Laurus Labs Ltd

NSE:LAURUSLABS

Earnings Call Analysis

Key Financials & Outlook for FY '24 Earnings Call

The company reported a robust first half with a total income from operations at INR 2,406 crores compared to INR 315 crores for the same period last year. This underlines a growth of 14% for the first half and 18% for the second quarter, indicating a recovering momentum across businesses. Gross margins improved to 52.5% in Q2, with an EBITDA of INR 188 crores and margin of 15.4%. The first-half EBITDA stood at INR 356 crores with a margin of 14.8%. Diluted EPS was 0.6 for Q2 and 1.1 for the first half. The Board of Directors has recommended a dividend of INR 0.40 per share. There was a significant capital expenditure focus, totaling INR 385 crores in H1, primarily aimed at Synthesis and Bio divisions, to sustain future growth.

Company Growth and Investment in Future Capabilities

The company is experiencing a phase of robust growth and expansion with a strong focus on contract development and manufacturing organization (CDMO) capabilities, animal health, and biocatalysis technologies. Laurus Bio has significantly increased its revenue, with a 41% rise in the second quarter and a 56% growth in the first half of the fiscal year. This growth is a result of enhanced CDMO services and an expanding customer base. Furthermore, the company expects its new CDMO unit to reach peak revenues in FY '25, a clear indicator of its future revenue potential. Infrastructure developments including new R&D and manufacturing facilities are underway, with the R&D center expected to commence by the end of FY '24. The implementation of top-tier R&D, manufacturing, quality control systems, and comprehensive EHS management underpins the company's commitment to sustaining high standards and addressing new opportunities in pharmaceutical and biotechnology sectors.

Financial Performance and Operational Efficiency

Financially, the company delivered impressive results during the first half of FY '24, with total operating income reaching INR 2,406 crores. This marks a substantial increment from the previous year's INR 315 crores, illustrating a growth of 14% for the half-year and 18% for the second quarter alone. The quarter's performance further reflects the company's recovery and burgeoning momentum across its business segments. Gross margins improved to 52.5% in the second quarter, and the EBITDA stands at INR 188 crores, with a margin of 15.4% for the same period, highlighting the company's profitability. These figures attest to the operational leverage and focus on strategic capital deployment aimed at fostering future growth. Investments in new initiatives amounted to about INR 16 crores, signaling the company's dedication to innovation and growth in new spheres.

Distribution and Allocation of Capital

On the capital expenditure (CapEx) front, the company has invested INR 182 crores during the quarter and a total of INR 385 crores in the first half of the fiscal year, with a majority earmarked for the Synthesis and Biologics divisions. This investment is a testament to the company's strategic planning towards scaling its operations and ensuring a competitive edge in its offerings. In recognition of its financial health and commitment to shareholder value, the Board of Directors recommended a dividend of INR 0.40 per share. This combination of capital reinvestment for growth and shareholder returns reflects a balanced approach to capital allocation.

Expansion in International Markets

Looking beyond national borders, the company's associate, ImmunoACT, has secured marketing authorization for CAR-T technology in India, and is set to start clinical trials in Mexico in collaboration with the Mexican Ministry of Health. Beyond that, it is engaging in licensing deals in Europe, with clinical trials expected to commence in 2025. This international outlook exemplifies the company's pursuit of growth through global partnerships and innovation in oncology treatment, potentially leading to new revenue streams and diversification of its market presence.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Laurus Labs Limited, hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you, and over to you, Mr. Shah.

[Monish Shah]

Thank you, Michelle. Good evening, everyone, and welcome to Laurus Labs Q2 and H1 FY '24 Results Conference Call. On behalf of Antique Stock Broking, I thank the management for giving us the opportunity to host the call.

Today, we have with us Dr. Satyanarayana Chava, Founder and CEO; Mr. V. V. Ravi Kumar, Executive Director and CFO; and Vivek from the IR Team.

I will hand the call over to Dr. Satya for his opening remarks. Thank you, and over to you, sir.

[Satyanarayana Chava, executive]

Thank you, Monish, for hosting this conference call. Thank you for joining us for our Q2 and H1 FY '24 results conference call. We are pleased to have this opportunity to update you on our progress and answer your questions.

Our performance from Q2 started to see improvement, and our priorities remain consistent. By focusing on R&D-led commercial strategy, and customer-centric business orientation, we are advancing and augmenting our operational excellence to offer cutting-edge technology platforms in the manufacturing of small molecules. Deliver the best external and internal opportunities as well as bringing innovative manufacturing solutions to companies and patients.

We have executed on several important business development transactions last quarter, and we are further accelerating our strategic manufacturing partnerships. We're also pleased to report that our investment into disruptive technology is progressing well.

The first one is our investment in ImmunoACT, where CAR-T did compound. Next CAR-19, which completed Phase II trial for lymphoma and leukemia indication has been granted marketing approval from CDSCO, Government of India. We feel it is a significant breakthrough and will be the India's fast indigenous developed and manufactured cell therapy product for treating certain blood cancers.

