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Solara Active Pharma Sciences Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of Solara Active Pharma Sciences Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, sir.
A very good afternoon to all of you, and thank you for joining us today for Solara Active Pharma Sciences Earnings Conference Call for the first quarter ended financial year 2022. Today, we have with us Arun, Founder and on Non-Executive Director; Raj, Executive Vice Chairman designate; Bharath, MD and CEO; and Subhash, ED and CFO, to share the long-term vision for the business and financials for the quarter. I hope you have gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as stock exchange website. The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team. I now hand over the call over to Bharath to make the opening remarks.
Thank you, Abhishek. Good afternoon, everyone. Thank you for joining this call today. For the last few quarters, I've been starting this call by wishing all of you good health, and this call is no different. On behalf of all of Solara's employees, I wish you and your loved ones good health and safe life. Let me talk about our quarter 1 performance. It has been a quarter with multiple and significant challenges. The second wave of the pandemic that we all experienced in India has also impacted Solara. 275 of our colleagues and many more in our families of Solara employees were affected by COVID. We also unfortunately lost a colleague to this disease. We have announced and implemented a host of measures to support our employees in these trying times. In addition to that, we have walked the talk regarding employee safety and well-being. We temporarily closed some of our sites and locations in keeping with the guidelines of local authorities and our own safety protocols. In these extenuating circumstances, our employees stood tall and ensured that we met our commitments to customers and to broader society. Let me talk about our Q1 performance. In Q1, we also witnessed demand stress in some of our base products, including ibuprofen. The weak demand was more intense in the regulated markets. The situation is on -- this demand situation is on account of the pandemic, and we anticipate this to normalize over the next 3 to 6 months. We were able to mitigate some of this impact in quarter 1, leading to a performance where we had revenues of INR 4,115 million and EBITDA of INR 951 million with an EBITDA margin of 23.1%. This led to a PAT of INR 501 million. The year-on-year growth of these numbers, were 17% on revenue, 10% on EBITDA and 19% on PAT. Let me talk about some of the underlying drivers behind this performance. As I had alluded to earlier, there was a reduction in sales to the regulated markets, particularly in the base products, and we were able to mitigate this through a very strong growth in new products. We added up to INR 800 million revenue in this quarter from new products. We also grew exceptionally well in focused markets like Asia Pacific where we've shown a growth of greater than 200% year-on-year. What's important to note is that we have maintained our share wallet with all our new customers be it in regulated markets or outside for all our businesses and particularly in our base business. Our cost improvement actions, both on OpEx and also on supply chain, continue to be stellar. And despite the pricing pressures that we have on raw materials, we were able to hold our line when it comes to costs in this quarter. R&D productivity continues to be a high attention point and ensure good progress in the quarter. We have concluded the development of 7 products this quarter, which is the highest we've done in the industry of this company. And as we progress, we will -- we are well on track to complete 10 to 12 DMFs on a stand-alone basis in FY '22. Our market extensions, which I emphasize as a means of very efficient growth, will be in excess of 25 filings in FY '22. Coming to our CRAMS business. We've had an excellent quarter. We added 4 new customers to our CRAMS portfolio, which is the highest we've done in the quarter in the last 3 years and our opportunity pipeline, which is the value of pipeline that we currently are engaged in with customers, has increased 40% year-on-year. I reinforce what I said in the last quarterly call, we continue to have very good revenue visibility in our CRAMS business for FY '22. In fact, we see visibility where we could potentially go up 50% year-on-year in our CRAMS business in FY '22. Let me also briefly touch upon the future. In terms of the strategy, while we will have a more elaborate discussion later on, but just to add some key points here. As we have been talking about Solara's strategies predicated on 4 pillars, let's talk about the base products, which is the first pillar. I did talk about some short-term challenges earlier. I want to reemphasize, we don't see these challenges as structural. We believe that the broader market picture has not changed and what we are experiencing now in terms of demand is situational. And we are very well positioned to continue to grow profitably in the medium term in our base business. And to this end, we have executed or in the process of implementing a few key actions. First, we are validating and commercializing a full backward integration for our ibuprofen business by next quarter, that is quarter 3 FY '22. This capacity that's coming up at our Vizag facility will cater to our entire needs of raw materials for ibuprofen across the Solara networks in both plants and will anchor our position as a cost leader in the market. In addition to this, this full backward integration will significantly underpin our liability to our key customers across the globe. We will be amongst only 2 players in the market who have both scale and full backward integration for ibuprofen. And this will benefit us disproportionately as demand recovers. On all our base products, we have maintained or grown our share of wallet with key customers, especially in regulated markets, and this will ensure, as demand recovers, we are well positioned to see the benefits of group to Solara. The second pillar of our strategy is new products, and we have done an exceptional growth in the