify, when we have said price erosion, it is quarter 1 of the last year to quarter 1 of the current year. So last year, quarter 1, the raw material prices were at a peak level. Accordingly, sales prices were also at a higher level. So both have fallen. So our margins, despite price erosions, we are trying to maximize.
But last year, our gross margin was?
We were at 49% last year. We are correctly 15 plus, right? Roughly, it is 51.4%.
Okay. If there is a price erosion or something that sort of which should reflect in our gross margin, right, if my understanding is correct?
No. So what I'm trying to explain is, price is reducing, the pyrometer prices are also releasing. My margin percentage is currently better as we are also maximizing the cost improvement areas also. So my gross margin is better.
Okay. And since I see there is a lot of employee expenses going on as we are ramping up our R&D, could you talk about which areas like how much -- because I see there is an increase in R&D in quarter 3 and quarter 4. So basically, this year will be the investment phase. What kind of talent are we hiring, and what are the areas we are looking forward to? And obviously, there are green chemistries going on. Can you throw some light here?
Yes. As mentioned in my speech, there are 3 areas where we have really ramped up our capacities. Number one, in terms of our API and chemical development of the new products. I think last year, we filed 7 drug master piece,and this year, we are targeting a much higher number. Not only that, we shifted our portfolio to look at complex products. We are looking at some kind of newer opportunities and the global development of the products. This is one shift which is there in the R&D, which calls for talent in terms of chemistry, analytical chemistry and also engineering excellence to take the products into smoothly transferring into manufacturing. So we established this entire talent pool processes and systems to enable us to ramp up to this capacity, which is not so easy in less than 1 year. So the whole organization is looking at transformation. The second area of transformation is actually focusing on new technologies. I have been consistent in my last 3 quarters that we have been working on fermentation and biotechnology in the area of enzymes. And every quarter, we improved, and this quarter, I told you that we have successfully scaled up the enzymes in our newly acquired facility, which we have taken over about 6 to 8 months before. And then we started building up the range, and we have already started optimizing the products. We hope to commercialize at least 2 products in the next couple of quarters. The third area is in the ANDA filings. This is not only to U.S., but we have a global filings in Europe and the rest of the world. And with that type of orientation, the product development has been -- it's a paradigm shift in the way we look at product development, including the buy studies, and the talent and the expertise has been built to that level to enable us to do global product development and look at various geographies of finding. I think these 3 areas put together is not only enhancing our capability to file, not only in the U.S. but in the rest of the geographies of business interest, but also the talent and the additional resources which are required to deliver these goods and services, and we are continuing and continuously committed to making sure that this happens and therefore, the R&D expenditure will go up in the next 3 quarters.
I just say to add to that, the manpower expenses have also gone up at GPAC, the new packaging facility, which we started in the U.S., that is to start yielding results only from Q3, end of Q2 to Q3. That's one of the reasons for manpower expenses going up in addition to R&D manpower and also, we have increased some capabilities, capacities in our Gagillapur plant, where also the manpower cost has gone up a little bit.
Right. Sir, if I'm asking like for the Greek is, I think the growth from these will meaningfully start from FY '27, right? FY '26 or '21? Correct?
Yes, you are in the ballpark number, Khemka, like I covered in my speech just setting up a pilot plant for DCDA in Vizag, which will not be green, but we are establishing the technology which we developed in-house. And as most of you know, DCDA is not manufactured by anybody outside China. It's a complex chemistry that we were able to break through, but the pilot plant will demonstrate. So we've been very cautious in our investments, major investments, so before we go to Kakinada to do the green plant, we are just demonstrating this year for ourselves. Also PAT also, we are putting a small dual commercial plant and later on will scale up and buy that. '26, '27 we will see the real effect.
Right, right. But if I see, right, for the next 2 years, we have to generate enough cash flow in order to like more deep pollute more chemistry and further also. So coming to the shorter term, in these 2 years, since we are having a problem on the pricing, and we are delaying launches for one of the quarters. So where do you see in this couple of years, you see the growth will come in based on the commercialization of products or which area should we see that there is a uptick possible here?
Like you heard Dr. Amara and Priyanka mentioned, we are filing for a lot of products. The already filed products, we have received some approvals. We will be receiving some more approvals as we go back. Every quarter, there will be some approvals coming in, all the new launches are going to drive the growth. And we do not see cash as a major problem. There could be short-term blips like this quarter because our cash generation has slowed down, there could be a small blip. But going forward, we don't see a major problem in generating cash to meet our CapEx commitment. There could be blips in a year or 2, but overall, we are confident we can generate and fund these projects internally.
Okay. So talking about the products, these are -- since paracetamol and metoprolol are expanding. Any other specialty products we are working on, which gives you the confidence that we'll have a good cash flow year. If you could talk about some of the products here.
