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Granules India Ltd
Earnings Call Analysis
Q3-2024 Analysis
Granules India Ltd
The company has regained its financial stability in Q3, recovering from the impact of a prior IT incident. Revenue experienced a marginal increase of 1% compared to Q3 of the previous fiscal year, reaching INR 11,556 million. Sales in the US region have been strong, driven by both existing and new product lines.
The earnings before interest, taxes, depreciation, and amortization (EBITDA) saw an impressive growth to INR 2,505 million in Q3, up from INR 2,313 million in the same quarter last year. This represents an EBITDA margin of 21.7%, which is a notable increase from 20.2% in Q3 of the previous fiscal year. This has been achieved due to a better product mix and a focus on higher-margin formulation sales. Furthermore, the operational cash flow for the quarter was substantially higher at INR 1,880 million compared to INR 329 million in Q2, with the company citing higher EBITDA and improved cash realization from receivables as the primary reasons for this boost.
A considerable increase in R&D spending reflects the company's dedication to innovation, with the quarter's expenditure reaching INR 4,608 million, a significant jump from INR 229 million in the same quarter of the previous fiscal year. This investment is expected to persist in the coming quarters as the company continues to focus on filing new ANDAs and strengthening its product portfolio.
The company is working on the construction of new formulation facilities that will substantially expand the finished dosage capacity by 8 billion dosages. The commencement of commercial supply of monograph tablets is expected in Q2 of FY'25, with projections of reaching a 2.5 billion capacity in the first phase. In addition to operational enhancements, the company is expecting to begin production at the DCDA plant with an annual capacity of 108 tonnes in Q4 FY'24 and complete the PAP plant with a 10,000-tonnes capacity by the end of FY'25.
Formulation sales have been given increased attention, as evident from the value-added percentage, which has risen by 8.6 percentage points compared to Q3 FY'23, owing to an improved product mix and more formulation sales. The importance of formulation sales is further underscored by their contribution jumping from 50% to 61% in nine months' data compared to the previous fiscal year. The majority of the formulation business is attributable to the US, suggesting a strategic shift towards high-margin and high-growth market segments.
Management has embarked on a multi-year transformation process, with the recent period focusing on bolstering the sales and marketing organization. This initiative includes bringing on board experienced personnel like Mr. David Gonzalez as CMO of B2B business. To complement this talent infusion, the company has strengthened its board with the addition of Mr. Sethuraman Ravi as an Independent Director and Ms. Priyanka Chigurupati as Executive Director, responsible for global marketing and new product launches.
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Ladies and gentlemen, good day, and welcome to Granules India Limited Q3 and 9 Months FY '24 Earnings Conference Call. [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, Rea. Good evening, everyone. On behalf of Granules India Limited, I extend a very warm welcome to all participants on Q3 and 9 months FY '24 financial results discussion call. With me on the call, we have Dr. Krishna Prasad sir, Chairman and Managing Director; Mr. KVS Ram Rao sir, Joint Managing Director and Chief Executive Officer; Mr. Priyanka, Executive Director, GPI and GUSA; Mukesh Surana, Chief Financial Officer; and Mr. Puneet, Head, Investor Relations and GM Finance.
Before beginning with this call, I would like to give us just short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our belief, opinions and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties.
With this, I would like to hand over the call to Krishna Prasad, sir, for his opening remarks. Over to you, sir. Thank you.
Thank you, Irfan. A very good evening to all of you, ladies and gentlemen, and thank you very much for attending our Q3 earnings call today. A detailed presentation of our Q3 FY '24 performance has been uploaded on our website, and I'm sure all of you must have gone through it by now.
We had a stable Q3 after the IT incident had an impact on our previous 2 quarters' performance. Our finished dosage contribution during the quarter had increased to 66%, resulting in an improved VA of 57% and improved EBITDA of 21.7% for the quarter. Our operating cash flow for Q3 stood at INR 188 crores, driven by better collections and an improved EBITDA margin. Our operational excellence -- expenditure is higher compared to the previous year, driven by higher manpower cost, which was built for higher revenue and growth.
We expect the Formulation segment to drive the volume growth in the short to near terms, primarily in North America and Europe. We are gearing about finished usage capacity to cater to this incremental demand. The construction of the new formulation facility at Genome Valley as part of Granules Life Sciences is progressing at a good pace. This plant when fully completed will add another 8 billion dosages to our finished dosage capacity.