quarter for new products. In quarter 1, we've grown more than 50% year-on-year. We continue to see strong demand and momentum for these products. For a few of our key products, in fact, our entire capacity have been underwritten by customer contracts for the coming 3 to 5 quarters. Our R&D velocity continues to improve. As I said earlier, we've developed 7 new products in this quarter, and we will be, in due course, filing the DMFs for these products. Our work on new technology platforms is progressing exceptionally well, and we are well on track to have at least 2 of these platforms ready for scale up by end of this financial year. The third pillar is CRAMS. We are making very good headway in our CRAMS business. As I said, we've had a record quarter in terms of new customer additions and growth of our opportunity pipeline, and we see very strong visibility for revenue, not just by FY '22, but we see all the signs that things would look good as we go forward. And the fourth pillar of our strategy is inorganic growth, and we continue to stay committed to looking for the right inorganic move to accelerate growth, particularly in our CRAMS business. Accelerating all these levers, these are merger with Aurore, and we will talk about it extensively later. So let me add the market picture before I hand over to Subash for his comments. There continues to be an element of uncertainty in demand, particularly for base molecules as various geographies are in different stages of dealing with the pandemic. The regulated market sales will remain muted for the coming quarter, and we see normalization of demand over the next 3 to 6 months. As I said earlier, we see growing demand for our new products. We are very bullish about the future for our new products, and customers are very excited and have underwritten our capacities for few of our growth products, as I said, for the coming few quarters. Overall, we see a sober first half on our financials and a stronger second half. And on a combined basis, as we've guided in the presentation, we see revenue growth in excess of 30% and EBITDA in the range of 23% to 25%. I now request Subhash to share some details on the balance sheet and some key ratios.
Thanks, Bharath. As commented or communicated by Bharath, we see a demand and price pressure on our base product and increase of share of LRM market business share. This has direct correlations and result on some of our financials ratio. Let me start with -- you would have noticed we have an increase in working capital by almost INR 133 crores. Our working capital going up from INR 522 crores to INR 655 crores, mainly contributed by higher inventory and receivables. Inventory went up. Primarily, we have -- as Bharath spoke, we have a plant shutdown in quarter 2. So we built up certain inventory to cater the demand in quarter 2. And also some of the contractual demand of sales, which we are planning in quarter 1, got backward to quarter 2. So that has an impact on inventory. In addition to that, LRM market receivables normally operated higher DSO, and that has led overall increase in working capital so far company in this quarter is concerned. The higher increase or higher working capital resulted in net debt levels moving up from INR 408 crores to INR 525 crores over the course of last quarter. The above trend is far expected to be normalized in next couple of quarters. Net debt to EBITDA at 1.4x and net debt to its equity remained at 0.4x. CapEx for the quarter was at INR 49 crores, continues to reflect our focus on growth-led investment. Asset turns were at 1.6x. Let me touch on Aurore margins. We have already filed our applications with stock exchange and post NOC from stock exchange, we'll move ahead and file our application with NCLT. We expect this process to be completed by end of FY '22. Since approval is in process, post shareholders approval, we will start sharing the consolidated financials of Aurore and Solara once we have a shareholders approval in place. With the continued strength in our balance sheet and a positive traction for our strategic agenda, we are well positioned to continue our profitable growth in future. With this, I would like to invite Arun, our Founders to talk about Solara 2.0 post merger with Aurore.
Thank you, Bharath, and thank you, Subash. Thank you, everybody. It's been a pleasure to join in today's call. My task today is to basically share the vision of Solara, its evolution from Phase 1 to Phase 2, to introduce Raj, my good friend and Vice Chairman -- Executive Vice Chairman and Head of Strategy, and he would be the one who's going to be driving this business, led by a strong team from Bharat and Subhash and a lot of other senior leaders in the combined entity, which will ensure that Solara is well poised to become a cutting edge and leading player in this space. Before I start, let me share my delight in having Aditya Puri to not only join Solara on his Board, but also to agreeing to Chair the Board and also to welcome and invite Dr. Vineeta Rai, who was -- who is an eminent bureaucrat to also be on our Board. It's my duty also to thank our outgoing Chairman, Deepak; and Ron, our Independent Director for the stellar contributions in our early stage of growth. Having said that, we have -- and then, of course, we have other directors joining in the Board today as we broad base the Board to create multiple capabilities of the Board so that we can help support Solara build out its version 2. As the founder of Solara, it's been a great journey in the last 4 years where we've seen the company evolve from a small API player with very little margins to become a very focused, highly efficient operator. Consequently, it's not only met but exceeded several financial goals that we set for ourselves, including having delivered a 10x market cap increase over 4 years of its existence. In that short period, we have become at Solara pure-play API company with a relatively strong portfolio, a very high customer centricity and run out supply assurance. It is now time for us to set ambitions high. And today, I take pleasure to unveiling Solara Version 2. And the -- and of course, we will take questions around not only what Bharath has reported in terms of numbers, but also if you have