Second one is initiation of construction, GLP lab construction for the manufacturer of viral vectors and gene therapy products at IIT Kanpur.

The third one is increase in our stake in Laurus Bio, now 88%. This is a reflection to our confidence on great potential for future developments in enzyme technology platform.

Currently, it's an exciting time at Laurus Labs, and we are determined to build on our R&D-driven commercial excellence to deliver best quality and affordable health care solutions as we seek to create a long-term value for both patients and our all stakeholders.

Our Q2 results in-line and improved over Q1 due to recovery in customer supplies, which is driving higher revenues. While gross margins were maintained very healthy level, our EBITDA margins have clocked a modest recovery as higher upfront expenses on growth projects have contributed to weigh on our overall operating cost. It is important to keep in mind as well as that our year-on-year growth was subdued due to a particularly strong quarter we had in FY '23.

As a result of these factors, our revenues were declined by 22% to INR 1,224 crores, and the EBITDA came at INR 188 crores, with a margin of 15.4%. Our quarter-on-quarter growth is rebounding in both our API and formulation business, supported by strong underlying demand in other segments.

Our CDMO business project pipeline have continued to scale up along with the expansion of our new partnerships. Our cost improvement programs are also progressing as expected. Following the recovery we saw in Q2, we remain optimistic for a better H2, presenting from both healthy order book and strong commercial execution capabilities.

To begin, I would like to share key updates on our formulation business. Our formulation division reported overall revenues of INR 333 crores for Q2, increasing over 120%. That was because of a low base last year. On a sequential basis, revenues have also improved by 16%. Moreover, if you look at our H1, revenues increased by 24%. This was primarily driven by recovery in ARV business, along with growth in our developed market sales.

Coming to LMIC business, overall market volumes have largely remained stable, partly supported from stable prices. The former -- we remain fully committed to stabilize our ARV franchise business through -- throughout the FY '24 and beyond while navigating the pricing headwinds.

We awarded with 20% of recent NACO tender for supply of key products, and this is our maiden successful bid in the Government of India tender for the supplies of HIV products in India.

This was achieved primarily because of our fully backward integrated offering in ARV model. We have successfully implemented several cost improvement measures, and we believe these measures will subsequently ensure our market readiness and confidence of sustaining leadership position in first-line ARV treatment, both in APIs and formulations.

Coming to the developed market, demand for our broader portfolio remained healthy. In U.S., we continue to get good market share on seller products and also increasing volumes.

During H1, we filed 1 ANDA, cumulatively we've filed total 30 ANDAs to date. Of this, we have 15 final approvals and 13 tentative approvals so far. We continue to have diverse portfolio and pipeline, including novel 505b(2) products, comprising of ARV, cardiovascular, diabetes, CNS and gastrointestinal.

In Canada, we have 21 filings with 13 product approvals, of which we have launched 9 products, and we are intending to launch at least 2 more products during the second half of FY '24.

For new markets, we have 18 filings with 14 product approvals, of which we already launched 6 products. We have continued to strengthen our CMO relationships and anticipate further volume increases in the coming quarters.

Our FDF business continues to operate most of the total commission capacity of 10 billion units. We anticipate that the remaining brownfield capacity that were added in the last year should start to get optimally utilized by end of this year.

On R&D front, overall R&D spending to sales for H1 FY '24 was at 4.5%. We have incurred legal higher R&D expenditure in this quarter as we acquired the intellectual rights for few gene therapy products from IIT Kanpur. We continue to make good progress and invest in portfolio product-specific approach based on complexity and scale of economics. We have total 62 products in R&D pipeline with market shares of over 49 billion.

I would like to share the status of our filings as of now. 38 ANDAs in the U.S., 18 dossiers in Europe, 21 products in Canada, 9 dossiers with WHO, 8 dossiers in South Africa, 1 in Australia, while 20 dossiers filed in India, while several products were filed in various ROW markets.

Overall, R&D sales for the full year -- R&D to sales of the full year is expected to grow at 4.5%.

So coming to generic APIs, revenue from generic APIs during the Q2, declined by 8% year-on-year to INR 629 crores. However, sequentially, it has improved by 5%. For H1, overall growth was flattish. ARV retained this volume-led steady momentum through Q2 and revenues moderated a bit attributing to an element of cyclicality in the ordering and ordering.

We continue to maintain a leading market share in the first-line HIV treatment-related APIs.

In the Onco API space, the sales for the quarter rebounded and delivered a strong revenue increase over 100%, year-on-year to INR 217 crores. In H1, the growth is over 50%. This is reflective of strong demand across our portfolio and favorable industry dynamics. We are augmenting the new capacity for oncology products to accommodate the increased demand. More importantly, as Laurus Labs, one of the largest high-potent API capacities in the country and our aim to strengthen global leadership in some of the existing products by focusing on higher volumes and adding new potent molecules.

In the other API segment, which includes cardiovascular, diabetes, asthma, have slightly recovered tracking only 2% growth quarter-on-quarter to INR 139 crores, recovery has muted on account of temporary market dynamics and scheduling patterns from our partners. On the year-on-year basis, revenues declined by 37%. We are confident that underlying demand for our products remains strong, and our CMO order book has continued to look very healthy. In first half of this financial year, we have filed 3 DMFs out of those 2 are in non-ARV category. With this, company has a total of 83 DMFs.

