Piramal Pharma Ltd
NSE:PPLPHARMA
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Ladies and gentlemen, good day and welcome to Piramal Pharma Limited Q4 and FY '24 Earning Conference Call.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Gagan Borana from Piramal Pharma Limited. Thank you.
And over to you, sir.
Thank you, Rea. Good morning, everyone. I welcome you all to our post-results earnings conference call to discuss our Q4 and full year FY '24 results.
Our results material have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks our business faces.
On today's call, 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.
With that, I would like to hand it over to Ms. Nandini Piramal to share her thoughts.
Good day, everyone, and thank you for joining us today for a Post-results Earning Call.
FY '24 has been a strong year for the company with an all-round improvement across multiple financial and operational parameters.
What makes it even better is that this performance has come amidst a challenging macro environment marked by high interest rates, a biotech funding challenge, geopolitical tensions leading to supply chain disturbances and slower consumer demand in Google India.
Starting first with the performance for the quarter. Quarter 4 has historically been the strongest quarter for the company with significantly higher revenues and EBITDA margin compared to the first 3 quarters of the financial year. This year as well in quarter 4 FY '24, we recorded a strong revenue growth of 18% with our CDMO business leading the way with a 29% growth and our India Consumer Healthcare business delivering a 14% growth.
We also showed a marked improvement in profitability with the EBITDA margin increasing to 22% compared to 17% in quarter 4 last year. Our net profit after tax before exceptional items was INR 132 crores compared to INR 50 crores in quarter 4 FY '23, implying a growth of over 160%.
During the quarter, we also had U.S. FDA inspections at our Riverview and Lexington facilities in the U.S., of which we have already received an EIR for Riverview, while the observations at Lexington have been classified as the OAI. So all in all, a strong quarter.
Moving to our full year performance. We delivered a mid-teen growth in FY '24 with an EBITDA margin expansion of over 400 basis points. Our EBITDA grew by 61% over the last year and we delivered a net profit after tax before exceptional items of INR 81 crores versus a net loss of INR 180 crores in FY '23.
Our initiatives in the areas of cost optimization and operational excellence are showing results and would continue in FY '25 as well. During the year, we incurred a CapEx of 87 million including a maintenance CapEx of about 25 million. The leverage on our balance sheet also improved from 5.6x net debt over EBITDA -- at the start of the financial year to below 3x at 2.9x EBITDA at the end of FY '24.
We would keep up the momentum to further improve business going forward. Our focus on optimizing net working capital also delivered good results as our net working capital days improved by 14 days in FY '24. On quality and compliance, we successfully maintained our best-in-class track record of 0 OEI. This year as well, we successfully cleared 36 regulatory inspections and over 170 customer audits ensuring compliance with the evolving GMP norms.
On the sustainability front, we have taken targets to reduce our Scope 1, Scope 2 and Scope 3 greenhouse gas emissions in accordance with the 1.5-degree trajectory suggested by SBTI. Our targets have been verified by the SBTI, as we clear the initial screening.
There are very few companies in India that have the GHT emissions target verified by SBTI organization, and we're also working diligently to minimize our resource consumption conserved by diversity, provide a safe workplace for all employees deliver quality products and services and promote diversity and inclusion in our workforce.
We want to enhance the quality of life of the communities around us. The percentage of women in our global workforce has increased over the last year from 15% to 17%. Moving on to business-specific highlights. Starting with the CDMO business. Our CDMO business posted a strong recovery in FY '24 with a full year revenue growth of 19% and quarter 4 revenue growth of 29%.
Throughout the year, we saw good inflow new orders, especially for commercial manufacturing of on-patent molecules. As a result, our CDMO revenue from the commercial manufacturing on-patent molecules more than doubled $116 million during the year compared to $52 million in FY '23. We also witnessed an increase in innovation-related work, which now contributes 50% of our CDMO revenue compared to 35% in FY '19 and 45% in FY '23.
Over the past 5 years, our innovation-related work has grown about 20% CAGR, much higher than the growth in our overall CDMO business. Demand for our differentiated offerings also remained healthy during the year with its share of CDMO revenues increasing from 37% in FY '23 to 44% in FY '24.
Our recent capacity expansions in the area of ADCs, HPAPI and peptides are seeing good customer interest and puts us in a good state of readiness to capture the future demand while the biotech funding cycle normalizes and customers look to diversify their supply chain to mitigate risk imminent from geopolitical disturbances and regulatory uncertainties.
Our integrated servicing our service offerings to end-to-end services and geographically distributed manufacturing and development facilities are seeing good traction with over 40% of the orders received during the year being integrated projects. During the year, we also received our first integrated antibody growth conjugate, ADP order involved in monoclonal antibodies. This order involves 3 sites,, which have strategic investments, conjugation in Lexington for fill/finish. Given the strong growth in the CDMO business, we saw improvement in the profitability of this business, driven mainly by operating leverage and cost optimization initiatives.