any questions around our vision. I just want to reiterate that this is not a guidance, this is an ambition. We are -- we normally set aggressive targets for ourselves. We normally achieve them quite successfully. And Solara's ambition to be a Top 10 player by default would need that we should be completed revenues of at least INR 750 million. That means we need to move our CAGR from our current 17%, 18% to 24%. We believe our inorganic strategies that we've recently announced will help us scale our business both in generics and in CRAMS, combined with the wins that Solara already has in the space. And we've continued with our strong balance sheet to have an organic ambition as we build out this business, especially in the CRAMS space. Our playbook is based on simple themes which is basically grow your base generics business. We intend to launch several new products with approximately increasing our R&D pipeline to about 30 to 40 products a year from the current 10 to 12, expand our CRAMS business organically and inorganically, but also look at other inorganic options in the generic space. We also will be focusing on newer technologies, newer products and increasing our capabilities across domains and regions. This will also include working with companies which are focused on us creating capabilities around new chemistry skill sets and offering both preclinical Phase I and Phase III activities and up through commercial space, and we're investing to build all the capabilities around this. Towards this announcing our deal with Aurore is a significant first step. We believe that this has already been well received by the market and our investors and also our customers. This is leading -- this is already leading to very significant synergies. We have appointed a big -- we had completed our exercise of finding our big 4 in identifying all the synergies, including manufacturing synergies, our R&D efficiencies, rightsizing our procurement and cross-selling opportunities. And we have identified synergies in the range of INR 150 crores to INR 200 crores on an annualized basis. We expect this to flow through in the next 12 to 14 months. And these are not synergy numbers that we think are hard to achieve. We believe that the API business and the China Plus One strategy is working favorably. The tailwinds that Solara is enjoying will continue. We do see some blips in terms of our base commodity product demand, and that's mainly to do with COVID and to do with -- I mean -- and the reduction of prescriptions in specific programs and also kind of destocking because I think with COVID there has been a fair amount of stocking, we see that to be kind of balanced. But that doesn't take away anything from indication -- our indicative ideas we presented when the deal was announced that combinedly, we should still be a very strong company and in the range of revenues of around INR 2,800 crores, EBITDA in the range of 23% to 24%. And obviously, this will be achieved through a combination of building more capacities, focusing on signs, increasing our product, working on cost improvement programs and then our people that will lead us to become a very positive player. So with this, I will now request Bharath to take the floor. And if there are specific questions to me or to Raj, we will be very happy to answer them. Thank you.
So Abhishek, we can open up for Q&A.
Operator, can we open up the Q&A, please.
[Operator Instructions] The first question is from the line of Alankar Garude from Macquarie.
Thank you for providing the guidance and updating us on the merger synergies. Sir, my first question is on the long-term target. Can you broadly break the 4-year ambition of 25% sales CAGR into the 4 verticals, base business, new launches, CRAMS and any future acquisitions?
So Alankar, we spoke about this when we had discussions, but we are saying that the INR 750 million, 30% of that business should come from CRAMS, which means we have to build our business which is now less than INR 300 crores in the combined entity, almost a INR 200 million business. So the $300 million of generic business or the $275 million of general business should effectively double. And it will not be right for me to tell you exactly do we know how this growth is coming through these buckets. But we believe that the -- by splitting the focus on product acceleration and velocity, and increasing the base business in cross-selling, we can achieve, we can double the generics business in the next 4 years.
And Arun, if you could confirm that this doesn't include any acquisitions, right, the 25% number?
Well, there would be -- there won't be any big ticket acquisitions. There will be tuck-ins, but that will not constitute more than 10% or 12% of this ambition.
Understood. The second question, as far as this long-term aspiration is concerned, and if I look at the margin guidance, 22% to 25%, it's actually lower than what the combined entities margins are currently. And on top of that, we'll have those synergies of INR 150 crores to INR 200 crores. Plus in general, if CRAMS grows at a higher pace, that should also aid our margins. So why are we being conservative? And what is the reason for this 23% to 25% guidance or aspiration?
Well, it is not that we are -- we do not aspire to have a higher margin, but it is simply that we believe that there would be fair amount of organic expansion in capacity, leading to some element of under-recovery on a constant basis in the next 3 to 4 years. Especially if you want to build the CRAMS business, you have to build capacity ahead of customer conversions. So we have adjusted for that.
Okay. So that is the main reason? No other reason why the margin guidance is lower than what -- where we are?
The margin guidance, Alankar, is in line. But if you adjust for the fact that you cannot be in the CRAMS business without having the infrastructure ahead of business.
Understood. And maybe one question to Arun before I get back in the queue. Arun, in the past, you have stated your stake in Solara is more of a financial investment. And now with you joining the Board, so can you take us through what are the -- what have been the triggers to take this decision of joining the Board now when you could have done it earlier as well?