We had inaugurated the pilot plant at this site in the month of November 2023. In addition to new filings, commercial supply of monograph tablets is expected to start in Q3 -- in Q2 FY '25, which will gradually be ramped up during the coming year to go up to 2.5 billion capacity in the first phase. We expect the second phase to be completed by Q3. During the quarter, we had received approvals for 3 ANDAs from U.S. FDA and 1 EU approval. Launches of these and a few previously approved products were delayed, and we expect to catch up in the next few quarters.
During this quarter, we filed 2 ANDAs for the U.S. As of today, we have 62 approved and tentatively approved US ANDAs, 8 European dossiers, 2 in the U.K., 6 in Canada and 3 in other geographies, a total of 75 dossiers approved and 21 global dossiers to be approved. We have a total of 36 U.S. DMS, 24 CDPs, 5 EDMFs, 9 KDMFs, 5 Canadian DMS, 5 Chinese DMS, 2 Japanese DMS and over 50 filed across several regions. We are anticipating higher number of ANDAs filing during Q4 FY '24 and accordingly, a higher R&D outlay.
At Granules India Limited, sustainability is a core element of our DNA. We are committed to healing lives sustainably through pioneering green science. I'm happy to share that Granules India Limited had been honored with the prestigious Economic Times RE-Pharma Award for Excellence in contribution towards sustainability. This recognition is not just an honor, but a significant motivator bolstering our confidence to continue our journey with conviction. At CZRO, our green pharma initiative, we are focusing on strengthening our core business from forward into backward integration of paracetamol and metformin in a sustainable manner. In the first phase at Vizag, we are putting up a pilot plant for DCDA and commercial production of PAP. The DCDA plant at Vizag with the capacity of 108 tonnes per annum is expected to start by Q4 FY '24. The PAP plant at Vizag with 10,000-tonnes capacity is expected to be completed by end of FY '25. The project work at the main Kakinada plant is expected to start in FY '25.
Over the past 2 years of organization transformation, we have strengthened the organization and the leadership at R&D, operations and other functions. The focus now turns to further strengthening the sales and marketing organization. I'm pleased to announce the joining of Mr. David Gonzalez, as CMO of B2B business. David joins us from Polpharma and he has been previously associated with Teva and Glenmark Life Sciences in global role. Most importantly, we have also strengthened our Board by inducting Mr. Sethuraman Ravi as Independent Director. Mr. Ravi was and is on boards of many prestigious companies in the public and private sectors in various capacities, including Chairman in some of them. We have also inducted Ms. Priyanka Chigurupati as Executive Director. Priyanka will be responsible for global marketing, portfolio, and new product launches. With this, ladies and gentlemen, I hand over the call to Dr. KVS Ram Rao.
Thank you, Chairman. Good evening, everyone. I've briefed in my last couple of conversations there's a paradigm shift in the management of portfolio of new products, from the traditional Para 2 filings, the company has shifted its focus to Para 3 and Para 4 filings. The shift in focus is followed by strengthening of portfolio teams, R&D teams and technology transfer teams to enable smooth integration and filings of our products.
The new portfolio of the organization is aimed at not only oral solids, but also other dosage forms, leveraging the capability of Granules technological capabilities in API and formulations. Significant progress has happened on these dosage forms, and we expect to file new dosage from ANDAs in the next financial year.
The mix of portfolio includes launch and approval, day 181, first-to-launch and LCE minus 1 products. Most of these products are in the area of non-oncology. Granules has built excellent infrastructure in API and formulations in oncology at our Vizag facility. We have started building a very strong portfolio of oncology products. The dosage forms of oncology products include oral solids and others. The portfolio, again, is focused on day 1 and LCE minus 1 and first-to-launch products. The approach here is also global product development.
This should enable us leverage our infrastructural and R&D capabilities and build a very strong oncology pipeline for the organization. This strategic shift in portfolio has led us to build platforms around the strength of Granules and the global product development should enable us to become a strong player in most of the chosen geographies, including U.S.
I'm happy to say that for double-digit filing of DMS and ANDAs in quarter 4, including quarter 4, the progress demonstrates our commitment in execution of our strategy. This is going to increase the R&D spend in quarter 4. Yet another significant aspect of strategy is to focus on sustainable new technologies. The technology development team has made significant progress on application of biocatalysis, 2 products have completed the pilot scale and commercial production plants are under preparation, and third molecule has done the optimization in the lab, and we are planning to commercialize the product.
