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Solara Active Pharma Sciences Ltd
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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 Third Quarter and 9 Months Ended Financial Year 2021. Today, we have with us Mr. Bharath Sesha, Solara's MD and CEO; Mr. Hariharan, Executive Director, Finance; and Mr. Subhash Anand, CFO, to share the highlights of 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 the 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 risk pertaining to our business. After the end of this call, in case you have any further question, please feel free to reach out with the Investor Relations team. I now hand over the call to Bharath to make the opening remarks.
Thank you, Abhishek. Good afternoon, everyone. Thank you for joining this call today. Given it's our first call in the new year, I wanted to start by wishing all of you a great 2021. I'm sure we all want 2021 to be a safer and healthier year compared to the year that just went by. Coming to our results. I'm delighted to share that the momentum generated in the last 2 quarters continues, and Solara has delivered yet another strong quarter of financial results. We have been very successful at Solara in converting some of the situational upticks we saw in the first 2 quarters into more structural business strengths for the future. In this context, I'm proud to state that our reliability and world-class quality has been rewarded by our customers by increasing our share of wallet and partnering with us on new products. Our employees continue to be exemplary and have taken care to ensure a great balance between their health and wellness and the commitments we have to customers and society at large. Good to note that we have delivered the highest ever quarterly EBITDA and PAT in the history of this company. Our EBITDA stands at INR 1,085 million, with an EBITDA margin of 24.9%, leading to a PAT of INR 658 million. We have crossed full year '20 EBITDA and PAT in 3 quarters of FY '21. Our resilient performance is on the back of a diverse product portfolio, backed by a very strong world-class quality system and manufacturing infrastructure. As I mentioned in my last quarter call, the Solara differentiation continues to pay off, and we're strengthening and solidifying that differentiation with our customers. Let me talk about some of the underlying performance drivers. There is continued strong demand for our base products, and we continue to maintain our increased share of wallet with large customers, our continued strong performance in the regulated markets, and this quarter, you would have seen that we had stellar growth in other markets. These provide twin engines of continued growth for Solara. The Solara efficiency machine continue to deliver cost improvements, and we see this as a continuing competitive advantage for us. We also increased the speed of new product filings. Year-to-date, we have 5 U.S. DMFs, which are already higher than the FY '20 full year number, and 2 EU DMFs. Our speed of filing market extensions has also been quite strong, and we have filed 16 market extensions across 13 different markets year-to-date. And we remain on track to file 8 to 10 U.S. DMFs this year, and our market extensions will be in the range of 18 to 20. Talk a little bit about our CRAMS business. Again, I want to remind all of us that it's an incubation business for us, and we continue to track well to plan. We have seen much deeper engagement with some of the large pharma players, and we've had breakthroughs with customers in new markets. We see continued customer stickiness and multiple opportunities come through from existing customer base. We also have excellent revenue visibility for the next 9 to 12 months in our CRAMS business, which will provide further impetus for growth. Talk about our buyback facility. The commercialization happened as planned in quarter 3. We are currently ramping up the facility, and I'll give a little bit more color around it when I talk about the guidance. And we expect to reach our planned capacities in the coming few months. Our customer traction for Vizag has been very strong, and we've been very successful in placing all of our production in quarter 3 with both new and existing customers. I want to give some color about our future, give you some insight into what we have developed and how that leads for the future. Solara has built what we believe is a strong and enduring platform that consists of 2 essential pieces: the outside in and the inside out. Our global presence, long-standing customer relationships, breadth of product portfolio is enabling us to connect the dots sooner and get first-mover advantage on products and with customers. This, I call a strong outside in part of the platform. Backed up by robust manufacturing infrastructure, diverse assets in our manufacturing sites and a world-class quality system, underpinned by very strong scientific capabilities, provides the inside-out part of this platform. We believe these 2 parts of the platform enable us to react quickly to the market and customer needs and build a sustainable product portfolio that sets us up for success. On the strength of this platform, we made a conscious move to develop products, which are currently in the development phase, which are more complex to make where we can differentiate ourselves in the end market. This, we believe, will further anchor our strong customer relationships. This [ pivot ] into more complex molecules with higher barriers to entry, stronger customer engagement and higher-margin profiles has already gained momentum, and we have scaled up 2 such molecules in quarter 3, and we see very positive traction for them. This strength, coupled with the strong base business position, we believe has set us up for a very bright future. Now coming to our guidance. Our quarter 2 guidance was for revenue growth of 30-plus year-on-year and EBITDA growth of 40-plus year-on-year percentage. We remain on track for this to be achieved. However, there was a lingering effect of some COVID impacts that led to delays in ramp-up at Vizag. And let me be very clear and explicit that this is a onetime impact and which is well behind us currently. This has had, however, an impact in our revenues from Vizag. Consequently, we have adjusted our revenue guidance -- growth guidance to 25% to 30% year-on-year for FY '21. Our relentless focus on efficiencies and profitable growth continues, and we reaffirm our EBITDA growth guidance at 40-plus percent year-on-year. I would now request Subhash to share some details on the balance sheet and some key ratios.