In terms of regulatory compliance over the last 18 months, 5 of our senior most facilities Digwal India, Pithampur India, Riverview U.S., Sellersville U.S., Lexington U.S. contributing over half our CDMO revenues in FY '24, successfully completed the U.S. FDA inspections with 0 observations and received an EIR OAI status. In terms of key challenges for CDMO business by tract-funding environment impacting early-stage orders in Discovery and Development is yet to return to full normalcy.
Also, the clinical and regulatory attrition of our customers' pipeline is a material challenge in the CDMO business. Complex hospital generics. We're seeing good volume growth in our inhalation anesthesia portfolio in the U.S. market, matched by our ability to service this demand. However, this is partly being offset by lower market prices due to increased competition.
We continue to maintain our leading position in the U.S. flowing market with a significant market share gain in the last 3 years. in the non-U.S. markets, such as U.K., France, India, Vietnam, et cetera, we're seeing increased traction for our innovation anesthesia products. Also to further tap the growing demand for our innovation anesthesia products in the rest of the world markets, we are setting up new manufacturing lines for Sellersville in our India facility at which will supplement flooring manufacturing at our facility.
We are also looking to integrate vertical integration by expanding our care and manufacturing facility at site. We expect these expansions to come online by the start of next fiscal year. In the intrathecal segment, we continue to command the leading market share in the U.S. Our brand, baclofen, continues to be the #1 ranking baclofen prefile syringe and biobrand in the U.S. In the other injectable segment, we launched 4 new products in the U.S. and European markets during the year.
We are also building a pipeline of 24 injectable products, which are in different stages of development with an addressable market of about $2 billion. During the year, the profitability in the CHG business also improved, mainly led by cost optimization initiatives, yield improvement and better product and market mix.
In terms of key challenges of the business, price erosion and lower realization due to increased competition, third-party development and supply chain risk and adverse currency movements are the key risks. Moving to our India Consumer Healthcare business. During the quarter and the full year, our ICH business delivered a steady double-digit growth revenue driven by new product launches and growth in our power brands. We also witnessed improvement in our profitability as planned in account of operational leverage and enhanced scale.
We continue to invest in medium trade spend to grow our power plant, promotional spend during the year was at 13% of our ICH revenues compared to 15% in FY '23. Our power brands grew 13% year-on-year during the year and combined 42% of total Consumer Healthcare sales. Our key brands such as Littles/Lacto Calamine Polycrol grew at a healthy double-digit growth in FY '24. However, growth in Tetmosol always impacted due to unseasonal rains and neurotic weather patterns last summer.
Over the last 3 years, we have launched 115 plus new products and SKUs in the market with a reasonable success rate. During FY '24, we also launched 24 new products and 27 new SKUs. New products launched in the last 24 months contributed about 11% of our consumer products business sales. Our sales and e-commerce are showing good growth, complementing our presence in the general trade. E-commerce sales account for about 20% of our consumer products revenue during the year, and we have a presence in more than 20 e-commerce platforms.
Coming to the outlook for FY '25. For FY '25, we expect a year-on-year growth in revenue and absolute EBITDA to be in the early teens with a meaningful improvement in PAT. We expect our growth momentum in our CDMO business to continue in FY '25 and in consumer products to deliver a better EBITDA margin. However, in the CHG business, we would be incurring some nonrecurring spends in FY '25 and on regulatory product transitions and business continuity to ensure greater stability of supplies in the future.
Also, as we prepare to commercialize our additional inhalation anesthesia capabilities in FY '26 to tap opportunities in other markets, we will expect some great cost in terms of additional manpower, regulatory filings and other expenses in the FY '25 with commensurate revenue coming in FY '26.
These expenses are necessary to secure the medium-term growth of the business. Our CapEx for FY '25 would be a similar level in FY '24, but we expect to further optimize our net debt-to-EBITDA ratio from the current level. With this, I'd like to open the floor for Q&A. Thank you.
[Operator Instructions] First question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Yes, am I audible?
Yes, sir. yes.
Ma'am, first of all, congrats on a good set of numbers at the operational level. Just on the CDMO side, there has been a good scale up this year and even for that matter in 4Q FY '24 with 18% growth, considering the order book, considering the biotech funding, for example, like how do you see this growth momentum for '25, '26 5 years given early deals growth, does it mean that you'll have a much better growth in CDMO, but that would be partly offset by certain issues in CHG segment?
I would say we are -- overall, we are committing to an early teens growth across the businesses. And you could say, yes, the CDMO growth will be better than the CHG growth.
And if you could further elaborate in terms of whether it's you'll have more number of molecules getting into the commercial side, the Phase III trial, further getting into commercial side. Is that is what is driving growth or it's more number of projects across clinical trials, that would drive?
so we've seen an increase in our on-patent commercial revenues over the last year. If you see, we've -- innovation on patent-related work is about 50%, a little more than 50% of our overall CDMO revenues. And that is something that we would expect to grow going forward.
And once the biotech funding improves, I think we should see more growth coming back, but it's too early to say yet for that.
