Piramal Pharma Ltd
NSE:PPLPHARMA
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Ladies and gentlemen, good day, and welcome to Piramal Pharma Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand conference over to Mr. Gagan Borana from Piramal Pharma Limited. Thank you, and over to you, sir.
Thank you, Carol. Good morning, everyone. I welcome you all to our post results earnings conference call to discuss our Q1 FY '24 results. Our results material has been uploaded on stock exchanges and we would like to download and refer to them during our discussion. On the call today, we have with us Ms. Nandini Piramal, Chairperson, Piramal Pharma Limited; Mr. Peter DeYoung, CEO, Global Pharma; and Mr. Vivek Valsaraj, CFO of our company.
Before I proceed with the call, I would like to update everyone that currently, we are in the middle of our rights issue for raising capital, not exceeding INR 1,050 crores. Given this event, we would have to abide by the statutory guidelines as issued by the regulator in regards to our disclosure and external communications. Accordingly, we would not be able to share any forward-looking statements, not disclose any further details on the proposed fund base other than what we shared in the LOS during the deal window period. Therefore, I would request everyone on this call to restrict are today's discussion to Q1 FY '24 performance.
So this is last evening for [indiscernible] our quarterly results, we have received several investor [indiscernible], in alignment with the restrictions, we have drafted our responses to this grade and we'll share these responses first and later open up the floor for any other questions that you may have.
With that, I would like to hand over to Ms. Nandini Piramal to share her thoughts.
Good day, everyone, and thank you for joining us on our post Results Quarter 1 FY '24 Earnings Call. Starting with the update on the rights issue, we have filed the letter of offer with SEBI and have also finalized the issue details. The rights issue price has been fixed at INR 81 with an entitlement ratio of 5 shares to every 46 held. The record date was second August.
On the quarter's performance. During the quarter, we registered a year-on-year revenue growth of 18% and delivering revenues of INR 1,749 crores. Our CDMO business was aided by continued order flow momentum and strong execution grew by 17% and during the first quarter of the financial year. We're also seeing healthy demand for our recently expanded facilities, offering differentiated capabilities. Further, we witnessed Y-o-Y improvement in demand in our generic API business. Our complex hospital generics grew by 22% Y-o-Y during the quarter, primarily driven by robust demand in sevoflurane and contribution from new product launches in the injectable segment. Our India consumer health care businesses registered a Y-o-Y growth of 1% driven by power brands new product launches.
Our EBITDA during the first quarter stood at INR 171 crores with an EBITDA margin of 10% compared to 6% in the same quarter last year. The healthy improvement in our EBITDA margin was on account of strong revenue growth, along with cost optimization measures. Also, please note, our first quarter FY '23 EBITDA had a onetime inventory margin impact of INR 68 crores.
On the debt. Our net debt at the end of quarter 1 FY '24 is about INR 4,700 crores compared to INR 4,800 crores in the last quarter. We repaid some net debt -- some debt in the last quarter. Historically, our H2 has been better than H1, both in terms of revenue and profitability. We are working to leverage a good start to the financial year and continuing this momentum to deliver a healthy performance for the rest of the year. We continue to maintain a high-quality track record of 0 OAIs as we successfully closed the U.S. FDA inspection at the Pickanport facility with 0 observations. During the quarter, we also received an EIR for our Sellersville facility, thereby successfully closing the inspection. In the last 9 months, 5 of our facilities have undergone U.S. FDA inspection, and we have successfully closed all of them.
Apart from the U.S. FDA inspection of facilities also underwent regulatory inspections from other global agencies along with audits from our customers, which we cleared successfully.
On the ESG front as well, we made [indiscernible] progress with the development of our decarbonization plan in accordance with the 1.5-degree trajectory as suggested by SBTi science-based targets. We are now committed to SBI and the UN Global Compact. We also adopted a global human development policy, code of conduct and ethics to strengthen our governance. During FY '23, we had 0 fatalities and also improved our gender diversity. We will soon be releasing our sustainability report in which we will be sharing further details of our ESG initiatives undertaken in FY '23.
Moving to business-specific highlights, the CDMO. In our CDMO business, we witnessed good momentum in order inflows in quarter 1 FY '24. These incremental orders are a healthy mix of development work involving differentiated capabilities and commercial manufacturing of own patent molecules. We are seeing encouraging demand for expanded capabilities that went live towards the end of FY '23. We are expanding our capacity expansion for antibody drug conjugates at the Grangemouth facility, which should open in the H2 of this year, and that will help strengthen our position in the EDC market. Our generic API business, which is a soft demand in FY '23 has also seen a pickup of year-on-year in demand. We continue to work towards cost optimization, strategic -- strategizing procurement and implementing operational excellence initiatives to mitigate inflationary pressures and to improve our profitability.