While coming to Synthesis business, during the quarter 2, the company's CDMO recorded revenues of INR 224 crores, a decline of almost 70% year-on-year. The revenues declined due to a weak year-on-year comparison given large CDMO projects executed last year. Otherwise, the baseline business is tracking healthy and project pipeline continues to scale up very well with our existing and new customers added in the last 6 months.

We continue to execute on our scientific-led approach to customer acquisition and retention. We are further strengthening and expanding our relationship with several big pharma. We remain focused on improving our integrated CDMO enabling technology platform to achieve diversify revenue stream, ensuring stability and resilience.

We are working on over 60 projects Out of these, there are 10 products, commercial, few APIs and several intermediates. We made good progress on new sites for CDMO Morison, both R&D center and manufacturing facilities under LSPL. Our animal health unit initiated commercial validations from this month and should gradually scale up. R&D center is likely to get commissioned by end of FY '24.

Our new Animal Health site will have all the capabilities to handle steroids, hormones and high potent molecules apart from our large volume products.

In Laurus Bio, we recorded strong growth for Q2 and H1. Q2, we grew the revenues by 41% and H1 by 56%. The growth was led by a traction in CDMO services, along with the expansion of our customer base. We are also optimizing our capacities at R2 with the large-scale CDMO partners and expect increased downstream capacity to come online by December 23. This unit will achieve its peak revenues during FY '25.

Our enhanced technical expertise and biocatalysis is expanding its application in several small molecule manufacturing, where Laurus is utilizing this expertise to service big pharma.

Progress on our new greenfield site at R3 is on track, and we have completed the design phase. We expect expansion to happen in a phased manner. This site should further strengthen Laurus capabilities in offering CDMO services in animal-origin-free proteins and growth factors apart from large-scale fermentation.

Let me share brief on quality and EHS initiatives. We have continued to implement and operate best-in-class R&D, manufacturing and quality control systems in line with the highest global standards, along with a comprehensive EHS management. This is enabled by our profound scientific team of over 2,300 people embracing commitment to evolve to address new opportunities.

During Q2, we implemented a project called Sankalp in association with DuPont Sustainability Solutions to further enhance organizational safety excellence.

During the H1 FY '24 A total of 51 quality audits were undertaken, including several customer audit. To date, since inception, we have successfully passed 91 regulatory audits, including 14 audits from major global regulated agencies like U.S. FDA, WHO, PMDA, TGA, EMA and MHRA.

With that, I would like to hand it over to Ravi to share some of the financial highlights.

[Vantaram Venkata Kumar, executive]

Thank you, Dr. Satya, and very warm welcome to everyone for quarter 2 and H1 FY '24 earnings call. Total income from operations for the H1, INR 2,406 crores as against, INR 315 crores. Excluding large PO, you're all aware that we have executed large PO last year.

The underlying business delivered growth of 14% for H1 whereas for the quarter 2, it was 18%. As you would notice that our quarter performance have recovered, and we showed an improving momentum for majority of our business. Also as Dr. Satya highlighted about the strong underlying demand across our growth pillars, we believe it will continue to support our outlook for the rest of the current fiscal.

Gross margin for quarter 2 have improved at 52.5% and if you look at an EBITDA for quarter 2 FY '24 is at INR 188 crores, with a margin of 15.4%, whereas for the first half, it was INR 356 crores with an EBITDA margin of 14.8%. The impact is primarily due to operational deleverage, lower CDMO business and the -- some of the new initiative expenditures being incurred like CGT, et cetera.

I think overall, we have done we -- spent about INR 16 crore on the new initiatives. Our diluted EPS for quarter 2 was 0.6 and for H1 it is 1.1 without any annualization. And our OC is at 11.4% due to operating deleverage and strong capital deployments for the future growth.

On the CapEx front, we invested close to INR 182 crores for the quarter and INR 385 crores for the first H1. The Board of Directors recommended a dividend of INR 0.40 per share. As you are aware for FY '24, the majority of CapEx is for the Synthesis and bio divisions, and most of the expansion projects are on track to support our future growth. You can refer to our IR presentation for more details.

With this, I would request the moderator to open the lines for Q&A.

[Operator]

[Operator Instructions] We'll take the first question from the line of Jeevan Patwa from Sahasrar Capital.

[Jeevan Patwa, analyst]

So firstly, congestion for the marketing authorization for the CAR-T technology. I just wanted to understand, once we -- now we have the authorization for India, what is our plan for other markets or other geographies? Is there any other geographies where we are conducting the clinical trials?

[Satyanarayana Chava, executive]

Thank you, Jeevan on this question. Currently, our associate company, ImmunoACT has partnered with a Mexican Ministry of Health, and trials will be done in Mexico, and in the process of finalizing some licensing deals with an European company. So next year, we expect clinical trials will start in Mexico for this product.