Global cost leadership has been one of the strategic levers identified by the organization. While the backward integration from CZRO will give us leadership for paracetamol and metformin, we have started our work on additional 10 products, which are critical for the organization in terms of both profit optimization and protecting market share in geographies of interest.
The program is expected to bring in the desired results in the near term now. With global product development as a chosen portfolio in oncology and non-oncology products, we have now embarked on a commercial excellence program. This program will serve as a catalyst for our business growth and business building in both new and existing commercial portfolios across the chosen geographies.
To accomplish this, we have recently appointed new Chief Sales and Marketing -- Chief of Sales and Marketing, as explained by Chairman earlier. We are also actively reinforcing our commercial team to ensure we have necessary talent and expertise to expand in these chosen geographies. This also includes our capabilities in regulatory filings and addressing the nuances of regulatory requirements across the geographies to enable smooth market entry and long-term success.
This leadership capability building, excellence in our commercial processes and customer centricity will be instrumental to the success of this program. This should result in larger market opportunities and drive profitability and growth for the organization.
With this, I hand over to Mukesh, CFO.
Thank you, CMD and GMD. Let me take you all through the top financial parameters now. Revenue. The third quarter revenues were INR 11,556 million as compared to INR 11,461 million in Q3 FY '23, a growth of 1% in value terms. Sales in the U.S. region grew well, led by both existing and new products. Revenue declined by 3% as compared to Q2 FY '24. The sales breakup as per the business division and geographic divisions presented in our investor presentation, which is available on the website. You can see that the focus on formulation sales has increased, resulting in the momentum shifting from API PFI to formulations.
Value-added. Our value added as a percentage of sales for Q3 FY '24 was 57% as compared to 48.4% in Q3 FY '23. Value-added percentage as compared to Q3 FY '23 has increased by 8.6 percentage points primarily on account of better product mix, increase in sales of formulations. Price erosions were more than offset by the reduction in prices of key raw materials. Value-add as a percentage of sales for Q3 FY '24 is up by 5.3 percent points from Q2 FY '24 as well, primarily on account of better product mix, increase in sales of formulation, coupled with the reduction in rates and prices of key raw materials.
EBITDA and EBITDA margin. EBITDA for the quarter was INR 2,505 million, which is 21.7% of sales as compared to INR 2,313 million, 20.2% of sales in Q3 FY '23. The value growth of 8% over the previous year, primarily on account of better product mix. EBITDA for Q3 FY '24 is up by 3.8 percent points from Q2 FY '24 with a value growth of 18%, primarily account of better product mix, increase in sales of formulations, coupled with reduction in price of key raw materials.
R&D. Our R&D spend for the quarter was INR 4,608 million as compared to INR 229 million in Q3 FY '23 and INR 496 million in Q2 FY '24. We are going to continue to spend on R&D in the coming quarters as well.
Net debt. Our net debt was INR 9,285 million as compared to INR 7,671 million at the beginning of the year. The net debt has increased by INR 1,614 million primarily on account of reduction in operating cash flow. Net debt has decreased by INR 610 million from September 23, primarily on account of improvement in operating cash flow in Q3.
Cash to cash cycle. Our cash-to-cash cycle was 162 days in the current quarter as compared to 132 days at the beginning of the year and 162 days in the previous quarter.
Operational cash flow. Operational cash flow for the quarter was INR 1,880 million as compared to INR 329 million in Q2 FY '24. Higher EBITDA and improved cash realization from receivables resulted in higher operating cash flow. CapEx spend during the year was INR 1,047 million.
ROCE. ROCE for Q3 FY '24 is 15.3% as compared to 12.9% in Q2 FY '24, primarily on account of increase in EBITDA due to the reasons stated earlier. With this, I open the floor for questions.
[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on this DCDA now that plant is expected to start in 4Q FY '24. So effectively stabilization and then full contribution to profitability when should we start...
Tushar, like I said in my remarks, the pilot plant from where they'll be doing filings and also site transfers has already been inaugurated. Work is going on the filings. Meanwhile in the same block, in another floor, we are putting up some compression machines and coating machine, where we will be doing monograph products for the U.S., which doesn't need an FDA inspection to start with, they will come later. Meanwhile, when we do new product filing and also site transfer, the FDA will come to inspect us even before the main block is ready. Once they inspect this pilot plant, where there's some product running, the site is approved, and then we are ready to go, which will be in Q3, Q4 of next fiscal, I mean we can straight away start production. Meanwhile, we'll also look for expediting the European approval. So rather than waiting for 1.5 years, 2 years applying after the site starts, we are applying for an FDA approval from the pilot plant itself and also some production will happen there from Q2 of next fiscal -- Q2 or end of Q1.