Got it. And just lastly, on the profitability front, while we ended almost 20% EBITDA margin, if I exclude the other income, given that we have certain expenses coming up in FY '25. So would we be able to maintain this profitability or we'll be able to do better than this?
So Tushar, as Nandini alluded to, the absolute EBITDA growth will be the early teens as we maintained. The scale is margin expansion for the CDMO and the consumer products business will also be on track. It's in a complex hospital generics where we are doing some investments at this point in time, which are necessary for sustainable deliveries in the future. So yes, absolute value of EBITDA is year growth.
Next question is from the line of Abdulkader Puranwala from ICICI Securities.
Congratulations on the good set of numbers. One, just first question on this CDMO business on the innovation side again. So I understand about your early teen guidance, but if you could throw some highlight as to how the order book is looking for next year? And is that visibility improving as compared to where a year or 2 years ago? So that would be the helpful.
So I think that we would say that our visibility is higher this year than last year on a like-to-like basis for our CDMO business. And in particular, as Nandini mentioned, we are quite pleased with the on-patent commercial revenue outlook as well as some of our more later-stage development areas.
I think the area of uncertainty that remains in our order book is going to be the degree to which the biotic funding picks up and its ability to support some of our discovery and early development projects for clients. But overall, our visibility is I'd say, modestly stronger than it was at the same point in time last year, driven by the factors just mentioned.
Understood. And just a couple of questions on the quarterly numbers. So this quarter, particularly the gross margins were a little weaker as compared to where we were in the earlier quarters, despite the CDMO business doing that well. So can you throw some light to help us understand how the gross margins we should build up for the coming years?
Abdul, a real representative of the gross margin is the annual number. Now because we have a business that tends to get lumpy, but slightly higher sales in H2 versus H1 and more specifically in quarter 4. What happens is we do tend to have inventories during the initial quarter which means you have a credit of overhead sitting in the P&L in the first 3 quarters. And eventually, when that gets sold off, you will see the unwinding of that happening. So it's only a timing gap. The annual gross margin is the more representative of the gross margin for the business and the company.
Sure, sir. And just last two questions from my end. So I mean, the tax rate again for this quarter was higher. So what should we kind of build up for coming 2 years? Or would we be linear the quarter tax rate or is expected to stay a little higher?
So the tax rate is largely driven by the mix given the presence that we have presence in multiple jurisdictions and the tax shield will vary in each of those. I would say, close to about 50% is what we would look at as a tax rate for the following year.
Sure, sir. And sir, in the opening remarks, ma'am also did mention about that net debt to EBITDA or net debt to equity coming down in the next year. So in terms of the debt repayment, what is the target net debt to EBITDA or net debt to equity, we are targeting for the next year in FY '25?
Abdul, like we said, we reached the first milestone of bringing it down to less than 3, and we'll continue to work to optimize this in the coming year. We're not giving out a specific number, but the work will be to optimize this further.
Next question is from the line of Yasser Lakdawala from M3.
Congratulations to Nandini, Peter and the team on a good performance. We've launched to or about 150 new products, new SKUs in the consumer health business over the last 3 years. So what is the mix of these new launches, say, under our brands versus the rest of our portfolio?
Most of them would be under the power brands.
Okay. And just to sort of understand this better, how do you measure the success of these new launches in terms of like sales targets, field force productivity, incremental promotional spends, margin, inventory, should give us some...
So the way we actually look at new products is we tend to launch them on the e-commerce because you get a faster response and you can understand consumer feedback much better. If there in a x period of time, they would reach maybe 1 or 2 in the Amazon or other ranking. That's when we would consider it a success.
The other metrics that we would look at is how much promotion spend do they need? And if you do taper it off, how much actually consumer demand you get. So we actually do kill products that don't meet the profitability target. And those products that do succeed, we would then launch in GT and general trade and expand them.
So for example, Lacto Calamine sunscreen did really well online, and then we actually took it to general trade and launched it there. So just an example.
Peter, on the CDMO business, we've done very well with the sort of innovative offerings. So what are the new sort of capabilities we need to add over the next 3 to 5 years to sort of grab a larger piece of the innovation landscape especially in biopharma? And how does our current set of capabilities fit into that discussion?
We're actually well positioned, we think, with our current set of capabilities. We've acquired over time what we think are the minimum required pieces in this puzzle. And also, we've started to develop a track record of using them in this manner, and we've also enhanced our scientific team. And so I think actually, at this point in time, it's about executing with the network we have and using that in a way to capture the innovative opportunity.
And so I think that we're going to continue to see the momentum that we've shown on the lagging indicator of percent revenue as we look ahead. And I think the additional capabilities would be more modest or incremental or brownfield in nature that as opposed to fully inorganic.
Okay. And just the fact that the entire innovation piece has done very well this year. Just a quick question on the remaining half of our business, like how is the generic business staying in terms of capacity utilization and gross margins? And what are the steps we've taken to enhance our competitiveness here because it's still a substantial piece of business?