Yes, Aditya, I cannot name the product, but there is a lot of products that we have been working on in the past and they have launched, and they have actually taken a good shape. In fact, we use to talk of core products, which are paracetamol, metoprolol, ibuprofen. But now as you see, there are more products that have come into this basket, and more and more products will be adding up. So all our current launches -- past launches have been very successful. And control substations in the U.S. also are gaining strength. So there are a lot of products that are gaining strength, and we expect new launches also to gain strength as we go by.
So by next year, you would say that we would be adding one of the meaningful products so that we'll be able to see up in the slides. So that will be a meaningful contribution to our revenue...
Already, there are some products, a few products were within meaningful revenue. And as we go by, definitely, the new launches also will add up. There are some very good products in the new basket.
[Operator Instructions] We take the next question from the line of Ashish Chovatia from State Cate Bank.
So I just want to know the positive takeaways post this cybersecurity incident. And is there any increase in expense related to cyber security going forward? And how much time did it take to return to normalcy? And with short-term working capital, which was caused because of this cash price. Do you think it's going to subside for 3, 4 quarters? Or is that things absolutely turn to normal?
So on cybersecurity, we have taken 3 different actions, which are towards prevention as well as preparation of ourselves to make sure that the organization is very resilient. And this includes a lot of system architecture improvements as well as certain new software solutions. And we continue to look forward to new solutions and also continue to build the system architecture with external experts in such a way that this incident will never repeat. And therefore, this is going to have some kind of an expenditure in terms of IT as a major area to focus upon, and we continue to invest in this area.
Yes. Do you expect the working capital [indiscernible] almost 1 million rates to gradually come down post the operations are normal completely?
Yes, the working capital cycle, CCCs will dramatically come down for sure, actually ended at 132 days. We are at 170 days. So we will go to normalcy, and the expected plan is to improve over last year.
The next question is from the line of Vikas Sharda from NTAsset Management.
Could you also touch base on the molecule-wise performance for this quarter, I think it's not included in this quarter's presentation.
Vikas, very consciously, we have not given this in the presentation because the entire basket has gone to a shift, and the top 3 products, 4 products are no longer top 3 or 4 products, other products have replaced some of them. And this information is becoming very sensitive in regards to competitors because it goes into the public domain. So we will not be able to give you the breakup.
Okay. Could you give some qualitative color on like what's the share of the top 3 molecules as a trend? And where do you think this ratio is expected to settle say, in 1 or 2 years down the line with new products coming in?
Like I said, Vikas, some other products have actually replaced the order of the top products. And when I give you the breakup, it really gives us a lot of information about what opening. So like if it is sensitive, we would prefer not to discuss that.
The next question is from the line of Mirali Shah from Ashika Group.
Can you share some qualitative light on the new product launches that are expected in the second half of the year?
So the launches that we are looking at [indiscernible] has just informed that we are looking at 3 launches to at least 6 to 7 launches in quarter 3 to quarter 4. Originally, we were planning to do a few launches in quarter 2. Because of the IT and cybersecurity issues, we have to look at the launches in quarter 3. But suffice it to say that we have a significant number of launches where approvals have already been there, and we expect it to be around 6 and more.
Just to add to that, most of these products, which we asked for the quality have liked, they are from our Mulockand they are relatively more complex products. There is a very large opportunity that's available, at least in the U.S. market, because the primary launches are in the U.S. market, even though in the European market, which we'll be launching in Q3 ongoing for the rest of the year are pretty large in terms of volume and value.
Got it. And my second question is, can you update us on the development of KS for the backward integration [indiscernible]?
Mirali, like I just mentioned a little while ago, DCDA is one of the key materials for raw materials for performance. And we are setting up a pilot plant. And then the commercial plant -- we will start in '25. In '24, we would have demonstrated the working of the pilot plant. And then PAP as a raw material for paracetamol. We are setting up a small commercial plant in Vizag, and one which is demonstrated and parameters are fixed. We will build a bigger plant in Vizag, using all green raw materials in Vizag. The green raw materials are generated in Kakinada.
The next question is from the line of Ms. Richa from EquityMaster.
My question is with these new launches and products that you're coming up with, where do you see the share of value-added [indiscernible] which is currently, I think, around 50%? And if you could also give a sense of what kind of margin difference is there when you categorize something is value-added versus what is not value-added. That is the first question. And the second question is keeping -- considering that you are keeping our CapEx impact, what kind of incremental debt are you looking at it if you call also share the peak debt that we could expect in the coming quarters or...