Sir, sorry, sir, just want to -- is this to do with DCDA, right, not the FDA.
DCDA, I am sorry, I didn't get -- I'm so sorry, the new pilot plant, new formulation facility. DCDA will start pilot plant -- trial runs will start in March -- March of this quarter.
Got you. So effectively, the commercial meaningful benefits should start hitting...
The commercial will gain after the pilot plant runs, we'll have to possibly modify the equipment a little bit, the main equipment, if required. And then erection and all that will go into FY '26, Tushar. PAP will start in '25, but this will go into '26. That will happen in the fixed site in Kakinada with renewable power.
Understood. And sir, now this LatAm business, so this inventory in the channel is that largely that correction is done? Or can we expect some more in the coming quarters?
It's a mix of inventory correction and also some of our important customers have lost certain government tenders. So it will -- I'm not sure it will come back to normal, but it will definitely improve. And as of today, we are a little tight on capacity in case we don't have too much PFI from LatAm, we'll make it up for PFI from some other markets. That's not a big issue. That's not going to hit us too bad.
Understood. And likewise on the Europe side for paracetamol, if you could share some outlook there?
Sorry Tushar, from the European side...
Paracetamol as a product given that this quarter was not great as far as paracetamol in Europe is concerned, but how do we think about in the coming quarters?
I think I'll let Dr. Ram Rao answer this.
So I think for paracetamol, again, the inventories, which have been built up by our customers include Europe, and as we see and move into quarter 4 and quarter 1, I think the inventory levels are expected to come down, and then we start picking up the business in Europe for paracetamol, so the trend will continue for some time in quarter 4 before we come to bounce back to the normal.
But basically, there's also been a price decrease in -- sales price decrease in paracetamol. So when you look at revenue numbers, they will come down, but the margins are intact and the raw material price also has come down.
Got it. And just lastly, metoprolol, when do you expect to launch in U.S.?
It's on the sea, delayed by the ship going around the Cape, so once it reaches, I think they'll start.
The next question is from the line of Tarang Agrawal from Old Bridge Asset Management.
Just a couple of questions. This recent dichotomy seen in your performance in your U.S. and ex-U.S. business. While I understand the situation with LatAm and the general trend of raw material prices going down. I just wanted to get a sense on your comment on both U.S. as well as ex U.S. business. In U.S., if you could give us a sense on how have your volumes grown this quarter and some of the key products that have contributed to that? And similarly, if you could give us a sense on what really has happened in Europe and the ROW business, maybe some commentary on the volumes there.
Okay. Mr. Agrawal. Actually, the U.S. the finished dosage business has grown and continues to grow, mainly driven by new products and made in from India and also products made at our U.S. facility. The control substances business is growing, and some of our new launches are also contributing.
And as we launch a few more products, the revenues of this in the U.S. are going to increase. Europe was mainly -- I mean, a paracetamol driven market and especially API. So we had the price reduction, the sale price reduction in paracetamol, and that's why the revenues have come down. And while volumes will be there, the revenue will definitely not catch up to the old level, where after COVID the revenues, the prices were very high, I don't expect the price to go there.
However, our formulations that we are launching in Europe are going to drive the growth in this region, and we see a steady increase in Europe, too. So while U.S. will be doing better than Europe in the short term, like I say, 1 year, 1.5 years. After that, the growth rate in both geographies should sort of be equalized. LatAm, we are now trying to get into finished dosages in LatAm. And it's going to take some time. So while it will improve. As a percentage of revenue, I don't think it will go back to those old levels because U.S. and Europe have very fast -- they're growing very fast. And as a percentage, LatAm will continue to be low.
Okay. So just a follow-up. I mean, if I look at your dossier filings for Europe, right from June '21 till December '23, almost 2.5 years, the number has moved up from, say, 5 total filings to about 9 filings. How should we see this? I mean, should the intensity of the speed of these filings increase as we move forward?
I think Dr. Ram Rao will take this question.