Thanks, Bharath, and good afternoon, everyone. Just to talk about financial side of results. The financial ratios have continued to improve consistently over the last 3 quarters. The net debt as on 31st December is at INR 3,370 million after adjusting the surplus cash of INR 391.9 crores. The net current asset increased by INR 859 million from INR 3,582 million to INR 4,441 million, mainly contributed by higher receivable on account of increased sale in this quarter and also some delay in realizing government dues, primarily GST and export incentives. We expect this to be normalized in the coming quarters. While our net debt EBITDA ratio continue to be comfortable, less than 1x, our annualized ROCE EBIT 18.3% is pretty healthy. With a healthy balance sheet, a fresh infusion of capital and abundant opportunity, Solara is positioned exceptionally well for the future. With this, I conclude the financial side of the commentary. Hand it back to Bharath.
So Abhishek, over to you for Q&A.
Yes. Meerup, can we start the Q&A, please?
[Operator Instructions] First question is from the line of Alankar Garude from Macquarie.
Sir, my first question is, if you look at the top line growth, sequentially, there's INR 30 crores of increase, which has happened sequentially. And the regulated market sales are broadly flattish Q-o-Q, and the growth seems to have largely coming from the semi-regulated market. So is it fair to say that almost all of this sequential increase in top line -- has it come from Vizag only?
Alankar, thanks for the question. Actually, we've seen broad-based growth across all products. So I wouldn't say it's only Vizag. Vizag did contribute some element of that growth. As you also correctly observed, the less-regulated markets, we've grown atop other products also, across a host of products, in fact. So it's both Vizag and other products.
Understood, sir. Sir, just a follow-up on that. When do you expect regulated market sales from Vizag Phase I to begin?
So we are expecting that customer validations will happen in -- towards the end of this quarter, which means then we will have to wait for 12 to 15 months for regulatory approvals, which is customary. The only caveat I would like to add here is that given the COVID situation, it depends on when the regulators would like to visit for an inspection. So subject to that not being a further delay, we expect anywhere between 12 to 15 months, Alankar.
Understood, sir. So basically, unlikely that we'll have any regulated market sales from Vizag Phase I in FY '22 as well. Is that correct?
Vizag -- yes. So subject to no further delays due to COVID, then it is possible for some months towards the end of FY '22 still to have, but that's subject to auditors coming in, in the next 2, 3 months.
Understood, sir. My second question is, we had talked about some plans as far as expansion in Mysore is concerned. I think last time you had mentioned about buying additional land and working on a multiyear expansion plan for both intermediates as well as APIs. And apart from Mysore, you had also talked about investing in tech platforms. So if you could share your updated thoughts on both these expansion plans would be really helpful.
Yes. Thank you. So on Mysore, we have applied as part of the government PLI scheme for intermediate -- one intermediate. We are hoping to hear back soon on that. That will be -- Mysore would be the most probable location for that. In addition to that, we are looking at alternate options in Mysore, both in intermediates and in APIs. So that's currently under discussion in terms of the final product portfolio that is there. Talking about the tech platforms. We had -- I had shared with you last time that we were working on 3 to 4 new tech platforms. We expect proof-of-concept by the end of this calendar year for at least 2 of those. And that will help us then to scale it up further in the coming years. So that's kind of current status. So work is happening, it's on track, proof-of-concept expected towards the end of this calendar year.
And any, sir, broad thoughts as far as the Mysore expansion is concerned in terms of our capital outlook?