So I'd say, first of all, the places where we have the generic business, the capacity and the capabilities are largely fungible with the on-patent business. And so we ultimately will use those reactors or those capabilities in those places wherever we're going to get the highest return. And we don't have a requirement to have any certain offerings. That being said, it is still a meaningful part of our business and we've made significant efforts in making sure that we align what we're doing in those to be growth oriented and a profitable growth orientation. So we've had made certain leadership changes over the last year in certain team members.
And we've also looked at our portfolio and made certain new efforts to add, let's say, DMFs or or is in different places where we can support that. So I'd say, overall, it is continuing to get our focus. Obviously, cost optimization efforts play a greater role in that area, and that has been an important part of it.
And people play a role and also portfolio of choices. So we are continuing to focus on it. Our only point is that if we have a choice and we can get the higher margin innovative work we are going to make those choices where they present themselves.
Absolutely makes complete sense. Just the last question on the complex hospital generics, more than 2/3 of our business is the anesthetic products. And I mean, almost 90% is including pain management. So we've identified these new complex injectables, what is our right to win? And in terms of time frame, in terms of management bandwidth and effort that will be required to sort of scale this up through a meaningful piece of our business. If you could highlight some of the efforts you've put in there? And how do you see this piece sort of scaling up?
So this is an area where we've historically not performed up to all of our expectations in an area where we think there's a significant opportunity when we can demonstrate on a lagging basis success in that area. So we've made meaningful people changes at the organization level where people that we think have the capability and the track record in driving what we would call the other pharmaceutical segment, which is what you're describing. And our right to win is largely based on our command over the channel in that many of the conversations you need to have with the buyers or the influencers in the buying decision are common across what we currently have as a strength and the areas where we'd like to succeed with the other pharmaceuticals.
So overall, we think that not many people would have an anchor product in the innovation area, which is a substantial product in terms of revenue and an excuse to be in the buyer in a way that many of the others would not see you in the same place because obviously, as I'm sure you know, the innovation products, R&D operating leaders and that you require a more in-depth interaction with the buyer segment.
So overall, this is a big strength, and that's our right to win. And we think that with some of our people changes and some of our strategy changes that we're going to have a better performance in the coming years. Now as I'm sure you know in the CHG segment, in this category, this is not a 3-month turnaround in terms of actions to reactions. This may take a bit on the longer side, but we think we put in a lot of the right pieces.
Next question is from the line of Bharat Seth from Quest Investment.
Congratulation team. And I have a specific question for CDMO.
Sir, we're not able to hear you clearly.
Am I now audible?
Yes, sir.
it's better. Thank you.
Okay. So on CDMO business, we have a large part, which is a discovery and development, some time, many times. And that can give a kind of a because of external environment, I mean, kind of a rough page on annualized basis, I'm talking. So how do we -- our strategy is over the next 3 to 5 years to make all these pioece in such a way that we don't get such kind of, I mean because of external work in our business?
I think we have to be mindful of the external market because discovery and development is where the on-patent business comes in. So if you get the discovery and development, especially at Phase II, Phase III, then you have the chance to get better margin and better revenues at commercial. So I think that is -- if we want to switch to the higher on-patent commercial margin business, that's where we want to start, and that's why customers come in.
The key will be for us as we look forward is how do you balance between discovery and development and commercial business and to continue to grow all of those.
Okay. And now coming to one specific on the -- you stated about the ADC. So in ADCs, which are, I mean, do your end-to-end capability or are we missing there are I understand 3 part of the full process. So where do we are currently? And how do we want to tell some white space to cover up that and bring the full ADC business?
Okay. Our strength in the ADC was usually in the conjugation in our Grangemouth facility. And so we've been one of the strengths of our ADCs was a conjugation, and we've had a lot of work in that for the last 15 years. And we've just actually put in money to expand that facility to take it to even bigger commercial volumes.
About 3 years ago, we invested a 33% stake in Japan Biopharmaceuticals, which gives us the ability to make maps to the monoclonal antibodies. And eventually, we can also do the fill-finish in our Lexington facility. So this is a newer offering of ours. Probably in the last year, we've got our first project, and that's with the strategy going forward that we would look for and sell more integrated projects.
Okay. And last, one more question on the peptide.You had acquired. So can you give some color where we are at this stage and how much success are we seeing going ahead in the business?
So I think the -- as I think we mentioned in earlier calls, the historical strength of this business was in its generic offering and this is an area which in generic you'd want to be in because it's more forward-looking and has better margins and growth profile. So that portion of the business has continued to remain strong for us and the area that we are expecting to grow, and we've had some success, but we expect future success to be greater, would be in the services area where we can do on-patent work for clients. And so I'd say at this stage the generic portion has done well and is growing and is profitable in achieving good financial results. And the services one is still in the earlier stages and we anticipate that, that should be in the future years a more meaningful growth contributor.
Okay. And last question for CFO.
Could you please return to the question for a follow-up question. Next question is from the line of Harsh Bhatia from Bandhan AMC.
Am I audible?
Yes, you are.