Well, good question. Well, you know that I typically don't do this. I had to make some exceptions because of the new arrivals into the Board. There were some ask because the vision of getting somebody like Aditya Puri interested to come and share our Board was based on the vision that I articulated and it's something that he wanted me to stick my neck out and execute, you understood what I mean. So I continue to have a non-executive role. I think -- not that I think between Raj and Bharat and the rest of the team, we have a phenomenal leadership team. Raj comes with deep entrepreneurial insights, and he has a lot of experience around this business. I just think my reason for getting on to the Board of Solara is more to do with getting the Board -- getting a broader Board interested. And I'm very happy with what Solara has delivered for us as investors, and I think they'll continue to do that. But I do not -- I'm an operator role. I continue to be a nonexecutive, but I will obviously be available. And I also don't intend to come on our investor calls. This is because it's more a major milestone day for us in terms of our Board reconstitution but also in terms of what we are unveiling as our vision
The next question is from the line of Sriraam Rathi from ICIC SEcurities.
Sir, one question on the regulated market business. I mean, you mentioned that it is because of some demand pressures in some of the products including ibuprofen. So the revenue figure seems to be very, very low at INR 170-odd -- INR 170 crores, INR 180 crores. So I mean, which other products would have been impacted and at the same time those are also the impact of the temporary shutdown that we put?
So in the regulated market, products that were impacted were products that were, for example, used for treatment of seasonal fluand similar such products that we have in our portfolio. As I said, the most impact was in the base products, and that's kind of where you saw the biggest dip in terms of demand due to this. And sorry, there was some disturbance in the line. I did not get your second question. If you could repeat it, that would be great.
Sure. Sir, I was just asking, I mean, because the figure looks very, very low. So I mean, is there something which hasn't deferred from this quarter to next quarter, something like that and we will be a back to normalize on that? And at this time, what I'm noticing is that on the last 2 quarters the proportion of regulated market is decreasing and at the same time, non-regulated markets is increasing significantly. Is there some change which has happened from some of the markets? I mean, just to get an idea.
No, I don't think there is anything structurally changed. I mean, the simple way to look at it is when there were lockdowns across the regulated markets, which were complied with broadly, less people are going out, which meant less people [A-trains] or other needs to get any of these medications, either OTC or otherwise. So there is -- as I said earlier, there is nothing structurally that has changed in the market. This is all situational and caused by the blip that we see. Now we've also very clearly indicated in our commentary that we expect 3 to 6 months for things to normalize because every time you see that different geographies are dealing with the second wave or the third wave depending on where you are at different labor levels. So nothing structurally has changed. It's situational. Situation brought about by the pandemic, and we expect this to normalize in the next 3 to 6 months and reiterate our position with all our key customers in the regulated markets are as strong as ever. So as the demand comes back, we will benefit from it in some cases disproportionately.
Just to add what Bharath just said, it's a double impact. There was less demand because of less injury, less people going out. On -- in addition, a lot of customers have built up their inventory. So this was the time when they started destocking. That also led to lower offtake and impacting the demand or impacting the revenue of regulated market at our end.
Okay. Got it, got it. Sure. And also, I mean, if you can just provide some details, I mean, in terms of -- I mean, how is the pricing scenario now versus FY '21 as far as the product? And do you -- I mean, I believe we have a largely long-term contracts before the industry and for the business which are not long term in nature for us. So how has pricing moved, I mean, over the last 2, 3 quarters?
So in some of our base products, there is stability. I wouldn't say that across the Board, there is pressure. But one of the consequences of demand stress is pricing pressure. And these are particularly intense in spot markets where we are typically not very active. For our contractual customers and the larger customers, I would say, there is no significant different pressure or anything that would be not mitigatable by the right actions. However, there will be some reduction in pricing that we see this year, which is normal year-on-year that we would see in part of the overall contractual discussions. That would happen. How the demand evolves and how the demand picks up will dictate the intensity of that and the longevity of that.
Okay. Sure. Got it. And lastly, one thing, I mean, this contribution from new products has increased considerably this quarter. I mean, if you can provide some details in terms of which are the products which have been benefited the most, I mean, which are the large products now in that category?
So we typically don't break it into a product name level. But broadly speaking, as we've introduced quite some products over the course of the last 6 months and we also did -- in the last quarter call, I mentioned that we had also quickly turned around in -- already in quarter 1, sales of favipiravir when the second wave was at its peak in India. So all of these contributed and helped the growth of new products to reach the levels of 20% of revenue in quarter 1.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Congrats for having the full backward integration for ibuprofen. Just would like to understand that further like with the margin improvement because of the backward integration and at the same time, there have been some softening of ibuprofen prices. So how do you see the profitability on the product going forward? And the lowering of ibuprofen prices, has that, first of all, impacted in the first Q -- 1Q FY'22 numbers?