On the new launches, I think, as mentioned by Chairman and in our speech, I think when we start adding new products to our overall portfolio, we see that the value add is going to be better, and that is where we don't want to disclose a lot on the combination and also the percentage where it to be shifting. Suffice it to say that the number of new product launches, both in controlled substances as well as the launches that we are going to do from India, where we are utilizing our capacities. I think we will be able to really see a good combination of the products changing the mix over a period of the next couple of years. Coming to the CapEx investment, I think Mukesh can talk about.
Yes. So CapEx investment we have guided this year, we will be doing closer 70 crores, including the future growth expansion. So that is intact. So we are having the same guidance for the rest of the year.
Sir, my question was on the incremental debt that you could go for for this considering that there has been some kind of slowdown in lane launches. And what is the peak debt that you could expect.
So there will be some increase in the debt and on to fund increase in working capital also and CapEx also. But the operating cash flow is going to be more or less sufficient. If I take 2 to 2.5 years cumulative for the current year, there will be an increase in debt. We are not quantifying it yet. Otherwise, not it would become a guidance.
Okay. And sir, I just wanted to understand some kind of if you could add some color on the margin difference when you get something as value-added versus on an average basis.
I think for it, again, like PMB said earlier, there is competitive knowledge to voyages because we have a limited number of products. I think if you say value-added, we've already mentioned the name of the product. I think that will end up doing a little bit of consent information at this point.
We take the next question from the line of [indiscernible].
My question is about GPI. It has been operational for about more than 3 years. But the contribution to the bottom line has been positive only in about a couple of quarters despite having had quite a few approvals from that side. Is there any reason as to why it's continuing in losses?
Sorry, the question was not very clear
It is about GDI.
The line is not very clear. Can you please repeat your question?
Yes. My question is about GPI. It has been operational for more than 3 years. And they had several approvals, including 3 or 2 control sublicenses. Yet there's a contribution to the bottom line has been very positive in a couple of quarters. The rest of the other quarters should be negative. Are there any persistent reasons as to why GPI [indiscernible] the company?
You were not very audible, Mr. Choi, but whatever I understood your question, I will attempt to answer that. First of all, GPI has been in existence for more than 3 years, number one, and because it was contributing handsomely to the bottom line a few quarters ago. But now off late last few quarters, we have been discussing this all along that we had issues with our 3PL and which resulted in a lot of failure to supply and also loss of sales. So this has really impacted it. And overall, even though as a stand-alone performance has been fairly okay, but the look to supply from repair additives. That's the main reason why GPI has not contributed much to the bottom line.
What about control resistance? I think you had about 3 to 4 approvals, but are all of them launched?
Yes, all those products have been not but clinical.
So we launched all the products, but because of the ongoing quota issue, I'm sure you've seen the news. We are going conservatively on the quantum of market share that we capture. But reasons to say we have launched all the products at a small scale.
Okay. Do you expect to ramp up in the current and next quarter?
Yes. Absolutely.
Okay. My second question is about the biotic [indiscernible]. Are you planning to -- yes our habitation now plant? Are you planning to stick to pharmaceutical-related products only? Or are you thinking in terms of catering to other industries like extends, et cetera, from the fermentation and enzyme division?
See, currently, our focus is to stick to the pharmaceutical industry and to the portfolio that we have, and we are trying to look at this from the perspective of, A, making sure that our products are green, which is a part of our vision and mission. And the second one is to really look at how do you measure that you bring these new technologies as a long-term sustainability. So we are going to stick right now to our own area and our own portfolio.
We take the next question from the line of Mr. Tushar from Motilal Usan Financial Services.
Just on gross margins, where I see that the proportion of API segment has increased both year-over-year as well as quarter-over-quarter. Still, we have seen an improvement in the gross margin. So anything we can look out here?
Yes, sure. There is an overall product mix in API and also in DMD. There is an overall product mix, which has impacted positively on the gross margin. In addition to that, the key raw material prices also has helped in improving the gross margin.
So gross margin should subsequently improve, right, with recovery in the formulation business in the coming quarters.
Yes. So that's right.
The next question is from the line of [indiscernible].
Yes. Just one quick question. The IT increment we had, was there any one-off costs for consultants that we had to hire or anything else like that that you need to call out for this quarter?
So IT incident expenses I covered in my speech, is we have incurred about $50 million for IT expenses and also related incentive expenses, such as retention and demurrage, which has impacted business.
This probably after quarter 2 or maybe quarter 2 onwards should not recur, right? This is to get things out again.
Some expenses would be there, but it won't be substantial. We still need to keep strengthening our systems, there will be some expenses. And also, we may have to sort of hire the security experts or an agency to help us with this. So that will also pick up the expenses a little bit, but I don't think it will be major.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
So ladies and gentlemen, once again, thank you very much for joining us. And I wish you all a very good night today and look forward to meeting you with happier results next quarter end. Thank you.
Thank you. On behalf of Granules India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.