And in year 2025, clinical beds will also start in Europe. In Europe, since the licensing deal is under negotiation, I can't give you more details. But there are some licensing deals being pursued by the company. And going back to person, since the approval is obtained, we expect to launch in the next few months in India. We are gearing up to do commercial manufacturing while getting all the necessary licenses needed for India launch.

[Jeevan Patwa, analyst]

And is there any other type of cancer that we are working on, any solid tumor cancer?

[Satyanarayana Chava, executive]

There is one other -- clinical candidate is in pipeline, which will -- she is in preclinical, will go to Phase II in the next 6 months, that is BCMA. There is another asset which is in early stage of research for the solid tumors, [ Ms. June Pepper ].

[Jeevan Patwa, analyst]

Okay. Okay. And just wanted to understand on the API and FDF side. So we are talking about new CMO orders last quarter. So we said we are tied up with few clients. This quarter, so we are saying we have CMO order, a healthy pipeline. So can you elaborate more on this?

When will we are going to start? So is it going to be in the second half? And how big they are? Because our API revenue has been constant since last many quarters now despite having our expanded our capacity by more than 50%. So when can we actually see this number ramping up on the API side actually. And then on the FDF side as well. So the CMO order, basically if can you elaborate more?

[Satyanarayana Chava, executive]

The CMO order we got from our partners for integrated manufacturing of API and formulations. If you recollect, we were talking about the 1 billion tablets CMO, that will increase to 1.5 billion, 1.6 billion. We are qualifying the packaging lines also. Earlier, we used to do bulk packaging. Now we are the secondary packaging as well.

[Jeevan Patwa, analyst]

So that is going to...

[Satyanarayana Chava, executive]

And to your question of our 50% capacity addition, majority addition we have done for CDMO. So as you're aware, our CDMO business, we have to have patients because we have to deliver Phase II, Phase III and wait for the commercial launch. So I can assure the company is in a good position to offer CDMO differentiation when compared to other CDMO companies in India.

[Operator]

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, analyst]

So just on the gross margin, firstly, on sequential basis, when the Synthesis business has -- in fact, there has been slight decline and formulation business has also been quite stable. So if you could just explain the reason for better gross margin this quarter compared to previous quarter?

[Satyanarayana Chava, executive]

The better gross margin in this quarter is primarily because of improvements we have done earlier were commercialized. And also, the -- we are operating our ARV facilities at full scale. That is also helping us to leverage.

[Tushar Manudhane, analyst]

Okay. And considering that the things that -- again, the FY '24 sales outlook and presumably a significant chunk of the business coming from CMO, CDMO side, as you have indicated in just the earlier commentary that the ARV-led API and formulation could be stable. So does it mean that there should be a significant improvement further in the gross margin in the coming quarters?

[Satyanarayana Chava, executive]

The gross margin improvement, if you look at our second quarter FY '23 was at 55%, where our revenue was primarily driven by large CDMO orders. Yes, we expect the CDMO revenues pick up, the margins will slightly improve better.

[Tushar Manudhane, analyst]

You mean to say, it can go back to 55% gross margin?

[Satyanarayana Chava, executive]

I'm not commenting, but it will differently -- revenue growth is primarily driven by CDMO business, the chances of increasing beyond the 52% what we have reported, will certainly go up.

[Operator]

The next question is from the line of Bharat from Quest Value Capital.

[Bharat Sheth, analyst]

Recently, Andhra Pradesh Chief Minister has...

[Operator]

I'm sorry to interrupt, sir. Your audio is not clear, Mr. Bharat. I would request you to use your handset, please.

[Bharat Sheth, analyst]

Is it better now?

[Operator]

Yes, sir, please continue.

[Bharat Sheth, analyst]

Okay. Yes. Recently, Andhra Pradesh, Chief Minister has done groundbreaking for Unit 7 in Vizag. May I know what is this Unit 7?

[Satyanarayana Chava, executive]

The new groundbreaking ceremony done last week is primarily to add more capacity for CDMO. Beginning -- we are making that common infrastructure for new CDMO sites.

[Bharat Sheth, analyst]

Okay. So this Unit 7 is for a specific customer, or is if for generic I mean not specifically any customer?

[Satyanarayana Chava, executive]

This is -- we are adding -- actually, those are 2 sites. We are creating common infrastructure and building 1 block in each of those to get the necessary regulatory approvals. So that side also can be audited by big pharma, and we can be able to service from that side as well.

[Bharat Sheth, analyst]

Okay. And may I know what is the CapEx for FY '25?

[Satyanarayana Chava, executive]

We will give you more details in the next quarter conference call about the new CapEx in the new sites.

[Bharat Sheth, analyst]

Okay. And my last question is, if you see in the presentation, you said like this year will be a year of consolidation. And 2 quarters back, you said that year of consolidation means we don't expect any degrowth. May I know what do you mean now with this year of consolidation? Do you expect any degrowth now?

[Satyanarayana Chava, executive]

When we are saying this year in the year of consolidation, that means we are adding a lot of capacity. If you look at it in the last 3 years, we have added 3 million liters capacity and 5 billion tablet capacity. So all those will be utilized in the next financial year onwards. There, we will have -- a lot of leverage will come.