Just two quick questions. One is in terms of the -- so this time around the presentation, you have given the big pharma proportion for the CDMO sales I think if I'm not wrong, this is first time maybe that we have given out the segmental data. Could you help us understand what was the share in FY '23 roughly?
It is in last year's presentation, but it was about 1/3, 1/3 and 1/3 last year. What has happened is for the emerging biopharma is some of them have become big pharma because they were bought over the last year. And others, I mean, as we said, the biotech funding route can be seen. So we actually made a conscious pivot probably 18 months ago to focus a lot more on big pharma, and we can see some of the results now.
So there is some level of reclassification as you can tell.
Yes. So Harsh, generally, we gave the segmentation on an annual basis. So if you check, Q4 of FY '23 presentation, you'll see the number for FY '23, okay? So that's one part. So the reason for increase in big pharma, two, one is we have kind of put more efforts on BigPharma. -- some of that has got converted and secondly, some of the emerging pharma last year have been bought by big pharma. So they have been reclassified as big pharma now. So it's a mix of both.
Okay. And just to get a little bit more color on the CDMO both in the last 12 months. So INR 4,000 crores business going to almost INR 4,500 crores and INR 4,8000 crores. I think so a large part of that has to do with the incremental business from on-patent commercial manufacturing. Now that has to do a bit of both, right, new molecules as well as more revenue per molecule in the base business. How would you classify that to be the case for FY '25? Would we expect a similar profile in terms of growth, where a large part of the growth will continue to come in from the on-patent business? And so I'm just trying to understand the FY '25 growth profile for the CDMO business that we are taking in.
So if you look at the drivers of the growth, we think that the trends that we've described in our strategy over the last 2 years, these are not easy quarterly trends. These are usually more longer-term secular trends driven by our strategy. And so we would anticipate the growth to be higher in the on-patent. We would anticipate the growth to be higher and differentiated, and we'd anticipate the growth to be higher in the integrated, which are 3 pillars of our overall strategy.
And within the on-patent, we would continue to expect the on-patent commercial -- new commercial to be a strong contributor because at least based on the best forecast we get from our customers, the molecules that saw the growth in the year that just finished, they still see good forecast for the year that is going forward. And so we would anticipate that to be a meaningful driver of our growth as we look ahead is the 3 components, again, the integrated, the differentiated, the on-patent and hen on-patent new commercial. And I'll just give a point that Nandini mentioned in her earlier comment at the start, which is we aren't really counting on a massive turnaround in the funding environment for emerging biotech if and when that materializes, that would be, we think, of an upside to our guidance.
Sure. And last question, if I may. The opening comments, you mentioned an incremental pricing impact in the U.S. inhalation portfolio. So I'm just trying to understand, this has more to do with the market getting more aggressive for new tenders, which may come up or this has to do with the renewal of the existing business on a broader basis, just for our understanding?
So we have certain events of -- we have multiyear contracts in many of the locations where we operate in instead of being lots of different things. We would just say that there was 1 particular contract that came up for bidding, and we had to take a price reduction for that and that factored into the full year results. And that was the single event that occurred within the year.
We do expect this sort of events to sort of have been in FY '25 as well to a certain extent for whatever deals that come up?
I think given we're in 100 countries, there will be different tenders at different points in time, and we factored in whatever we think is likely to occur in the period in next year in our aggregate guidance. But by definition, in any 1 year, there will be some tender somewhere that is going to come up for renewal that will require us to look at the market scenario at that time.
Next question is from the line of Nikhil Mathur from HDFC Mutual Funds.
Many congratulations on the FY '24. I think the company has ended fully year on a great note. While I think my first question is around the return on capital profile of the across the company. While I think this year, especially second half stand out really well. But I think there's still a bit of desire that is there in terms of return on equity, the return on capital metrics for the company. So can you share some thoughts on 3 to 4 years' view, how are you seeing your return on equity or return on capital employed shaping up in the coming years? Are there some hard targets at the board has set and the management has to kind of deliver on those metrics?
So Nikhil, firstly, obviously, this is just the beginning, and we have a path to go in terms of enhancing the overall ROCEs in the business. As you're aware, the last couple of years, we've made investments, which have added to the denominator. Now it's a question of how do you get more of top line, improve the overall operating margin, which will also result in an enhanced ROCEs. And at this point, we're not giving a very specific guidance as to what that ROCE number would look like. But obviously, the attempt is to move this northwards and improve it across all the 3 businesses.
With the -- if I'm not wrong, sorry, I joined a bit late, your guidance on top line for a 3- to 5-year period is low teens, right, if I'm right at that, right?
It's just for FY '25, we're seeing early teens.
Okay. And with an early teens kind of a growth rate, but you have added to some investments and the same level of CapEx as well. Would you be able to achieve year-on-year improvement in return on equity going forward?
An improvement in the overall EBITDA absolute value of EBITDA, we will see some improvement in the overall ROCE as well.
Okay. And in terms of investments that you talked about, I think there's a need to do a bit more OpEx in FY '25. Does that imply that for the time being, the margin progression will be a bit, let's say, steady and the big jump in margin progression here on will happen in FY '26, '27 only?