Moving to the complex hospital business. Our inhaled anesthesia portfolio continued delivering a healthy performance, mainly led by strong demand for sevoflurane. Our capacity expansion for inhalation anesthesia is on track. Our intrathecal portfolio in the U.S. continues to command the leading market share. Our brand, Gablofen continues to be the #1 ranking backlog in [indiscernible] vial brand in the U.S. with a market share of 77%. Also on the injectable pain segment, our brand Sentinel is the #19 brand in its representative markets of Japan, South Africa and Indonesia.
While we focus to further strengthen our position in our existing portfolio, we're also building a pipeline of over 27 injectable products in different stages of development. We launched 1 new product during the quarter. We strengthened our CHG management team by appointing Jeffrey Hampton as President and Chief Operating Officer for the AHG business. Jeff has previously worked with Accord Healthcare, Inc. and Apotex Inc.
Moving to our India Consumer Healthcare business. Our business delivered a Y-o-Y growth of 13% in quarter either by growth in our power brands and new product launches. Our brand grew 15% during the quarter and contributed 43% of total health sales. We launched 11 new products and 3 new SKUs during order. We continue to invest in marketing and promotion activities to build strong brands in the market. We have a good reach in general trading at strengthening our presence in alternate channels of distribution, including e-commerce, modern trade and having our own D2C platform [indiscernible]in.
To summarize, I'd like to say we had a positive start in the new financial year with healthy revenue growth and improvement in our EBITDA margins, our CDMO business is witnessing continued order inflows especially for differentiated offering and innovation-related work. Our interests portfolio is also seeing a healthy demand. Further, India Consumer Healthcare business is delivering good growth delivered driven by the power plant. We continue to maintain our best-in-class quality track record and are taking multiple initiatives in the area of these. We believe in the growth potential of all our businesses and are accordingly executing on our strategic priorities. Further, we're raising capital through the rights issue for which the letter of offer has been filed. Our promoters have agreed to substrate to 100% of the equity shares offered in the issue, reaffirming their confidence in the underlying strength of our business.
With this, I'd like to hand over the call to Vivek, our CFO, who will respond to queries we have received since the last evening. Post that, we'll open the floor for any additional questions that you might have.
Thank you, Nandini. Good day, everyone, and thank you to those who share questions. We'll take those first before opening up the floor for the other questions. A few questions on the CDMO business. Reasons for growth in the CDMO business, the company witnessed significant pickup in order bookings in quarter 4 FY '23, which continued in quarter 1 FY '24 as well. Healthy demand for innovation-related work and differentiated offerings, and we have been seeing a year-on-year pickup in demand for the generic API business and an encouraging response for the expanded capacities that went live last fiscal.
A related question was, is the order book back to normalcy? We have seen a good pickup in order book in the month of March, which has continued in quarter 1 as well. Our recently opened expansions have witnessed a good customer demand.
How is the Phase III pipeline looking? We had about 35-plus products in our development pipeline, which are in Phase III. The commercialization by our customers would lead to some important commercial manufacturing contracts for us in the future. We continue to support our customers to advance their development work and are also looking to add more customers. Some of our recent commercial manufacturing opportunities for on-patent molecules is already in public domain.
Moving on to CHG, there was a question of what are the reasons, primary reasons for growth in this business. The growth was primarily driven by healthy demand for our Indonesia and Asia portfolio, and improvement in supplies from our CMO for our injectable pain management products.
There was a question on the quantum of CapEx spend in FY '24 quarter 1. The CapEx was INR 147 crores.
There was questions on why there is the lower other income in quarter 1 versus quarter 1 of FY '23. The previous year quarter has higher FX gains consequent to major currency movements. The U.S. dollar did strengthen and that led to a significant ForEx gain. Come back to that, in the current quarter, we had relatively stable currencies leading to a lower product scale. Excluding this, the EBITDA on the comparable basis, the June quarter has grown by 55%.
There's a question on reasons for increase in interest cost and what will be the scenario post the rights issue? The increase in interest cost versus the June quarter is due to a combination of both increase in average borrowings to support planned CapEx and operations and general increase in interest rates versus the March quarter, it is primarily the effect of interest rates. We will be using a large part of our proceeds for our INR 1,050 crore rights issue to reduce the existing levels of debt. This will reduce interest costs going forward. We also expect to complete our rights issue this month, which will help lower our interest costs thereafter.