Currently, the negative leverage is happening. We have capacities. We have people. And we are only doing trial quantities. So we are spending more than what we are earning from those sites. So once we do commercial manufacture of the sites, so you will see a very healthy EBITDA margins and then return ratios.

[Operator]

The next question is from the line of Vivek Agrawal from Citigroup.

[Vivek Agrawal, analyst]

Sir, in API segment, actually, we have seen a decent rebound, and it is largely led by oncology. So can you please call out what has driven this rebound? And is it a broad-based or any product-specific contribution, any milestone in current oncology, et cetera? That would be helpful.

[Satyanarayana Chava, executive]

Thanks, Vivek. The growth in oncology business is also a pleasant surprise for us as well. Maybe the regulatory setbacks for some of the companies is helping us to gain market share. And as I mentioned, we have the largest capacity in oncology. So we are able to capture that opportunity. And if you look at our oncology API sale, in H1, we have done INR 171 crores. And we have a very good order book for H2. So it looks like we'll do very well in our oncology segment.

[Vivek Agrawal, analyst]

Understood. So do you expect the current run rate can sustain in the coming quarters or in the next year as well?

[Satyanarayana Chava, executive]

We certainly believe so because we have order books well beyond Q4 this year.

[Vivek Agrawal, analyst]

Understood. So one question on FDF. So how much of the business is coming from U.S. now, if you can help us understand?

[Satyanarayana Chava, executive]

I can give you a number for North America. This year, all put together, it could be $40 million -- $35 million, $40 million, yes, from North America, overall, yes.

[Vivek Agrawal, analyst]

Understood. And just last question on Synthesis business, right? So next few projects that we have in the segments are largely in the animal health region or ag-chem, right. So can you also talk a bit on human health projects, given that is a bigger market. So is there any progress out there? Has the company received any mid or large scale project of late? If you can throw some light.

[Satyanarayana Chava, executive]

In the Synthesis, there are several projects in the clinical phase right now. We believe we are well positioned for several reasons. The one reason is we have capacity, and our regulatory track record is very good. And we have scale, and we have technical capabilities.

See nowadays, we have capabilities from biocatalysis, to continuous flow chemistry, to very large-scale hydrogenation, very low temperature reactions, very high temperature reactions. We are capable of delivering a wide variety of chemistries that is also well appreciated by our partners. So we believe we are well positioned to get that opportunity.

[Operator]

The next question is from the line of Madhav from Fidelity.

[Madhav Marda, analyst]

I just wanted to understand on the approval for the CAR-T therapy, which we have received for India. How big is the addressable market? Like do we know how many patients there are in India which can be addressed by this drug. And I was just reading some article online. They said that treatment cost is about INR 30 lakhs per patient, per year. So is that -- is that like broadly a right number that we should understand?

[Satyanarayana Chava, executive]

We cannot give you the exact cost to the patients. We can only give you the -- what is the product cost, we are going to supply to the hospitals. It is between INR 30 lakhs to INR 40 lakhs. So we don't have any control or estimation on how much it will cost to the patient. Our associated companies planning to sell between INR 30 lakhs to INR 40 lakhs per treatment.

[Madhav Marda, analyst]

Okay. And how big -- like what's the patient population in India? Do we have any broad destination for that?

[Satyanarayana Chava, executive]

I don't have right number with us. But currently, immunoactive geared up to deliver about 500 treatments per year from the current facility and also creating facility, which will be ready by March 2025, where we can deliver additional 2,500 treatments per year.

[Madhav Marda, analyst]

Okay. Got it. And then just on the CDMO business, I think you have mentioned that we have 60-plus active projects in the pipeline, 62 if I got it right. Could you please help us understand like how many of these are Phase II, Phase III and commercialized molecules? If you could share some split, it would be very helpful.

[Satyanarayana Chava, executive]

As I mentioned in our presentation, we have about 10 commercial products, 4 APIs and other advanced intermediates, and we have an additional 60 projects in various clinical stages.

[Madhav Marda, analyst]

Sir, my question is like if you have 10 commercialized projects, that should mean like good scaleup potential as we go into next year, right? Because we are building the capacity and if some of them are commercial -- is that the right understanding?

[Satyanarayana Chava, executive]

Madhav, we have built capacity for commercial products holiday. The additional capacity, for example, in animal health, we just started commercial validation from this month. Our Crop Science Facility is still under construction. While other human health projects where we had created capacity were being either Phase II or Phase III quantities.

So once we do those, we have to wait for a certain time until we get the commercial orders. So -- once we are envisaging what we're also telling all our stakeholders. The company is well positioned because of our -- the greenfield infrastructure, our quality and our chemistry capital base, the company is well positioned to take those opportunities.

[Operator]

The next question is from the line of Krish Mehta from Enam Holdings.

[Krish Mehta, analyst]

So my first question is if you could provide the split between your ARV and non-ARV revenue for this quarter on a consolidated basis?

[Satyanarayana Chava, executive]

ARV is 49%.