At the PPL level, you are right. Within the businesses, as we said, the CDMO and the IPH businesses will continue to show margin expansion scale-based.
Okay. And can you also just give some highlights on what is the capital work in progress and intangibles under development. I think there are somewhere around INR 1,100 crores of value of both. What is this into? And how will this get expensed out going forward?
As Nandini alluded to in her opening speech, we are in the process of doing some investments in our critical care business. This is to work expanding capacity for key starting materials in India. This also includes the manufacturing capability for which we are creating in India. And likewise, it also includes certain debottlenecking CapExes which are happening across the sites. That's primarily as far as the is concerned. With respect to intangible assets and the development, besides the software, this also includes certain BMX, which we are developing for our generics portfolio and which are in various stages of development at this point in time. It also includes any development in our critical care product space.
So when does it get expensed out in a meaningful way?
So as and then when the DMS actually get commercialized is when it gets amortized towards the estimated useful life of the particular assets.
But we would expect the 2 placebo fluorinated investments to be made live by the end of the fiscal year.
The CWIP will go live earlier, intangible assets, depending upon whenever the commercialization happens.
Okay. So the OpEx bump.
Sorry to interrupt. Sir, could you please return to the question queue for follow-up question. Next question is from the line of Aditya Sen from RoboCapital.
Sir, this is just a clarification. You said that our EBITDA growth will be in early teams in the coming years. So this is on the base of Q4's EBITDA number or full year FY '24's EBITDA number?
Full year.
Full year.
Next question is from the line of Girish Bakhru from OrbiMed.
Just elaborating on the ADC bit. Can you give more color on the conjugation, you said that is the key area where you have the expertise. What sort of work we are doing. Just a bit more color on the technology because this -- this size is getting very crowded. Of course, so many companies are offering conjugation services. So just wanted to know, are you - I mean, offering linker technology, doing enzymatic work or modifying the antibody, what kind of work you're doing there?
So just to give some further background. We think we have one of the broadest set of experiences across different conjugation technologies of anyone out there because we've been doing it since nearly the beginning of the category. And so at least whenever we go to market and describe the wide range of conjugations we can do we rarely see a situation where someone comes and says, "Oh, I don't think you can do that or you haven't done that before. So I think that's an area we think is one of our strengths, and we'll continue to be one of our strengths. As we go ahead and -- so I'd say that, that is not a reason why we would typically not win a project if we were to not win one.
And then Nandini did describe the 2 other plants, which is the MAB, which is the most recently added to our set of offerings and also the fill/finish which we've had for some time. But we actually didn't mention another area that we have a strength, which is we actually have our Riverview facility in Michigan is fully capable of it has done some amount of work in the linker payload area.
And I think the change in the market has been up until maybe the last year or 1.5 years, our customers would come in with buying best-of-breed and looking at individual offerings. And so then we would typically get the conjugation and whether they'll fill-finish. But I'd say with the hotting up of the sector, we've had a much greater number and also the potential geopolitical risks from the Biosecur Act. We've had a hotting up of interest for fully innovative programs, where now we're bidding on program that would include math, conjugation, linker payload fill-finish. And so we expect, as the year goes ahead to have more examples in that category.
Understood. And just related, you expanded Grangemouth by, I mean, 70%, 80% capacity expanded. So that is probably manufacturing -- is that because of payload or linker manufacturing? Exactly what's the --
just conjugation. The payload linker would be done at our Michigan facility and it actually doesn't require a very large area. But the particular area that we expanded the most was in Grangemouth and that's for the conjugation, which is where you're combining the pieces. And that's the area where we added the 2 larger more commercially-oriented suites along with the customer experience center and some of the quality areas.
And lastly, if you can give -- I mean what's the big pharma percentage win here in the ADC conjugation?
I don't think we give that number specifically, but I would say that we've been quite pleased with the number of large pharma that have visited our facility in the last 6 months, and we anticipate this to be an area of strength.
Next question is from the line of Alok Dalal from Jefferies India Private Limited.
Vivek, can you quantify the onetime spend that you are going to incur in FY '25 on complex hospitals?
So it will be close to about 8 million to 9 million, Alok.
8 to 9. This includes everything, right?
Yes, $8 million to $9 million.
On the OpEx.
Okay, fine. And on the competition, I thought it was a very steady market. Has this come into surprise, this price reduction?
It's more that when you have a 5-year contract that comes up for renewal. If one market participant decides to take a particular line of attack on the renewal, we kind of have to compensate. And so that occurred in a particular renewal with 1 U.S. GPO.
Good. And last one, on CDMO capacity, are you well placed next 18, 24 months with the capacity on hand?
I think we've done a bunch of investments in capacities across the board and whether it's in Riverview or in Grangemouth. So I think we will -- we're more or less well placed, we may, on a side-by-side do some certain debottlenecking if necessary.
But CapEx intensity should be in the $85 million or lower than that kind of range, FY '25 or beyond?
It will be similar to last year.