There was also a question on, please explain the movement in debt levels. So our net debt has actually reduced by about INR 100 crores versus the March quarter. And currently, our net debt stands at about INR 4,700 crores. As mentioned earlier, a major portion of the rights issue will be utilized for reduction of debt. And further, we will continue to make judicious choice in our CapEx spend to control debt also aided by an improved financial performance.
Rational for the right pricing. It has been our endeavor to keep the pricing fair to enable participation by all shareholders. The pricing has also been decided keeping in mind the regulatory requirements and the general proceedings basis guidance by our lead managers to the issue. For a detailed [indiscernible] that clarifies several questions on the rights issue proceeds and the modalities will be uploaded on our website this weekend, please do refer to the same.
There was a question, is the company looking to do any acquisitions after the rights issue? Currently, our focus would be more to execute planned CapEx and ongoing capacities and capabilities at various sites, which are witnessing high demand. Our focus will be to execute and commercialize these investments.
So those were some of the questions that we received upfront and we can now open the floor for any other questions.
[Operator Instructions] The first question is from the line of [indiscernible] from Nuvama.
Well, ladies and gentlemen, we've lost the line for the current participant. We move on to the next question from the line of [indiscernible] from Unifi Investment.
So 2 questions. One is, while the margins have expanded and especially, if I remove the other income, last year's first quarter, the margin -- EBITDA margin has expanded very good. But the other expenses also went up by 15%. So is there any particular reason about the other expense?
So Pramod, if you look at the total increase in other expenses versus the June quarter, the increase is 15%, which includes the impact of ForEx movement as well. That's about 4%. So excluding that, the increase is 11%, which is commensurate with an 18% increase in the total top line between the 2 periods.
Okay. Got it. So last year, we had the ForEx gain this time we had the ForEx loss.
We don't have a loss. We just have a small ForEx gain compared to last year.
Okay. Okay. And just -- if you can guide on the profitability as we are highlighting that we are on the path of profitability, will the 10% EBITDA margin, our deposition is equivalent to that amount. And then we have the finance cost. So where we are looking to gain that profitability? Is it from the revenue side? Or is it some cost control? What is that -- if you can give some highlight on that?
Double digit historically track on financials, our H2 tends to be higher than H1. And therefore, you will see a significant jump in H2 versus H1, both in terms of revenue and profitability. And the primary driver for improvement in margins is the scale at which the business operates thereafter in H2. So you will see higher revenues and therefore, the benefit of better fixed cost leverage leading to improvement in margins.
Okay. Okay. Great. And then what will be our capacity utilizing it today, if I look at the CDMO and anesthesia business?
Pramod, giving 1 capacity utilization figure across 17 different sites is still complex and probably not practical. But what we have done is we have invested in capacities where we have very high demand our API facilities in overseas, whether it's a high potent API or whether it's the antibody drug conjugates, where we are currently investing are the ones where we were short on capacity. Formulations, in general, we tend to have reasonably good capacity.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sorry to interrupt, your audio is not audible, may please request you to speak through the handset mode?
Is this better?
Yes, sir, you may please proceed.
Just on the -- within CDMO segment, I would like to understand how much is the API sales or API contribution?
Typically, the CDMO business, and I'm referring to a full year sale, our formulations and API is like 55%, 45%, 55% being API and 45% being formulation.
And does that change meaningfully on a quarterly basis?
Quarterly, it could vary depending upon the lumpiness in SKUs, but not very materially.
And given that on the CapEx side, largely more or less capacity expansion is done, and we need -- like as you highlighted in the opening remarks that the commercial benefit is to accrue. So the overall CapEx for which it would be for FY '24?
So are you referring to an annual CapEx currently, we can't make a forward-looking statement on the total CapEx, Tushar. Please bear with us because we are in the deal window period. But as we have said that we are making a judicious CapEx spend, investing on those which we have kind of planned in those areas where demand is high.
But generally speaking, depreciation at least maintenance CapEx, which is equivalent to depreciation, can that be taken as a broad indication?
No maintenance CapEx is normally lower and depreciation.
The next question is from the line of Ravi Singh from Nuvama.
Sir, 2, 3 things. We have been saying that first half is normally lower. So that I wanted to understand the [indiscernible] why first half is normally lower than the second half between CDMO. And secondly, not forward-looking, but earlier announced CapEx of USD 157 million. So that the CapEx has already been a part of which remains, that 2 things [indiscernible].