[Krish Mehta, analyst]

And could you provide the split between your ARV FDF and non-ARV FDF for this quarter?

[Satyanarayana Chava, executive]

This quarter, ARV FDF and non-ARV FDF is we have done about INR 110 crores of non-ARV formulation. So if you look at our split there, it is slightly moving towards non-AR products. That's what we are mentioning. The growth in formulations also, in the future quarters, will only come from non-ARVs.

[Operator]

The next question is from the line of Ranvir Singh from Nuvama.

[T. Ranvir Singh, analyst]

On the ImmunoACT, I think we explained -- we see the approval there. I also wanted to understand what is the time line when we can expect this product...

[Operator]

Sorry to interrupt sir, your audio is not clear. I request you to kindly use your handset if you're using your headphones.

[T. Ranvir Singh, analyst]

Is it better now?

[Operator]

Yes, sir, please.

[T. Ranvir Singh, analyst]

Yes. So my question was related to ImmunoACT. So what's the time line when we are expecting it to roll out in India?

[Satyanarayana Chava, executive]

We expect the rollout will happen in the next 2 months.

[T. Ranvir Singh, analyst]

Okay. And do we have a plan to increase your stake there from 34%?

[Satyanarayana Chava, executive]

It's too early to say anything. We are -- they have enough capital to deploy. And if they get approval and that will also give some additional cash flow for them. We don't expect...

[T. Ranvir Singh, analyst]

Okay, fine. And last quarter, we indicated that EBITDA margin may come back to around 25% plus kind of your number going forward. So are we expecting because in first half that ]. So any comment over here?

[Satyanarayana Chava, executive]

Based on the current trend of growth in all segments, we expect the margins will better when compared to the first half. And we are very optimistic about second half of this financial year.

[T. Ranvir Singh, analyst]

So overall, for the full year, the margin can we expect in the range of 20%, at least?

[Satyanarayana Chava, executive]

I can still say we will improve beyond this 15% right now, yes.

[T. Ranvir Singh, analyst]

Okay, fine. And third, on bio side, have you added any more products other than Trypsin in this division?

[Satyanarayana Chava, executive]

In Bio, the majority revenue is driven by our CDMO partners. So our revenue comes from Trypsin and animal-origin-free ingredient is also growing, but major growth is coming from our CDMO offerings there.

[T. Ranvir Singh, analyst]

So on a full year basis, what kind of potential we can see from this division?

[Satyanarayana Chava, executive]

The H1 buyer is about INR 90 crores.

[Unknown Executive]

H1, INR 90 crores.

[Satyanarayana Chava, executive]

HI is INR 89 crores. And second half will also be very similar to that. We had some decrease in Q3, but because of -- we are shutting down some of the facility for debottlenecking. And when Q4, we'll rebound. So that division is doing very good, as you've seen from our previous quarters. That is the reason, we increased our stake in that company. We have a lot of confidence on that business segment.

[Operator]

The next question is from the line of Sajal Kapoor, an individual investor.

[Sajal Kapoor]

My first question is there is a quote from Henry Ford. That says and I quote him, he said "The only real mistake is the one from which we learned nothing." And do you believe Dr. Satya that failures can sometimes lead to new opportunities or landing strips and provided the lessons learned and internalized and if yes, what examples from your own experience over the past year or so, might you be able to share? That's my first question.

[Satyanarayana Chava, executive]

We have several examples. Our conviction put us into a very leadership portion. For some products, where we failed to validate, some products we failed to get the right casting, but we continue to invest on those products. And we enjoyed this. Actually there are several examples for that. And see, we cannot fail trade every time. So we fail once, twice, but we eliminate the opportunities for failure significantly for -- at every failure.

[Sajal Kapoor]

My second question Dr. Satya is at our recent innovation conference in Cambridge, I heard a quote from a member of pharmaceutical life sciences company that kind of keeps coming back to me. The person asserted that "Possibility always produces uncertainty and fear of uncertainty is a competitive advantage or moat that keeps their business, say, from rivals or competition."

And they claim that if something is too simple to discover or develop then anybody and everybody will eventually get involved in the field of delivering or developing new drugs. So the uncertainty is kind of a moat that protects their business. That was the hypothesis. I mean what's your sense on this, if you can, please?

[Satyanarayana Chava, executive]

We can give you on our recent success, our investment in cell therapy. It is -- a lot of uncertainties around the discovery and development. So many people don't go into that. That's one way we had enjoyed success. The second is not many people are investing in gene therapy because of lack of talent, lack of understanding of the segment. We invested there.

But it will take some time for us to enjoy success in gene therapy. When it comes to the CDMO, what you said is absolutely right. How many companies in India have created 3 million liters of new capacity in the last 3 years? Not many. How many companies have scales at which we are operating? How many companies are having fully integrated development? That means from enzyme design, enzyme manufacturing, to biocatalysis, to large-scale hydrogenations, flow chemistry and all.

So we are creating competitive advantage by investing ahead of the time. That is over the success mantra that is we are seeing many a time, and you pointed out very well. So the fear of failure will prevent many people to invest, yes.