So the second question first, if I would answer. See, the way we have been able to mitigate because some of the forward pricing that we had towards the end of last financial year, we were able to mitigate some of the pricing pressures in quarter 1. However, as we said, as demand normalizes in the 3 to 6 months, there will be some impact of the pricing pressure in the current quarter. The backward integration will go a long way and not just ensuring that we're able to manage our margins in ibuprofen well, but also to anchor our position as the only player, I would say, in the market currently who had a scale business when it comes to ibuprofen derivatives and has full backward integration. So that positions us in an entirely different framework with our customers and gives us the opportunity to continue to grow our ibuprofen business in the coming years. And to talk about the margins, I mean, with the backward integration, it will definitely offer us relief in the second half of the year in terms of any potential margin impact
Got you. Secondly, on the CRAMS business, like given the current size of the business, like when do you see the significant takeoff happening or rather qualitatively, if you could just help us understand where do we stand likely from the innovators perspective, at the contract research stage or a contract manufacturing state?
So most of our CRAMS business is the contract manufacturing, some contract development, we don't do yet a lot of hardcore contract research. Having said that, I mean, our visibility, as I said, is very positive. We start getting very interesting opportunities with big pharma companies across the spectrum. And we're very delighted to see that our positioning in this market where we talk about the fact that we focus on solving tough chemistry challenges where science is a differentiator. It's no longer about cost and capacity alone in CRAMS. It's about what do you bring on chemistry. So the third field what we are focusing on, the chemistry and that's leading the benefits that we see now in this business, and that's starting to see already in -- as you've seen in this quarter, we've grown well, we've added new customers, pipeline is strong, our conversion ratios are getting better. So going back to your comment on qualitative metrics, it's all pointing in the right direction, and that gives us the confidence to guide -- I mean, what I said earlier that we see visibility to grow 50% year-on-year in our CRAMS business this year.
Got you. And just if you could just share Aurore financials for 1Q pro forma, the sales EBITDA part for the quarter?
No, as we -- in fact, in my opening remarks, the way we communicated, we will wait for shareholders' approvals to be in place before we start sharing our numbers. So let's wait for a couple of quarters before we reach that stage and start sharing.
[Operator Instructions] The next question is from the line of Kunal Randeria from Edelweiss.
Sir, first -- my first question is on long-term guidance. I know you have covered it a bit. I'm just trying to understand a bit better on what is the confidence to give such a strong full year guidance? I mean, are you entering into more long-term contracts? Or do you expect a lot more lease approvals, which can give you a lot more sticky revenue stream? So just trying to understand this a bit more.
So -- Okay. Let me answer this. Arun here. A lot of it comes from the Aurore stable. Remember that Aurore has got little over 20 DMFs already filed, customers engaged already site changes and source changes are happening. It's also based on their order book that will support accelerate our generics business.
But Aurore would be more like CRAMS business, right? But that is only be 30%. So what even...
Aurore has got, out of the INR 550-odd crores, there is INR 400 crores at generics and INR 150 crores of CRAMS last year.
Okay. Fair enough. Second, Arun, you also mentioned that there will be a lot of infrastructure investment in this business. So just can you elaborate a bit more on that? What kind of investments, capital, new plants that you look to do in the next before year...
That is something to do with CRAMS. An inorganic strategy around CRAMS is almost impossible given the multiple CRAMS business trade at today. So stressed assets means that we do not get high-quality customers in -- with it.Now that the 2 companies have close to about INR 300 crores of CRAMS and CDMO businesses in its combined business, we believe we need to invest very heavily in new infrastructure and new technical capabilities, new chemistry capabilities to attract players in the -- potential customers in the CRAMS space or enhance our portfolio of customers. So typically, in the CRAMS business that you would know from the competitive landscape, you have an under recovery for 2 to 3 years, and you also build specific bespoke assets for the CRAMS business, which is very different from generics. So we would have investments in that space in the next 2 to 3 years. And it typically takes 2 to 3 years for this to completely play out. So if we are doing today a INR 300 crore business in CRAMS, it typically means that you have -- you're building a fairly strong order book for 3 or 4 years, assuming that 40% or 50% of the programs that you're currently engaged will see success in the -- if it's an NCE product or the customers happy to move you as a second source or a primary source. So typically, in this business, all players of size and magnitude invest very heavily upfront, and we are in that phase. So that's what I was trying to elude to.
Sure. But can you just sort of quantify the kind of investment? Would it be possible?
Early, we had the ability, especially in Vizag to carve out lot of capacity because we have a lot of land and the utilities and infrastructure. But it's a little too early. Probably the CRAMS play out, we can address these questions in about 6 months with lot more strategy.
The next question is from the line of Aejas Lakhani from Unifi Capital.
First query is, could you tell us about the amount of goodwill that you will come on account of the books on account of Aurore?