Sure, [indiscernible]. So firstly, if you look at -- and your question is on why the SKU is more towards there are actually a variety of factors for that, which includes the overall cycle time from the receipt of the order until the time it is delivered. It also depends upon the customer's own preference of starting the year and for them, the years typically start in January where they have more orders played out in January on the new budget versus reducing the inventories that they carry when they're in the December quarter. So it is a mix of various things. But typically, what happens is the longer cycle time that kind of -- by the time you get orders and by the time you execute and by the time you involve, it gets pushed over towards the second quarter -- the second half of the year.
Your second question was on the $157 million of CapEx that we announced. So while a part of that has already been done and some of them have gone live, some part of that is still under execution right now.
Okay. So that part would be spent in '24 or that will be further?
In '24.
Okay. So can you [indiscernible], number [indiscernible].
So in FY '23, we had a CapEx of about $118 million versus the total $157 million.
Okay. Fair. Yes, yes. And secondly, on [indiscernible] this into the [indiscernible]
[indiscernible], please repeat your question.
The hemo pharmaceutical, which we acquired last year. So whether that our revenue is currently a person of coming from hemo pharma sector?
So hemo pharmaceuticals is a smaller part of the total business. And the integration has been done and the yes, the current revenues do include a part of Hemo Pharmaceutical. But remember, it was also there part of the previous year as well. So the numbers are comparable to the extent of this acquisition and it is contributing. In fact, you may have also heard in the prior call that we did complete a major expansion to expand our capacity is about 40% to 50%, and that has also gone live currently.
Okay. So currently, at what capacity utilization it would be, just I wanted to understand that what the max potential we can expect from this entity?
As we said, we've just expanded the capacity by about 40% to 50%. So that's the capacity available currently.
Okay. Fine. Fine. And in CDMO, the order book, the last quarter itself, we said that we see uptick in order book. But can you give some indication of what size of order book, what kind of order book we have in hand to be executable this year or next year?
So [indiscernible], currently, we are in the deal window period, and we can't make specific disclosures on numbers, which are not part of the letter of offer, so please bear with us.
The next question is from the line of Vinod Jain from WF Advisors.
My question relates to interest cost. While there is sales growth and even some margin expansion, there has been almost -- this has been almost entirely ligated by increase in interest cost. There is no slide to explain this phenomena. But apparently, this must be resultant of high inventory in the [indiscernible]. Please convey what is the basis -- what is being done to [indiscernible] this phenomena [indiscernible]?
So Vinod, I think your question was on the increase in interest costs. Am I correct?
Right.
Yes. So as we explained earlier, the primary reason for increase in interest cost, an increase in our average borrowings and if you're comparing versus the June quarter, the average borrowings did increase and this was primarily to fund some of our CapEx requirements and some of the working capital requirements during the last fiscal year. There was also an increase in the average rate of interest. As you have been seeing, the RBI did increase rates over a period of time. And the effect of that also came into the P&L, leading to an overall increase in interest cost. Having said that, as you are aware, the primary purpose of our rights issue is to pay down the debt. And once the rights issue process is completed at the end of this month, these proceeds will be utilized towards reducing the debt. So that will be 1 of the factors which will help reduce the overall interest cost. And we also clarified that our overall investments in CapEx and OpEx is being aligned with the overall system performance, thereby helping to maintain a certain level of debt, which will help reduce the overall cost of interest.
Yes. The only thing is the interest costs have almost doubled. I mean would the expansion given would it justify the increase by almost double digit it? Or is there also an element of introducing debtors and [indiscernible]?
So while there is some increase in working capital, and that is primarily because of an increased inventory, which we are carrying for strategic reasons. The explanation given with respect to the overall movement in debt and interest rates does explain it. And post rights issue, you will start seeing from quarter 3 onwards reduction -- a meaningful reduction in the overall interest cost. Overall debtors have not increased. They've actually reduced or in terms of days are in line with what it has historically been.
The next question is from the line of Shubham Shukla from Voyager Capital.
I just wanted -- like I had 2 questions, 1 around the inventory provision we had created in quarter 3. So any update on those $4 million inventory from the biotech company which we are created?
So Shubham, the provision was not with respect to inventory, but it was with respect to a receivable from a biotech company, and the process is ongoing to try and recover the money as of date.
And do we still hold those inventory with us?
Yes.
Okay. And on second question on like mostly on the debt side, which is currently INR 4,700 crores like you said. And from -- like I can recall from our previous con calls, we wanted to break it down to like the level 2x to our debt to EBITDA. And I understand that we are under the process of INR 1,000 crores, INR 1,050 crores rights issue. So like any like guidance or like anything around this, like when do we -- when can we expect this 2x to EBITDA debt-to-EBITDA level?