Next question is from the line of Puneet Pujara from Helios Capital.
I hope I am audible.
Yes.
Yes.
Yes. So you quantified this $8 million to $9 million to be invested for complex hospital generics in FY '25. Does it cover all the geographies, clinical requirement incubating new distributed channels, regulatory front, it covers everything or if this is just the developmental investments that you are making?
So Punit, this is largely towards certain regulatory expenses that we need to do certain product transitions that we need to do, and it's more to ensure greater stability of supply for the future.
Okay. And would you be able to quantify how many doses you are targeting across the markets?
This is not product development.
It's existing products, tech transfer. So as we said, is expanding capacity in both the hedge and the, and we expect those to come online at the beginning of the financial year next year. So FY '26. So in order to get the plants up and running, you will need to hire people, do qualification, validation, regulatory submissions to get those up and running. So -- but you won't see the commensurate revenue until FY '26.
Okay. In you mentioned on the price erosion. And I think there are only 4 players in the market. So is this the other 3 competitors, one of them have cut prices or there's a new entrant here?
So there are some changes in the Chinese distributor choice in the U.S. market, but after that I described that led to the price was it existing legacy competitor.
Okay. And your guidance of overall revenue growing in early teens, but CDMO are growing faster. So the CDMO business, the guidance -- it does not include any potential upside from Biotech funding. Is that correct?
No, it doesn't.
Understood. And last question is, so early teens EBITDA Y-o-Y growth should imply a higher tier at EBIT and PBT level. Is that correct way to understand? Or the investments will offset that also?
So there will be meaningful increase in PAT as we alluded to in our agents.
Next question is from the line of V.P. Rajesh from Banyan Capital.
Congrats on the good set of numbers. Most of my questions have been answered. But just on the EBITDA side, I think in one of your interviews, you talked about 24%, 25% kind of margins on a long-term basis. So if you can give some time line around that, whether that's something to expect in fiscal '26 or will it be further out?
I think it's still 3 to 5 years.
Next question is from the line of Chintan Cheda from Quest Investment Advisors Private Limited.
Congrats on a good set of numbers. Sir, just a clarification. So the early teen kind of EBITDA growth we are talking about in FY '25, is it after considering the nonrecurring expenses in complex hospital generics?
Correct.
And secondly, on a quarter-on-quarter basis, our interest cost has gone up despite we have repaid INR 1,000-odd crore kind of debt. So just -- is there some one-off to that? And secondly, how should we look at the interest cost for FY '25?
SP-30 You're right, Chintan. If you're comparing the sequential quarter, the interest looks high. So one, of course, is as you're aware, the overall rate hasn't come down. And second, this fourth quarter also includes an element of interest that we have to pay on tax since we outperformed performance in India.
As far as FY '25 is concerned, our target is to ensure that our overall debt gets further optimized versus where we stand. Now everything depends upon how the interest rates pan out. While there are talks about interest rate softening, only once that starts, you will start seeing a reduction.
From a debt standpoint, we will ensure that we will control it within the limits that we have got out.
Next question is from the line of Ranodip S. from Mass Capital.
Wanted to understand your school of thought behind going for the men's grooming market how big is the market? And what kind of projections are we planning in the years to come?
I think it's a new market for us. I think we saw an opportunity there for us to grow. I actually don't think we have individual projection that we can release, but I think it is an opportunity for us.
Sure. My next question was with respect to the senior consumer care market projections are. It's already a $10 billion market with 10% CAGR growth. Are we having any thoughts around going about this market?
I think our focus is actually on India consumer. I'm not sure we would want to export or set up a consumer business elsewhere.
Next question is from the line of Vinod Jain from WF Advisors.
Congratulations on the good performance for the quarter, which is gratifying to note that the company is turning around in terms of profitability. The issue I want to address is the Q1, Q2, Q3, Q4 phenomena of the company, wherein the Q1 is having the lowest performance and Q4 has the best performance. Now this, I believe, we see performance affects the overall profitability of the company.
I have a point that there is no slide to explain this phenomena? And what is the new thing to be taken on this going forward?
So firstly, this Q that you see, and you will see that this has been a historical trend as well as largely in the CDMO space, and it's driven by the demands of when the customers would like to have their products at their disposal. And typically, we are seeing that the Jan to March quarter, which has begin the financial year for them is when we pick up the highest quantum of stock at the beginning of the financial year.
And this trend will continue. We will see -- while our endeavor would be to kind of ensure that we have a more even skew to a great extent, this depends upon how the customers pick up the products. So even for FY '25, I think we will see a similar skew with a low Q1 and a larger H2.
I think that trend will continue. In terms of giving this information in the slide, we'll see how we can cover this in the slides as well.
So can we expect that Q1, Q2 may be negative in terms of profitability and then Q3, Q4 would be positive?
Yes, this quarter, I'll just say that H2 will be bigger and Q1 will be the smallest.
Next question is from the line of Melanie Mehta from Mehta Investment Intermediates.