[Sajal Kapoor]

Sure. And finally, Dr. Satya one question on regulatory uncertainty. What else could potentially harm or disappoint shareholders in the medium term, let's say, next 2 to 3 years when it comes to the uncertainty that we have on the regulatory front, it could be U.S. FDA audit. It could be some unexpected development. And anything on your horizon that we have to be guarded against?

[Satyanarayana Chava, executive]

We have derisked significantly, but we cannot say 100%. We have multiple facilities now. We are operating in multiple regions. So we have our bio division in Bangalore, Tumkur and Mysore. We have our R&D in Hyderabad, Telangana. We have the API facilities in our Vizag, Andhra Pradesh. We have our associate company in Mumbai.

And we have our cell and gene therapy facility being created at Kanpur. So we have diversified significantly, regionally also. And second, when it comes to regulatory inspections, as you have seen our impeccable track record there, and we expect to maintain that.

[Operator]

We'll take the next question from the line of Saurabh Kapadia from Sundaram Mutual Fund.

[Saurabh Kapadia, analyst]

Sir, the question on the Synthesis. So the outlook for second half and '25 looks positive. So will it be driven by more of the animal health project or the current commercialized molecule has the scope to drive it further? Is there any large molecule or the molecule has the large opportunity in the current commercialized molecule as well?

[Satyanarayana Chava, executive]

Our optimism in the second half is primarily driven by increased sales in API, ARVs, increased sales in oncology, increased sales in formulations also increased sales in CDMO. It is driven by all segments.

[Saurabh Kapadia, analyst]

On Synthesis side, will it be the animal health project only or the current commercial molecules also should have the growth this year as well as next year?

[Satyanarayana Chava, executive]

We are not expecting any new commercial sales during the second half. We're only anticipating supply our pace to Phase II quantities in the second half.

[Operator]

The next question is from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

Just following up, sir, on the Synthesis question. So the second half, you mentioned the animal health business begin to scale up. Sir, and when is the Agrichem business contract largely to scale up or start scaling up?

[Satyanarayana Chava, executive]

That will be in the second half of FY '25.

[Nitin Agarwal, analyst]

And sir, beyond these 2 contracts, which would be the -- are there any major milestones for the segment that we can sort of look forward to?

[Satyanarayana Chava, executive]

We are working on some R&D projects with partner, but we don't expect commercial sales in the next 12 to 18 months, yes. As you are aware, we are working with one of the top leading Crop Science companies. So we have a lot of potential to grow, but we are also cautious not to overcommit and under-deliver. We are taking projects what we can deliver. So our current challenge is also a lot of CapEx projects going on. So we are also cautious and where to invest, how much to invest.

[Nitin Agarwal, analyst]

Right, sir. So sir, is it understanding right that animal health will contribute this second half of this year, agrochemical product will contribute in the second half of next year. And I guess there is not much of incremental large contracts likely to contribute in the human health over the next at least 18 months?

[Satyanarayana Chava, executive]

Next -- I said next 6 months.

[Nitin Agarwal, analyst]

Okay, okay. So sir, do you expect any commercialization of human health business also in FY '25?

[Satyanarayana Chava, executive]

I can't give more specific, but there are products which will go from Phase II to Phase III next year.

[Nitin Agarwal, analyst]

Okay, sir. And sir, this $100 million CapEx that you are putting in that you -- the ongoing CapEx in Synthesis. By when do you see it is reasonably utilized?

[Satyanarayana Chava, executive]

Mid of next financial year onwards.

[Nitin Agarwal, analyst]

And sir, lastly, on the FDA business this quarter, what was the component of non-ARV business in that?

[Satyanarayana Chava, executive]

It is -- besides the INR 105 crores is non-ARV business from formulations.

[Nitin Agarwal, analyst]

Okay, sir. And sir, lastly, on the other API, sir how should we think about this business growth from a 12- to 18-month perspective?

[Satyanarayana Chava, executive]

Non-AR formulations potentially is very high. See, in the ARVs, in API as well as formulations, we will have a threshold. We will not go beyond that because the number of patients is also plateauing in the African region. We anticipate both ARVs, APIs and formulations will also attain its peak revenues soon. So the growth in both APIs, growth in formulations will come from non-ARV APIs, non-ARV formulations.

[Nitin Agarwal, analyst]

And sir, what are the drivers for this growth? Any specific molecules or therapies that you have -- or is it going to be broad-based growth over year?

[Satyanarayana Chava, executive]

Our new approvals in U.S., our new contract manufacturing deals in the APIs and formulations, our onco sales are growing, our non-ARV, non-onco API sales are growing. So there are lot of avenues for us to grow there.

[Nitin Agarwal, analyst]

And just one last one. Sir, on this ImmunoACT business, apart from the financial stake that we have, what other role do we have in this partnership?

[Satyanarayana Chava, executive]

We have management. We have 2 board membership there, and we help them in building, thinking about scale, some strategic inputs. Beyond that, we are not involved in the day-to-day operations there.

[Nitin Agarwal, analyst]

Sir, any role in the manufacturing?