Shubham, I don't recall us making a specific guidance of our debt levels being at 2x the EBITDA. But having said that, once the rights issue proceeds is done, you will see that the overall debt-to-EBITDA ratio will meaningfully improve. And as our overall fiscal performance improves over the period of the next couple of quarters and thereafter, this ratio will also start showing an improvement. But I can't make a specific guidance, please bear with us. As I said, we are in a deal in the period right now.
Okay. Okay. Just like on the percentage increase in additional average borrowing this quarter you to compared to previous quarter and year-on-year?
No. So our gross debt has actually reduced. It has actually reduced by about INR 195 crores during the quarter.
No. Like you said, like the interest cost has gone up like year-on-year basis, like it's doubled. And the reason is additional borrowings on the average borrowing needed for the working capital and other stuff.
Shubham are you comparing versus the June quarter?
Yes. Like on quarter-on-quarter and [indiscernible].
Yes. So it's gone up about 200 basis points versus the June quarter and about 90 basis points versus the March quarter. This is at a time when the interest rates have started peaking. But as you're aware, in many of the geographies, there has been some stability. But of course, you have to wait and see how this pans out.
No, no, my question is towards the average, like you said that you have taken newly average borrowing like this quarter. The reason for interest cost up is like you have taken more additional like average borrowings and there's an increase in interest costs like interest rates. So like I'm trying to understand the percentage increase in the average borrowing this quarter.
So the average increase in our borrowings versus the June quarter is about INR 1,300 crores higher versus March quarter, there is no increase in borrowing.
The next question is from the line of Kunal Khudania from GSP Asset Managers.
This is Vivek Ramakrishnan. Just 1 clarification on the interest cost. Is there a component of foreign currency debt, which is where the rates have gone up even more deeply that is hurting you? And if you could give us a breakup of foreign currency was this INR debt, that would be useful. That's it from our side.
So Vivek, about 60% of our debt actually resides outside of India, and that's foreign currency but managed locally, paid locally. And yes, we have seen an increase. So the increase that I referred to also pertains to increase in the overall rate in the foreign currency that is [indiscernible].
The next question is from the line of [indiscernible] from Dimensional Securities.
My question pertains to our gross block in FY '23, we have gross block of nearly INR 9,500 crores against which we did revenue of around INR 7,000-odd crores. So just want to understand excluding the additional capacity, the expansion which we are taking -- which we are going to do going forward, excluding that, what is the revenue potential from the existing gross block because at points 8.5x. I believe our asset turnover are extremely low. So just wanted water existing capacity, what is the kind of revenue which we can do?
So just to clarify, firstly, [indiscernible], I think the overall gross block, as you are aware, comprises of both the tangible assets as well as intangible assets. The intangible assets includes 2 components. One is the component of the total brand that we acquired. And of course, these get amortized over a predefined life, and it also includes the component of goodwill. If you have to break up our total gross block, half of it comes from tangible and half of it comes from intangible assets. So that total breakup. So you need to kind of look at the total fixed assets when you actually look at the intangible assets, primary brands pertaining to the complex hospital generics and the consumer products business.
On the overall, in terms of what the future revenue from -- these are the tool will be again, will become a forward-looking statements that would avoid going in that direction. But I think this should help probably respond to your question.
Okay. And what is the policy regarding amortization of the intangible assets currently?
So it depends upon the brand, each of the brands is assess for its useful life, and it could vary from maybe 10 years, 20 years, 5 years, depending upon what the total estimated useful life of that particular brand.
Okay. And 1 thing I'm worried about is [indiscernible] as you mentioned that some of the half of the SSNR assets on our book are intangible assets. But at the end of the [indiscernible] we have paid out of our bank, whether we have acquired a business or a brand. So with all these asset sitting on our balance sheet, and given that we are operating at points in point of turnover, what can be the journey towards higher ROE? Because these numbers at the end of the day will continue to pull your ROE downwards. I just wanted to get an idea on that.
So let me just first explain this principally to you and then thereafter, of course, clarify the question. So essentially, if you look at it and look at what we have done in the last couple of years, once we acquire a lot of brands. And second, we did a lot of CapEx, brands primarily in the products business and CapEx in the CDMO space, post which there was this impact of COVID because of which our overall business did take an impact. And we were not able to realize revenues to the full potential. As we move ahead, we will be sweating these assets and brands more, which will help improve the overall ratios. So the denominator as it stands today is on a higher side, which has not necessarily seen the full potential of revenues that comes from these assets. which is why you'll have to kind of look at this over a period of time to see the overall improvement in the asset turnover ratio.
Okay. So without building into numbers, I would believe that on the existing base of revenue, we can still do higher revenues compared to what we have done [indiscernible] now?