Yes. As I spoke in my brief, the focus is on global product development, and we are getting into the filings across the chosen geographies in the globe. Europe is a preferred destination. Already, we have started working on more filings in Europe. And you will see this number increasing very rapidly each quarter from quarter 4 onwards, and we will be able to see a lot of traction in Europe on the dossiers and also a lot of focus on the launches of these dossiers, which we have filed some time back. So Europe is going to be definitely a value-added formulation supply business through dossiers, and that should be -- that is the focus of the organization and also the portfolio that we have created in the last 1.5 years. I think all those are also just trying to be filed in Europe in the next 2 to 3 quarters of time.
The next question is from the line of Sajal Kapoor, an individual investor.
How much of the gross block is not optimally utilized today or waiting for ramp-up, but we are incurring fixed costs there?
The number Mr. Kapoor, the numbers will be given by Mukesh in terms of INR. But the Vizag site, Unit #5, the onco and the other APIs, due to delay in approvals of some of our formulations, which would be using APIs from that side, that has been idle for a long, long time. And also onco block has been idle. You just heard Dr. Ram Rao say that there are lots of very exciting plans for onco, APIs and FD. And we also expected some approvals for some of the products, formulations we have filed. The APIs will start being manufactured in that site. And maybe within a year or so, we should start seeing some good revenues from there. Now in terms of gross block, I think Mukesh will answer that question.
Yes. So the net block is about INR 350-odd crores, where we use commercial as well as R&D. So from -- partially it is commercial and partially it is R&D.
Yes. So Dr. Prasad, I just wanted to understand, as a percentage by the sound of what you just explained in the response, it seems like a significant or a material part, if not significant of the gross block is still fairly underutilized. But the fixed costs are already flowing through the P&L. Is that a fair approach?
You are perfectly right, Mr. Kapoor. You are perfectly right. That still forms a tangible portion of our gross block.
Yes, yes, yes. I thought so. And second related question is, what could be the EBITDA on about 70% capacity utilization, assuming no material change in product mix and no material change in the cost of raw material with 70% capacity utilization, we keep the same product mix as in the current quarter, let's say, assumption, of course. And the cost of material is also -- remains kind of largely stable. I'm just trying to get a sense on what could be the optimal EBITDA margins at an ROCE because the current numbers are not giving a true reflection of the business potential.
If we...
Go ahead, Mukesh?
So currently we still have a lot of room for capacity utilization, both in Gagillapur as well as Bonthapally which are our largest plants. And there, the utilization is higher than 70%, but still we have room to go up to 90%, 95%. And also we are continuously investing on debottlenecking and also improving the product chain. So it's a continuous process. And currently, we are telling Gagillapur as in the range of INR 23 billion, 24 billion with various improvements, we can further increase. And we are also adding 1 more facility Granules Life Science. So it's -- always it will be ever evolving. We will continuously add capacity. And the potential, we will always have some capacity to be placed.
Mr. Kapoor, I think I will add something to that. Or maybe you can ask your question again.
Yes. Just a small clarification. So yes, I get that, Mukesh. So on a dedicated capacity, we expect no less than 95% steady-state utilization, right? But on the fungible capacities, it's difficult to go beyond, let's say, 85%. So capacity utilization on a blended basis will be -- on a steady state, we'll be hovering between, let's say, 85% and 95%, including both fungible and dedicated capacities. And assuming we don't do any fresh CapEx which is not correct, I know that. What I'm trying to understand is, can we get to 25% EBITDA margin when we get to optimal capacity utilizations across dedicated and fungible capacities? Or can we get -- can we even breach 25% with the improvement in the product mix? That's the sense I'm trying to get here.
Yes, I understood that Mr. Kapoor. And basically, with optimal product mix, it can definitely go up to a few percentage than what we are doing now, not 25% but close to that. But the product mix will happen with the new launches. So new launches, we have to see how they go in the market. We are quite excited, but we have to see how they perform. Definitely, the margins will go up. And again, another thing to add here is if you -- if we remove the Unit 5, where you rightly said, a lot of asset is not being utilized. Definitely, our EBITDA levels will be higher than what you are seeing. That means when that asset is utilized, we can see some much better numbers.
The next question is from the line of CA Nihar Shah from Crown Capital.
I have 2 questions. One is on margin. So our margin has seen a good jump this quarter, like we are around 21.5% to 22% level. So what are the sustainable rate which we are looking at going ahead?
It will be around this number, Nihar, definitely. And like I always said, it will be always aiming for above 20%. And every quarter or maybe year-on-year, we'll see the EBITDA levels going up. Definitely, and as like I said, when discussing with Mr. Kapoor, the product mix, which when it becomes optimal, definitely, the margins will go up. But it will take maybe a few quarters to see the effect.