The way we are working -- in fact, we are in consultation with a lot of experts, but these transactions will be common control transactions. And if we go with that route, then this will be merged at a normal asset value. It will be a merger, so there will not be any goodwill getting created as a part of that. This is of course on which we are working. We're yet to get a conclusion on that, but this is what we expect will be the final position for us.
Okay. And by when will you get clarity on the same?
No, this is basically post -- after NCLT approval, this where the final approval of all the questions which we have put forward in our merger applications will get ourselves.
Yes. But we are confident that we will achieve this.
Yes.
Okay. Your second -- my second query is that in your annual report, you have mentioned the unrecognized tax credits of about INR 540 crores. So would you say that we will have no actual cash tax payout for the next 2 to 3 years? Is that a fair assumption?
Let's wait for -- I call it this year, we are confident we'll not have any tax payout other than MAC. We'll continue to be a MAC paying company for next couple of years, yes. But depending on how our next couple of years profit comes out to be, the situation will become more clear. Will that be one more year or will that be getting discontinued or will reach that stage faster.
Got it. And I just want to ask you that the last -- so we were looking at your last 3-year DMF filings. And what we noticed is that about 65% to 70% of the molecules have less competition. And the 25%, 30% have a little more higher competition where there are, say, 25 players. So could you just mention what is the average market price of these molecules for the ones which are less competitive -- which have less competition and the ones which have larger competitions?
So it's very difficult to paint that with a broad brush. So when we are choosing molecules and stand-alone Solara but also has the merged combined entity going forward, we do look at competitive intensity. We do look at our ability to differentiate from a chemistry science perspective. So it would be very difficult to give you one estimate for every molecule that we choose. But the one thing I can confirm is that when we choose a molecule, we have found a way to or right to win in that molecule, which we see scalable, growable and profitable. So that's kind of the way that we go through our product selection process.
The next question is from the line of Bharat Sheth from Quest Investments.
Bharath, this question is for you. See, when we are going for this -- for ibuprofen backward integration because it is a very large product for us. So we can really create a niche for ourselves by being a most competitive player. So taking, I mean, larger volume, few products vis-à-vis smaller molecule number of products. So how -- what will be our strategy going ahead because in smaller molecule, the asset turn will be comparatively lower?
So I think we have a very balanced portfolio of products already. And with the addition of the portfolio of products from Aurore, we have 100-plus products, which are a good mix of what you would call higher volume products to what you would call lower volume but very accretive on margins and with large customer stickiness. So that balance will continue. So we will have both of these type of products in our portfolio. I think as was articulated in the presentation and what Arun said earlier, we have a very strong ability to continue to win in the base molecules and we will, as we increase our R&D velocity and bring new products with differentiation to the market, also be successful there. So for us, it's not an either or it's an and we will do both and we will do both successfully, and the balance in the portfolio will always be between the 2.
Okay. And second question, you have been talking, I mean, about this new technology platform and new chemistry. So can you elaborate a little more as well as how we are evaluating this continuous manufacturing with the micro reactor and all we are evaluating?
Yes. So yes, that is one of the tech platforms that we are working on. There are others, enzymatic being the other, and then we are looking at high potency is also a technology platform and complex generics. And all of these are things that we are working currently on. As I said, at least 2 of this, we will have this -- we are ready to scale by the end of this financial year. All of these, we believe we bring to both CRAMS and generic APIs, which gives us a differentiation and scientific capability to grow our business with good margins.
Okay. And how that will improve asset turn or anything?
See, as and when we are bringing new products and as and when we scale them up on the pure generics business, the asset turns will continue to be improved based on that. And that's kind of the strategy that we use. We use that as one of the metrics we choose to look at which products fit in which assets. And part of this synergy identification has been a lot of detailed dive into this exercise to make sure we have optimal utilization of capacity across both networks and soon to be one network with asset velocity, asset turns being one of the criteria we're using to slot molecules.
And last question. Arun, in his remarks says that because we want to grow CRAM very aggressively, so we need to invest and create a lot of infrastructure ahead of really we can take the benefit of this whole CRAM space. So how much CapEx are we when we are looking for a 25% CAGR growth CapEx we are planning?
Bharath, is that for you or for me?
That is for Arun. So overall, I mean either -- but Arun, you said that we need to build -- create a lot of infrastructure in advance to take CRAMS business next level?
Yes. So I don't -- see currently, the company has been investing about INR 200 crores to INR 250 crores of CapEx per year. We think that kind of investment will continue for at least another 2 to 3 years. And that should then solve for all our capacity needs, including the CRAMS in the generics business.
[Operator Instructions]The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Just one clarification on FY '22 guidance of INR 2,800 crores. Any opportunity one-off built into that? Or this is more like the sustainable run rate?