[Operator Instructions] The next question is from the line of Aditya [indiscernible], and individual investor.
Am I audible?
Yes.
Yes. My question is regarding the CSG business. In this -- from the [indiscernible], last year, we did around INR 1,000 crores. That means, basically, we're adding 50% of CSG business from this 1 particular product. So I want to understand what is the market size there? And can we grow rapidly here? That's my first question.
So sevoflurane if you look at the overall market size of Indonesian, anesthesia as per IPR data, the global size is about $1 billion of which sevoflurane is about 80%. So if you ask us, $800 million is a global market size of sevoflurane. And in terms of trend, sevoflurane is growing faster than the other Indonesia anesthesia product, okay? So this is what we can say on the market side of sevoflurane. Currently, in terms of demand, which you have seen for sevoflurane, I can say at least we are seeing demand much higher than what we can supply. So as we said in our call and our presentation as well, our focus is to expand our capacity so that we can meet the growing demand.
Okay. Okay. And coming to our CDMO Innovator business, when we say we have the order book of $62 million, so that is executable for 1 year or for 2 years, how is this order be structured?
So order book typically can be -- some of it is activated within the year. [indiscernible] also spill over to the years ahead.
But the $62 million is integrated orders. So these are orders that will cover more than 1 site. Total order book is much larger. But given when the deal window, we can't actually disclose the size.
Okay. Okay. Makes sense. And is our CSG -- consumer product business, it is EBITDA positive or still we are running net to net debt?
No, it's EBITDA positive.
Okay. It's EBITDA positive. Okay. And the last question on the scientist part I have, like when we are running a discovery or development business, what is the number of scientists we have there?
I think we are about 650 scientists across.
So my question is, if we want to scale this business -- so if we see the large players, right, in the CRO discovery business, they have lots like thousands or 3,000 plus scientists, right? So when we want to scale this business, employees are strength here. So how are we planning to build here? Because if you want to enter the value chain, like go more share of innovative business. And how are we looking there? Because with 600, scientist I think it is a quite less number when you compare with the bigger [indiscernible].
So I would answer this question in that the largest part of our growth in the inhibitor business will be in the clinical development and on patent commercial segment, which should be slightly later than you would say in the CRO FTE model, which is in the Discovery segment. And in that model, it's much more about being able to help our clients with the tech transfer, scale-up and eventual registration validation and commercialization of their molecules. So in that business, it's a little bit of a different business model then the CRO business model that you described, which we also participate in. But from a materiality standpoint, most of our revenue profitability and growth is coming from the on-patent development and commercial support and less from the CRO discovery, which is FTE-based as you described. We see more barriers to entry and more defendable elements in this business because switching costs, we think, are higher.
Okay. Okay. And coming to the generic pharma, we do a CDM or generic pharma. What are things -- because generally, there is always a pricing pressure here, right? And you said in the commentary that you are seeing good traction and good pickup in the CDMO space, and you have a larger chunk in the generic side. So what is -- can you give some light what is happening here, like in the demand side? Or how it is picking up? And how do you see that this year gone by?
So first, as an overall trend, I think we've shared in our investor materials that we've been doing a long-term pivot and increase in mix innovator business, which I just described in the answer to your earlier question. So we do see that becoming an increasing share of our business going forward. That being said, we do still see meaningful potential out of our API generics business. And over the last year, we did a lot of work to build additional customers into our portfolio and knowing how that works, if you want to onboard a new customer with an existing API, they do have to take validation batches, they have to update their filings. And so the uptick we're seeing this year is largely due to the work done in the prior year in terms of onboarding new customers that's now materializing into some amount of incremental volumes. And we think that, that is the primary driver behind the increases the efforts are done on new customer acquisition from the existing portfolio in the past, let's say, 12 to 18 months.
The next question is from the line of Nirali Shah from Ashika Group.
My 1 question is that in terms of CDMO business. Can you please throw some light on the late-phase molecules in the [indiscernible] time line on commercialization? If I can recall, you had 34 molecules in Phase II earlier. So can you give us some update on that?
I think we have 35-plus molecules now in Phase III. I think those will commercialize over the next 2 to 3 years.
Okay. Okay. So is there any commercialization that we see in this year?
It's hard to make forward-looking comments. I think to whatever extent our clients have put information into the public domain, you can locate that through what they've communicated is difficult in the deal period and also with our confidentiality agreement to disclose it ourselves. So you can find a couple on the net, but we're not really in the position to share.
The next question is from the line of Bharat Gupta from Fair Value Capital.