Understood. And also our revenue this quarter went down like on quarter-on-quarter basis like slightly. So are we looking -- we are looking -- looking to improve from this at what rate? And how can we look the revenue outlook for next year?
Next year should be quite decent. But again, to answer your question for this quarter, the revenue, I won't say, degrowth, low growth in revenue was caused because of prices of paracetamol. Like I said, the margins are there. If you see the value add, value-add was fairly good. So -- but the revenue came down. And next year, definitely, we will see an upward trend.
Also this year, if you see, we also lost the first quarter. So this quarter -- this year is going to be not so exciting, but next year seems to be going great.
So any ballpark figure, what kind of revenue are we looking for next year or any year-on-year growth rate, which you would like to give?
No. I think we've made it clear a few quarters ago that we will stop giving guidance, but you will see the improvement, Nihar.
[Operator Instructions] The next question is from the line of Rashmi Shetty from Dolat Capital.
Sir, on -- basically on the U.S. business and just to understand more on the gross margin side. The entire gross margin expansion that we are seeing a sharp jump from quarter-to-quarter as well as on Y-o-Y basis. It is mainly driven by this U.S. business only? Or it is also -- some other factors are also contributing it?
It's a mix -- actually, it's a mix of -- it's a product mix. But -- which we are selling in the U.S. So you are right. It's the U.S. business that's giving us a higher value add.
Okay. So if I try and understand, what is the volume growth currently, which you are seeing in the U.S. business? And what is the kind of price erosion that we are seeing in the U.S.?
Yes. So we have multiple products, some are in material and some are in tablets. So it is difficult to give...
On an average, if you can give something -- some ballpark number just to understand.
So currently, we are much higher in terms of volume as compared to the value. Yes, just to give some ballpark number, the price erosion range ranges from 6% to 10% at selling price level. Raw material level will be much higher.
Got it. And what I understand that the FD sales contribution has seen a sharp jump. If I just compare 9 months data to 9-month data of FY '23, from 50% contribution, it has gone to 61%. And our API and PFI segment has actually come down. So whether this kind of performance will be there in the subsequent quarters also? Or we will see some fluctuation going ahead?
There will be some fluctuations, Rashmi, but definitely, they are -- they will be at the same sort of -- at these levels with minor fluctuations.
Okay. But this from 61%, any gain or anything which you are targeting that in the next 2 years, the FD contribution to overall sales to go to any particular number?
I cannot give you a number, but definitely, the FD -- our objective is to have an increased FD contribution because the FD gives the best margin. So we are aiming for a higher percentage. And we definitely see the numbers growing. I cannot give you an exact number.
Okay. And what is the outlook on the API and PFI business because we have seen a big decline this quarter -- this year, which I understand that it is due to the pricing and also due to the paracetamol pricing on higher base. But going ahead, have you seen that most of the impact has already come in and now the prices are stable? Or you feel that we are going to see much more impact in the coming quarters also?
Again, our objective is to convert APIs and PFIs into FDs, which has started. So you will not see any -- as a percentage the API, PFI would stay approximately around this range.
Okay. So you...
Rashmi, just to add to that, like CMD said, the percentages might remain same, but the volume growth will be quite significant, which means when it is concerned that absolute numbers, you will see an increase primarily on the larger volume API. There has a little bit of inventory stockings that happened because of COVID driven molecules, which as we go increase because there will be -- our customers will be depleting the existing inventory. So we do have some capacity available for them, and we will be utilizing that going forward.
Okay. And in your FD business, you know how much does U.S. geography contributes as of now? I think now the U.S. has become a big business so you can at least give some idea, only in your FD segment, how much is the U.S. contribution followed by Europe?
The majority of our FD business is from U.S., Rashmi. So a major part. Europe is growing now.
Okay. And how many launches have we done till date? Till date in the sense for this year, yes, in the U.S. business, only for this year?
We've done about 4 to 5 launches this year, but some of them have been soft launches like CMD indicated in his speech earlier. Some of them have been delayed because of logistics issues, but those will be resolved because we are building inventory in the U.S. before we take on new businesses, and we will see a continuous stream of launches going forward. In Q3, we estimate to launch between 3 to 4 products. And -- sorry, in Q4. And Q1, in addition to gaining more market share from the existing products, we'll be getting -- we'll be launching about 3 to 4 products.
So this year, you will end up by 8 to 10 launches.
We'll have about 4 to 5 launches plus another 3 launches, about 7 launches.