It is -- I mean, it is sustainable. The company -- both companies do have very specific COVID products. We believe COVID is here to stay for at least 2 to 3 years. So we are not suggesting that there aren't any one-offs, but there are potentially several newer molecules that are being repurposed for COVID. So we have -- with 150-odd products in the combined entity, we will always have some COVID opportunities. But we just don't believe that COVID is going away in 3 months or 6 months. It's something here to stay and we'll have to solve for the challenges for several years. There is an uptick, both at Solara and Aurore for specific COVID products and there's a downtick for products which are not. Like, for example, the -- in the acute care, the demand worldwide, the prescriptions have dropped between 10% to 15%. So once destocking happens, we do see some pressure on demand. But with newer products and in the chronic space and in expanding markets, we always are able to manage this business quite well. So I wouldn't say that there is a specific one-off contract, which is not sustainable. Maybe the portfolio changes, particularly have 10 COVID products. One product will be in season in this quarter, another one will be in season in the next quarter. But overall, we should be able to maintain a certain level of comfort around the numbers that we guiding in
The next question is from the line of [indiscernible].
Just wanted to ask the update on the FDA for Vizag plant? And what kind of capacity utilization are we targeting for FY '22 and target capacity utilization for the same plant in '23? And with nonregulated markets in our portfolio now, what are the receivable days are we kind of looking at? And if you can give some color on that would be great?
So let me start the update in Cuddalore. So we have currently completed all our actions on time, and we believe with the right corrective and preventive actions in place, we have also sent a complete communication and we continue to engage with the U.S. FDA, and we are eagerly awaiting their presence to audit the facility for a reclassification. And we will find out whenever they're ready to do so, but we are ready and we have been for some time. Then coming to capacity utilization...
Bharath, Arun here. Just to point out or rather magnify, the facility was inspected by European authorities very recently and we got an approval. We should all remember that a specific OI was related to the NDMA issues of ranitidine and nothing to do with the quality systems related to the organization. We are confident that we have addressed these matters. It is also important to know that our CEP for ranitidine has been reinstated in Europe. So we think this is more to do with travel restrictions. And we do hope, like Bharath mentioned, that this would be behind us in a very -- in an expedited manner. Bharath, I hope I'm right with my assessment?
Absolutely Arun. I think the registration of the CEP is the validation of the fact that we've done all the right things. So yes. Coming to the utilization -- capacity utilization, we expect that it will be in the late '80s, early '90s like it was last year. As we talked about earlier, we have the flexibility to do multiple products in most of our facilities, and that gives us the opportunity to have high capacity utilization as we go forward. So FY '22, we see similar capacity utilization as we saw in FY '21. And I think we, as Arun already talked about in the vision commentary, as we build the capacities to support particularly our CRAMS growth, this utilization number may vary depending on when the capacities are coming on stream and when they get fully utilized. But for now, as we see the visibility for FY '22, it's going to be very similar to FY '21, late 80s to early 90s capacity utilization.
And about the receivable days, if you can give some color on that?
No, in fact, we talk about increase in working capital. So currently, our receivables are around 100 to 115 days, and that's where we stand.
The next question is from the line of Nitin Agarwal from DAM Capital.
Arun, on the current products, there are a couple of points. If I had it right, you mentioned CRAMS should be 30% of the revenues by FY '25?
Correct.
And secondly, so if you just take that as a sort of goalpost, I mean, the revenue guidance that you put out, obviously, is fairly interesting. The margin guidance is obviously underwhelming, and you obviously look to the fact that there is a degree of under recovery on the CRAMS part of the businesses that will be there. So at a point in time, maybe 1 year or 2 years our post FY '25, once probably this under-recovery situation corrects itself. I mean, in your assessment, what is the potential of the business model, the profitability of the business model are and sort of sustainable profitability perspective?
Well, I mean, we have obviously guided the EBITDA margin with a sense of caution. I mean, remember, the business has grown from 8% EBITDA to where it is today in the last 4 years. We believe that the need for pure-play players will be important. And I think it will be fair to assume that the margins can be adjusted upwards between 3% and 4% if we get all our math right. But it's always better to earn on the side of caution. And that's why we have put that range.
Right. And more curiosity at some level, in a business like this, with the kind of mix which is there between CRAMS and APIs that we envisaged and this is operating out of India, dynamics, which are there. I mean, what -- is 30% better margin a possibility in this business? Or it is possible to a business model like this can deliver your margins north of this -- north of 30%?
I think it's possible. I think companies who have been in the space do that, and there are other companies who have been recent entrants, but have completed the capital investment phase over the last 4 to 5 years have also delivered significantly on OpEx leverage.So I think for us, from a CRAMS ambition, we would be agnostic on where we are domiciled. We believe that we would be international from at least in certain capabilities that we may not be comfortable doing it and also in terms of customer acquisitions, sometimes we will do some bolt-ons, which will be outside of India. But I think it will be fair to assume in a steady state a 30-plus percent business on a combination like us would be quite reasonable to expect.