I have just 1 question with respect to the CDMO business. So like in the last previous calls, we have seen that there has been some sort of a delay with respect to the funding, which was there from the institutions out there. So has there been any structural change because frankly speaking, the interest rates are on higher side and there are liquidity issues out there. Despite it, we are seeing a good amount of order inflows, which are coming in place. So has there been any kind of a turnaround, which we have observed out there in the developed markets, which are leading out to good amount [indiscernible]?
So I would say that the order inflow increase that we saw from our clients in the fourth quarter that ended last year and the first quarter just ended now, a large amount of that has been with customers that had already committed to work with us at our sites. And while they had delayed certain instances of ordering due to financial limitations, ultimately, their products were proceeding and they did have the money and they did then place the orders. And so that lag effect affected us, unfortunately, through much of last year. But at some point, when these products are succeeding in the clinic and in the marketplace, they do have to make their orders, and they reach those points. And a lot of that growth was in that area. I'd say that the second point is we are seeing continuation of new customer additions, but at a modest pace, not at a dramatic pace, and that is continuing to happen and we're seeing that. But I think all customers are being careful and prioritization of what they spend and where. And so I think we are seeing the benefits of a lot of our work to stay close to our key customers and make sure we're focusing on key customers that have good data and good financing and that started to play out in Q4 and Q1.
Just a question further on the Indian [indiscernible] business. So like previously, we have been able to maintain like equities promotional spending and ratio of near about 18% to 20% of sales. So are we keeping on track like we are maintaining it or we are focusing more on the profitability side?
I think we're doing both. We're trying -- and as the scale grows, the percentage of advertising in a way almost falls, right? And that kind of goes into EBITDA. That's how we are managing to have EBITDA positive, and I think that's what we want to continue doing.
The next question is from the line of Dara Patwa from Smith Limited.
I just had 1 question. Like Pfizer's plant in U.S. is hit by tornado and there were a lot of restocking for the hospitals injectables. So are we gaining anything on that trend since we also have a hospital injectable bucket in our portfolio?
So we've been -- obviously, it's a tragedy that affected that plants in that location, and we're very heartened to hear that no one was hurt. And we have actually been in touch with the different market participants, and at least it's our understanding that while the warehouse was hit, there's not viewed to be a major shortage in the market in general. And the number of products that would be solely sourced there was considered a few we have a limited portfolio that would overlap with that. And to the extent that were to materialize, we are poised to take advantage. But based on whatever we can tell from the FDA shortage interactions for the marketplace, we're not seeing for the products that we can provide a dramatic change there.
The next question is from the line of Harsh Bhatia from Bandhan Mutual Fund.
Yes. I'm audible.
Yes. Harsh, go ahead.
Just 2 or 3 quick clarifications. In terms of the foreign debt aspect, you're saying 60% to 70% of that is outside of India, but get -- so this within India, that's what I caught in the earlier comments, is it the case that you are servicing the debt in INR? So basically, the INR depreciation per the rate hikes is sort of a double-edged sword for the company as a whole? I'm just trying to like have clear thoughts away.
So Harsh the debt is based outside India and it's serviced from outside India. It is not serviced from India is serviced locally from the geographies where the debt was taken.
Okay. Sure, that makes sense. As a broader thought process is we want to think about the antibody truck conjugate market as a whole. So whatever our internal thinking is thought processes and whatever we are getting the feedback, is that the number of players or the supply capacities are very limited in the Western markets as of now. I think Piramal, WuXi, Lonza, these are the very handful of players in the ADC market as of today. But the demand sort of continues to outgrow the supply. So what is the thought process in that market? How are we seeing the overall environment for the ADC market?
Yes. I think our understanding also reflects this, as you said. That's why we're actually putting in a big expansion into our benchmark facility, which will open in second half.
Sure. And can you throw some light on the CHG product that we have launched during the quarter? I mean I'm not asking on the pipeline per se, but the new product just -- you have just launched in the first quarter in the CHG business?
It's a modest contributor to revenue. We mentioned it because we want to indicate when our pipeline moves and it is modest contributor to revenue in the region, and it's progressing. But I would say the majority of the revenue growth is coming from inhalation in the period that we just reported. We continue to have other elements in our pipeline, which are progressing and we expect them to contribute in the future quarters. We can't give forward-looking comments for all the reasons we mentioned earlier. But it's on the period that just ended, while the launch was nice. It was near the end of the quarter, and it was a market size is smaller compared to inhalation. But it tends to be under the emulation portfolio as a whole. It has been ejectable pharmaceutical, so in the [indiscernible].
The next question is from the line of Vivek Gupta, an individual investor.