7 to 8 launches. And next year, how much are we targeting?
I'm sorry -- sorry to interrupt. May we request you that you return to the question queue for follow-up.
Can you just answer this last question and then we can return back to the queue.
The visibility we have across the regions we will have between 4 to 8 launches with the current visibility.
Our next question is from the line of Harith Ahamed from Avendus Park.
So in recent months, you've had some interesting approvals like the generics of Toprol-XL, Nexium, Protonix, and a few others. So can you give an update on the launches of these products? And how the market shares have ramped up? And also trying to understand if there is a change in the contribution from our top 5 core molecules, which has historically been above 80%?
I will take that question. So like I mentioned just now when Rashmi was speaking to us, we have delayed a few launches intentionally because of logistic issues. Now that said, we have already launched 4 to 5 products. We will be launching -- doing a soft launch of 3 products in this of Q4, and going forward, we'll be doing the remaining launches. Sorry, what was the second half of your question?
So given these are molecules outside of core top 5 molecules, I was trying to understand if there'll be a change in the contribution or a decrease in the contribution from top 5 molecules when we launch these products?
So as we've always committed. If you see our numbers over the last couple of years and quarters, our core contribution has always been around 85%. As of this quarter, it's about 72%. So the goal is always to increase contribution from the new product, and we'll see that going forward as well.
Also the margin contribution from the newer products is quite decent compared to the older products as of today.
Did I hear correctly that the core molecules this quarter contributed 72%?
Priyanka, yes.
Sorry, you cut out on me.
Core molecules at around 72%.
72% of the overall revenues.
That's right. Not the FD revenue.
Okay. And when I think of CapEx in FY '25, in FY '24, we're tracking around INR 400 crores estimated for the full year. Now that we are starting Phase 2 at Kakinada, how should we think about CapEx in FY '25? And the Phase 2 at Kakinada, approximately, how much will be the overall spend? And over what time lines?
Harith, I will give you a complete perspective on the CapEx. As of now for first 3 quarters, we've spent INR 283 crores and we are expecting to spend for the full year, around INR 500 crores. So there is a reduction in CapEx expense primary Granules CZRO. And that Kakinada as Chairman has explained it will start in '25 and commercial will start in FY '25. So there will be some deferral rate of capital expenditure, so not so much substantial in the next year as well. Next year, we are planning for overall INR 600 crores CapEx, INR 200 crores would be regular and INR 400 crores would be on the growth project by Granules Life Science and Granules CZRO and a few other projects which we are exploring.
The next question is from the line of Bino Pathiparampil from Elara Capital.
Just on raw materials. So when you say the decline in raw material prices helped margins. Are there any 2 or 3 key raw materials which have mainly contributed to this?
The main thing is that the biggest product for us today are paracetamol and metformin, which have -- raw materials for paracetamol is PAP, para-aminophenol and metformin is DCDA. So both these things -- both these products have -- prices have come down drastically. Of course, so as the selling price too. But these are the 2 main products that have contributed.
Understood. And what do you attribute this reduction in prices too? And how do you think it will remain though?
Sorry, I lost you. I didn't get you.
What would be ascribe this reduction in prices of these raw materials too. Is there any specific reason? And how you think it will sustain at those levels?
It was during COVID that these prices shot up, there were shortages. And now after COVID, new capacities also were added. And as of today, there's surplus materials, I do have a reason to believe that the surplus capacity available, the prices should hold on for a few years, plus or minus some range.
The next question is from the line of Nagesh M, an Individual Investor.
Congratulations for a very good set of numbers for the increase in the bottom line. Just wanted to know your viewpoints on dollar INR, how it works in future? And what is your hedging policy? Because for the last 6 to 8 months, the dollar is stagnating at around INR 83 only.
I think the right person, Mukesh will answer that.
So dollar INR there are divergent views. Our internal view is it will be in this range for next quarter and also next year in this range of INR 82 to INR 83. And as a hedging policy, we have our risk management policy. And also, we have a clear hedging policy in terms of whatever net exposures are there. We take time to time coverage.
Okay. What will be the average dollar rupee for your entire 9-month period this year realization?
So INR 82.5 around at least.
One more question is any chances of getting a bonus shares because the company has not issued any bonus if at all.
We did 2 buybacks and that is really something we thought we are doing something very good. So now with all the CapEx and the other things that we are doing, we may not do a buyback at least another year or 2. Bonus shares, we have not thought of it, and we don't think I can comment at this point in time.