And secondly, on the API business growth that we sort of envisaged over the next 3 to 4 years, obviously, it's going to be a mix of both existing products going through as well as new products coming through. I mean, is there a higher weightage to any of these 2 segments in terms of -- it's going to be more driven by new product launches or more of the legacy products growing themselves?
See, it will always be a combination of the 2. I mean, cross-selling on this, it's a very big uptick. As you can see, we have guided next year for an incremental revenue of at least about INR 200 crores cross-selling products, INR 150 crores to INR 200 crores in that range. So that obviously will be a very typical element in this synergy. But more importantly, it's the portfolio considering that Aurore has got, like I explained earlier to another question, that we have seeded several of our customers and we have a very solid order book on many of the DMFs that have been filed, and they are all very special DMFs with you. So either if it's a commodity DMF being a late entrant, we've been able to secure customers with cost leadership using new technologies and so that includes wherever applicable to get our costs lower. But more importantly, on the more niche products where in the middle of the tournament, we add a lot of products which are not necessarily focused on returns, but focused on high gross margins, potential profit shares with the formulators because of the number of DMFs are very few. I think the combination plays out very differently. And you'll see bulk of that coming from that strategy.
[Operator Instructions] The next question is from the line of [Technical Difficulty]
Just one question. Can you provide the breakup between API and CRAMS for this quarter, revenue breakup?
So CRAMS was in the late single digits as a percentage for the quarter.
All right. And when you say that you've added 4 customers in CRAMS, are these mainly for late stage or are these for life cycle management products?
So it's a mix. Some of them are late-stage clinical, some of them actually are in the early-stage clinicals. And some of them are products where they're looking for second or alternate route of synthesis or a source. So it's a good mix of projects we got to these new customers.
The next question is from the line of Alankar Garude from Macquarie.
Firstly, sir, was there a meaningful contribution from COVID-19 drugs for Aurore in FY '21? Because if you look at the year-on-year jump in EBITDA in FY '21 referring to the MCA data for FY '20, the jump seems quite high.
Yes, you're right. We did disclose that we were a significant player in the favipiravir place, we were an important player to the innovator. We did disclose that. We do have -- we continue to have developed the whole suite of COVID products at Aurore, and we are an important player in all the new repurposed drugs in COVID. So there's no product that we don't make.
And Arun, is it possible to comment on the sustainability of the INR 175 crores of EBITDA, which Aurore did in FY '21? So you feel confident of -- or Aurore feels confident of growing that number?
So we did guide you then that the EBITDA -- sustainable EBITDA has to be assumed at INR 150 crores because we did get a COVID bump last year, but we are very confident of growing that at a faster take than the Solara business because of the regulated market findings that have been completed and customer onboardings that have happened.
Understood. And my final question is again on ibuprofen backward integration. I just wanted to understand what led to this decision to backward integrate now after so many years? And will we follow a similar strategy for some of our other Top 10 products where we are not backward integration?
Yes, so 2 things. I mean, I'm addressing for Bharath in the interest of time. We did this decision to backward integrate 18 months ago. There were reasons of confidentiality and also various other reasons that this was not in the public domain. It was not a material -- it is a material investment from all aspects. But you can't -- we are actually, as Bharat said, getting into validation of a fully integrated ibuprofen player this quarter, right? So we -- you can't build a plant in 3 months. This was a 12 or 14-month facility build-out. It's one of the largest facilities and not only does it cater to our needs, but we can also sell the intermediates to other ibuprofen manufacturers. So we knew that if demand constraints were -- if we had headwinds and we were in this business for 30 years, it's a very different company from what we were in ibuprofen 30 years ago, right? One is we've got almost all of the marquee customers, brand owners, we are partnered with them. Our ibuprofen program was preordered, has been pre-advanced by one of the biggest ibuprofen consumers in the world. So when we went into becoming a stronger player in the space, we decided and to be sure that we were fully integrated. And it was something we took 14, 15 months ago a decision, it's just playing out now. And that will ensure that we continue to meet volumes and still give a reasonable absolute gross margin or EBITDA on this program going forward.
Ladies and gentlemen, this was the last question for the day. I would now like to hand the conference over to the management for closing comments.
So once again, thank you, everyone, for joining in these times where we all are dealing with multiple things. Wish you, again, the best of health for you on your loved ones. Reemphasizing a few key points. I hope that you've been able to paint a good picture of the fact that we have a very strong vision that's guiding our journey going forward for Solara 2.0. Reemphasizing also the point on the fact that the base demand that we talked about for the products in the base portfolio is situational, structurally, the market remains the same that it was 6 months ago. And we're well positioned to benefit when the demand comes back and grow profitably as we have done in the past. Thank you once again. Take care. Stay safe.
Thank you all.
Thank you. On behalf of Solara Active Pharma Sciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.