There are a couple of questions from my side. I've seen that management is a bit aggressive to grow the top line, but there is no focus on growing the bottom line. That's the first question. And you also see that management is saying that they'll pay down debt post this rights issue subscribed. But this is just near 25%, less than 25% of the outstanding debt. So what are the plans to be debt free? And what are the plans to pay down debt for the remaining amount? To see the bottom line, I think being an investor, I'm not at all happy with the kind of performance companies been posting. So that is another question I want -- I [indiscernible] to. Please go ahead.
So Vivek, firstly point with respect to the growth focus on top line and versus bottom line, I think our intent is very clear that we want to grow top line as well as grow bottom line as we have always maintained. If you look at the performance of this quarter and if you look at the real intrinsic performance on a comparable basis, our bottom line has improved and our operating margins have also improved. The overall debt position, as we have stated, will reduce in the first instance by rights issue. But thereafter, our focus will be to kind of reduce the debt as we keep improving our overall financial performance. It's also important to acknowledge that the overall debt did go up during the period when we were doing certain investments for meeting our objectives of expanding capacities and capabilities in those areas where there was demand. Unfortunately, at that point in time, the business did also see an operating performance impact due to the pandemic and the overall geopolitical conflict that arose thereafter. But having said that, we continued our investments because we believe that there was an opportunity and we did not want to miss the bus when the opportunity came in. And that's the reason the overall debt was at a higher level. Now we are paying down the debt in the first industry and as performance improves, you will see that our overall debt-to-EBITDA ratio will be within permissible or acceptable limits.
So what are the target -- what is the target management has set for themselves to be [indiscernible]?. There should be some target, right?
As Vivek -- as we said, please bear with us, currently, we can't make that disclosure, which is forward-looking and not part of the letter of offer.
Okay. The next question is, I see that it's just less than 1 year with the demerger from payable enterprises. I see management has come up with the rights issue in the first year of the listing itself. So why didn't the management [indiscernible] route of preferential issue and we are just keep on beating the equity?
The overall decision with respect to the entire method or the tool to be adopted for raising was discussed and deliberated at the board. And we felt that the most judicious way to do this, considering the overall time, the turnaround and the fact that we could allow a fair participation to all shareholders we thought right issue was the best way to go forward.
So why not the potential route? Sorry, I didn't get that part.
So from an overall timeline standpoint, it wouldn't have matched with what our overall requirements there. So this was the best suited in terms of time lines.
Okay, politely disagree with that. Anyhow, the next question is, I see that there are a lot of other expenses which are being rising on a quarter-to-quarter basis. So I see there are marketing costs, which are being mentioned, and there's a big umbrella, which you have quoted down in the balance sheet and the results stating that these are other expenses. So why count, and being an investor, when I read the results, why can't I get a segregation of the extra expenses which you are saying? And why we have been so frugal in the marketing if we are not doing the bottoming at all? Why can't we reduce our expenses there?
So if you're referring to the overall promotion and marketing expenses, then as we have stated that we have been doing a significant spend in the media for our consumer products business. We've in fact been doing aggressive spend there so that we could boost top line, the result of which has been seen over the last couple of years. With respect to your details, I mean, request for breakup of information, if you're referring to the March '23 annual report, then all the details with respect to other expenses and breakup is available in the schedules there. But if you have any specific questions, please feel free to reach out to Gagan and we'll be happy to respond to that.
Actually, I have tried reaching out to Piramal a lot of times, but eventually, there is no communication which has been done. So let me try it again. But being an investor, I think there is nothing which the management is doing as of now for the investors, the right issue ratio as well as the pricing is something which is not in favor. And I would request management to seriously think about doing the bottom line instead of top line. And we set up such aim that when they are planning to be debt free. Because I think from a quarter-to-quarter basis, we'll be getting on to con calls, and we will be stating that H1 is bad and H2 is good, but eventually the same story will unfold for coming quarters as well. So that's it from my side.
We take the next question from the line of Anil Kumar, an individual investor.
Can you hear me?
Yes.
Ma'am, I just wanted to say thank you, and we are going -- we are seeing high improvement quarter-on-quarter basis, and this will prevail going ahead. And most of my questions are answered. Maybe my question at [indiscernible] I think you have answered that in detail about the debt part and hopefully, we will become -- we will reach the comfortable levels in the debt level going forward. But apart from that, I just wanted to say all of the best.
Thank you very much.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.
Thank you, everyone. We hope that we are able to answer most of your questions. In case you have any follow-up questions or any clarification that you would need, please feel free reach out to me, and I will be happy to respond. Thank you once again, and have a good day and weekend here.
Thank you. On behalf of Piramal Pharma Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.