Okay. And any chances of the pledge of shares being totally released because you have done the reduction for a very long time, and now it is stagnated.
It will be totally released. You will see that shortly.
The next question is from the line of Vikas Sharda from NT Asset Management.
You mentioned that the raw material prices for like PAP and DCDA has fallen quite sharply this year. So I was just wondering that when you're talking about backward integration in your CZRO subsidiary, so how does the viability of those projects change with say the changes in the prices? Or are these not really linked? How do you look at that, the prospects of that backward integration?
Yes. Even though the prices dropped, when we make a product going based on current yields and other data we have now, we should still be profitable, not an exorbitant profit, but we will be profitable, and we will be able to justify our investment. More than this is, I think I've mentioned many times, the entire world is dependent on China for DCDA, and the geopolitical crisis somewhere there can lead to global shortages of metformin.
So once we make DCDA ourselves, it's a lot of self-reliance and our customers would prefer to buy from a company which is fully integrated. And the other advantage is, we will have the lowest carbon footprint when we make our DCDA. Our product metformin will be green compared to anybody else. Even though you don't see it today, a few years from today, you will see the effect. And people -- every company in the world, pharma company, the distribution companies including Walmarts and all have taken targets for achieving net zero. And the only way they can achieve that number is to buy products with green carbon footprint. And we do believe there will also be a premium for having products with carbon footprint. So to sum it, it's self-reliability and also premium price based on green chemistry in addition to normal margin.
And one more question that like when one looks at, say, the revenue growth for this quarter overall let's say 1%, how would you look at the volume growth versus the price movement mix?
So it's because of a lot of product combinations and also material and tablets. But as I told you on an average from lower side to the higher side, 5% to 6% to 10% range of price erosion has been there.
[Operator Instructions] The next question is from the line of Saurabh Shukla, an individual investor.
Actually, I have two questions. The first one is, I mean, like related to this R&D section, that is research and development. So may I know like how much increase we can see like in the R&D spending in the upcoming quarters for the financial years? And in addition to this, like is there any specific new products in the pipeline that is going to be added in your portfolios?
R&D expenditure, we are spending over 2% of sales in this quarter, we have spent about INR 47 crores. The Q4, we are probably would be spending much more than the INR 47 crores. As a percentage to sales also, we will increase our spend in Q4. A lot of filings are in process in the next 2 months. So expenditure is going to go up and some new launches.
' So on the new product launches, Priyanka has just spoken. So we have done about 4 to 5 launches now and -- sorry -- this is on?
New products in R&D.
New products in R&D. So as I told in my brief, the new products in R&D, we are doing 10 to 12 filings every year. And this, you will see, based on our R&D expenditure that we have already slated for Q4. We will be ramping up around 10 to 12 every year, not only in the U.S., but I've also mentioned that this will be a global product development, and we will be looking at not only filing in the U.S. but extending these filings into the chosen geographies, including Europe.
So overall, I think we will be looking at, as Chairman has pointed out earlier, more of converting ourselves into a good finished player in markets outside the U.S. along with the API sales. So it will be 10 to 12 products every year in the R&D for at least coming couple of years.
And also the development of oncology also is happening in the R&D as of today, and will continue.
One more question. I mean, like as I said -- as I saw like there are 2 sites that is being I guess like Vizag and Kakinada. Apart from that, is there any other like other new sites that Granules India basically going to, I mean, like find out in India or any other geographies in the upcoming years or coming quarters itself? And so I just wanted to like, please emphasize on the of that part of it, that is the question.
Let me try to understand your question a little better. It wasn't clear. So are you asking other than Kakinada, are we having any other expansions in different geographies?
Yes. Correct. Correct. Correct. Yes.
Okay. I think we have a lot of investments going on right now. And even though Kakinada is delayed, it's not going to be small. And also, we have this in Genome Valley, which is a different site other than our current formulation facility, about INR 500 crores of investment is going on there. And recently, we have started a packaging unit an entirely high investment in Virginia, in addition to our GPI facility. So we have already invested and we have plans for some more. And as I see it today, I don't think any other geography is visible.
Thank you. Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Krishna Prasad for closing comments.
Ladies and gentlemen, thank you very much for attending this call, and I hope that you have got all your answers. And if you have any other questions, please feel free to reach out to our team, Puneet or Mukesh, we'll be glad to clarify. So once again, thank you very much, and have a good evening.
On behalf of Granules India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.