Congratulations on good set of numbers. Actually, I wanted to understand, like it has mentioned that the CapEx would be same as it was in the previous year. But any specific update on like how it could be on all the 3 businesses? Like would it be again similar to how it was seen last year in the CDMO expansion of capabilities? And Also, actually, it is mentioned that you are looking forward to enter new markets on the inhalation anesthesia, right? So how will be the -- a guidance on next business side specifically?
So on the CapEx front, historically, our highest CapEx spend has been in the CDMO space. For FY '25, we are incurring some CapEx in our critical care space as well. And this is particularly to what we discussed earlier in terms of expanding capacity for our key starting materials as well as being able to manufacture the inhalation anesthesia product simoplorine in India. So that's where primarily is happening and certain product development expenses in our critical care space that will help expand the overall product portfolio.
In our senior spaces, to be a large part of the spillover CapEx of what we have been doing in the past, along with some other investments for debottlenecking across multiple sides and maintenance CapEx, of course.
Okay. Okay, clear. And so in last few con calls, actually, looking at the consumer businesses, we were continuing to reduce our promotional things, and we were looking forward to increase the margins in the same. So what is the guidance on that particular business? Is it still the same or any changes that we can expect?
it's moving in the right direction in terms of improvement in margins. As we said that once we cross INR 1,000 crores, we'll again keep on looking at optimizing margins in this space. So it's moving in the right direction.
Okay. And any changes that we see in our power brands or it would still be the same impact to power brand contribution that we have from?
I think it's just still the same.
Next question is from the line of Chintan Shah from JM Financial.
So one question is slightly long term in nature. So we alluded that EBITDA margins of mid-20s, let's say, they are 3 to 5 years down the line. I just wanted to understand what would be the path from, say, 15% to 25%, what will drive this? Is it CDMO or because I believe CHG, there's not much scope for expansion. So if you could highlight broadly what will drive this?
So Chintan, if you look at our quarter 4 margins, they are at 22%, right? And one of the primary drivers of the 22% margin in quarter 4 is the fact that we've had a higher quantum of revenue, which only knows the nature of the business and it tends to be a high fixed cost business. So as we enhance scale and capacity utilization, margins typically enhance. In our space, which is where over 60% of our business is scale-based and therefore, the largest driver of margin for the future will be the CDMO space.
So as we increase revenues over a year, you will see exponential increase in margins. Our competitor generics is relatively already in a better position in terms of the overall EBITDA margins. And the third, of course, will be our consumer products business where also as the scale enhances, we will look at further optimizing the margins in that business. So basically, CDMO and IPH will be the driver for margin in the future.
Okay. But just one follow-up on that. So the seasonality may continue to maintain, right. So on a full year by Q4 would deliver 20% to 23%. Obviously, quarter 1, 2, et cetera, would be much lower. So what you're trying to say is that there's so much of utilization levels to improve that once that can be able to deliver on that margin and that Q4 margins were talking about a 22% could actually be much higher here around 20 or early 30s.
Every site is at a various varying level in terms of scale and utilization. One thing you have also seen is that the overall mix of the business is improving more towards on patent products, which is another factor that is going to drive overall margin enhancement in the future. So it will be a combination of higher revenues on a full year basis in or across our site as well as the further enhancement in the mix.
Okay. Got it. Understood. And just one last question. Anything in terms of inorganic that we'll be looking at in, say, FY '25 or '26?
At this point in time, we have done a lot of organic CapEx, which we would look to utilize and improve the overall returns margin. If there are some small tuck-in acquisitions, which complement which don't have a significant stress on the balance sheet, we won't shy away from looking at it. But right now, the focus will be largely to deliver on what we have done on our organic CapEx.
Next question is from the line of Afzal Mohammad, an individual investor.
So in CDMO, across Phase II and Phase III, how many molecules have breakthrough therapy designation or fast track deletion from the FDA?
I don't think we've published that at this point in time, perhaps we can -- you can connect with our IR leader offline.
Okay. So on-patent commercialized products, what percentage are biologics and what percentage are small molecules?
The majority of our work is small molecule.
Okay. And going forward, do you expect a majority of the revenues coming from biologics in the next 1 to 2 years?
Actually, biologics is very, very small. I think I would say, predominantly in the near to midterm, we would be much more small molecule.
Okay. And do you have the capability to manufacture by specific antibodies or gene and cell therapies, which is the future?
So the investment -- the strategic investment that we mentioned earlier in Japan is our primary vehicle to explore that area of opportunity.
Okay. Sounds good. So in the next 1 to 2 years, the primary driver of revenue in the CDMO space would still be the small molecules. Is that correct?
Yes.
The only corollary of ADCs, which is a carve-out niche that we described earlier in the call also.
Ladies and gentlemen, that was the last question of today. I now hand the conference over to Mr. Gagan Borana for closing comments. Over to you, sir.
Thank you very much. I hope we have answered most of your questions. In case you have any follow-up questions or any clarification, please feel free to reach out for me. Thank you, and have a nice day.
Thank you. On behalf of Piramal Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.