[Satyanarayana Chava, executive]

No, no. So -- but in IIT Kanpur, we were operating our own facilities there. So just on the contrary to what ImmunoACT, in gene therapy, we are going to operate our own facilities.

[Operator]

The next question is from the line of Rohit Jain from Tara Capital Partners.

[Rohit Jain, analyst]

Hi, can you hear me?

[Operator]

Yes, sir. Please proceed.

[Rohit Jain, analyst]

So on the last call, you said that you expect improvement in the CDMO business, the tentative business from the next quarter onwards. And this quarter, we have seen that, that particular division has degrown by 10% sequentially. So can you help us understand what changed within 3 months? And what is the outlook for this particular division going forward?

[Satyanarayana Chava, executive]

See, CDMO the supplies, time lines, all depends on what our partner is requesting. Sometimes if partners ask deliveries in the next quarter, we have to deliver when he needs. So those kind of uncertainties will be there in CDMO. But our customer list is increasing, our project list is increasing. That's the reason we are also very confident on this segment.

[Rohit Jain, analyst]

No, I understand. The reason I asked that is on the last call, you said that there was some deferment and that's why the first quarter number was lower and you expect improvement sequentially. So is it -- should we understand that there was some further deferral?

[Satyanarayana Chava, executive]

Yes, that's the reason where we...

[Rohit Jain, analyst]

Hello?

[Satyanarayana Chava, executive]

That's the reason we didn't have any sequential growth.

[Rohit Jain, analyst]

Yes. And just -- this was asked earlier on the call. I just wanted to confirm that. So you said that this is a year of consolidation, which earlier sort of indicated that you expected flat EPS Y-o-Y given the performance in 1H that seems like a difficult task. So how should we think of that qualitative guidance of this year in consolidated, year of consolidation in terms of financials?

[Satyanarayana Chava, executive]

So we're not giving guidance. So -- but we are reiterating our -- as we mentioned, this is an exciting times for us in the company. At this, we have many prospects, many exciting projects, and things are in good shape. So that is the reason we are investing into the feature. So -- that's my answer for this, yes. We can't give you guidance right now.

[Rohit Jain, analyst]

Understood. And one last question from me. For the CDMO CapEx and for the size that you are preparing, what sort of asset turns should we think of, the broad range, like the high and the low?

[Satyanarayana Chava, executive]

I will give you a very broad number, there is between 1 and 2 assets, yes. Between 1 and 2...

[Operator]

The next question is from the line of Abhijit K. from PCL.

[Abhijit K., analyst]

You can hear me?

[Operator]

Yes.

[Abhijit K., analyst]

Firstly, I'd like to congratulate everybody on the Laurus team. I've been following the company since 2020. And it's an impressive growth. And what you guys have been doing with all your divisions is fantastic. Mr. Chava you are personally an inspiration to many people, I know. And great to do -- great in whatever you guys are doing.

First, I'd like to ask a question with regards to the revenue base. So I see -- I'm looking at the presentation, I see that there is a sequential increase in the revenue removing the FDF business of -- the CDMO base of the previous contract, which is of course. Like why do you see the revenues growing over the next 2 quarters and also in the next 1 year?

[Satyanarayana Chava, executive]

In the Synthesis, if you look at the overall year last year lot of commercial supplies happened. This year, we do not have any commercial supplies. But we hope next year will be, again, a good year for us CDMO. Some of the projects are moving into the late clinical phase or commercial. So things will be in a good shape next year.

[Abhijit K., analyst]

Okay. And next part with regards to the CDMO, you mentioned that one is going to be the animal API business that is going to come into place and the other is the agrochemical. Do you see that this is going to be a structural change in the company where you're going to be diversifying not only from pharma-based thing and diversify into other revenue streams by agri and also alternative sectors?

[Satyanarayana Chava, executive]

Animal health is a contract signed with one customer for [Indiscernible] products, and in Crop Sciences, we have signed 1 commercial agreement, 1 development agreement, and we'll also sign a second commercial like soon. So our CDMO comprises of human health, animal health, some cosmetic ingredients also we are good doing and Crop Science. So that way, our CDMO division is well diversified when compared to many, our CDMOs, yes.

[Operator]

We'll take the next question from the line of Aditya Sen from RoboCapital.

[Aditya Sen, analyst]

My question is on the EBITDA. Once we start utilizing our new facilities, let's say, by late FY '25 or even FY '26, then will we be able to get back to the previous high range of EBITDA that is plus 25% range of EBITDA?

[Satyanarayana Chava, executive]

This is a very interesting question. But we can promise we will get to closer to 30%, but I will not tell you which year will get there. Our growth -- our revenue contribution significantly still towards CDMO. I'm sure we have an opportunity to take our EBITDA back to around 30% level.

[Operator]

Thank you. Ladies and gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.

[Satyanarayana Chava, executive]

Thank you, Monish, for organizing this call, and thank you, our stakeholders who have a lot of confidence in us. And I'm sure we will meet our expectations as we continue to commit ourselves to bring cutting-edge technologies and servicing customers with our wide range of chemistry offerings. Thank you.

[Monish Shah]

Thank you.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.