Alankar, basically, this year, we expect our CapEx to be in the range of INR 180 crore to INR 200 crore. We expect similar kind of a CapEx coming next year since we have an expansion plan and growth continue to be a focus. So we continue to be on a higher CapEx trajectory when it comes to Solara growth. Do you want to add something?
And across all sites, Alankar, including Mysore, so we are looking at strategically enhancing capacity in a few other sites or products, as I've discussed or shared in my opening remarks, that we have seen quite some traction for some of these products. So we will -- Mysore is definitely one of the focus areas for investments. We are also looking at other sites, Vizag.
And Vizag also will continue to be a focus area since [indiscernible] having tax advantage. We'll continue to see an opportunity in Vizag while we can bring it over there.
The next question is from the line of Tushar Manudhane from Motilal Oswal.
Congrats on a good set of numbers. Just coming to the guidance part. With doing the back of the envelope calculation for EBITDA, it seems that Q4 also would be as a singular EBITDA as we did in 3Q, while the Vizag ramp-up should happen. So is it conservative estimates? Or am I missing something?
So we've said 40-plus-percent EBITDA year-on-year growth, and that should be something that we are confident of delivering, Tushar.
Okay. Great. Also secondly, this other regulated markets have grown significantly in this particular quarter. So any particular geography you want to highlight or any products which have led this ramp-up?
So it's broad-based. So we've done very well in India market. We've done very well in the Middle East, North Africa markets. We have done well in APAC markets. So -- and in Latin America, we've made quite some inroads into new customers. All of this has contributed and helped us in quarter 3. So it's very broad-based. Keeping in line with our theme. We want to have broad-based growth, as currently, we already sell in 75-plus countries. So we continue to be broad based. Growth is very strong across all those regions I mentioned, Tushar.
And this is not like one-off. And this is -- at least the run rate would be quite sustainable from going forward as well?
Yes. We believe we have taken quite some strong positions in these markets with customers. We expect that we can sustain that going forward.
And just lastly, if you could share like in terms of -- if there is any spread between the profitability of regulator and semi-regulated market? Or you're more on the side of...
Sorry, go ahead.
Sorry. Or more or less, you are at a similar profitability level in these markets at the API level?
So it depends on the product. So some of the products you would find definitely a price differential, which is significant. Some of them will not be so significant. So difficult to paint it with a broad brush. But typically, you would find higher price levels and more traction in terms of pricing in the regulated space. But it depends very much on the product, so I hate to paint it with a broad brush, Tushar.
Got it. And just lastly, you referred or alluded to this more complex products where there is a high barrier to entry. Can you elaborate in further, like, where that complexity would lie in terms of development, manufacturing?
Absolutely. So it's across the spectrum. So when I say higher complex, it could be the way we make the product, the chemistry behind it, the number of steps it takes, the process that is used to make the product. All of these provide us the capabilities that we have developed to show differentiation. At the end of the day, it's about how the customer sees our product in a differentiated manner, and that's kind of what we are focusing on. So it could be in some products to do with the route we used to make the product. In some products, it would be to do with how we scale it up in manufacturing. So all of these provide barriers to -- or sorry, give us a differentiation in the end market towards our customers.
The next question is from the line of Ashwini Agarwal from Ashmore Investments.
Team, excellent results, congratulations. Quick question, Bharath. In your printed remarks, you made a statement while the demand picture on some of our products has moderated. What does that -- what are you trying to say? Or could you help us understand what you mean by that?
Yes. Thanks, Ashwini. So sure. So first, what I meant by that to say is that some of the products, we have seen some uptick in demand in quarter -- first 2 quarters. Some of them COVID related. Some of them could be due to some other reasons in the market of stocking. We had fully anticipated some moderation in demand, and that is what we had planned for, anticipated, and we have done suitable actions to enhance our product portfolio. So that is what I meant. The moderation is to do with very select products, which we have seen some uptick in demand in the first 2 quarters, which is consequently moderated in quarter 3.
Okay. And in Cuddalore, on the remediation, any news you'd like to share?
Sure, Ashwini. So we've had -- we've submitted all the actions that we had committed to, to the U.S. FDA on time with high quality. September 15, as I shared in my last investor call, we had the regulatory review call with the FDA, which went in, in our view, very positively. Also was the positive comments we got from the U.S. FDA. Now since then, it is up to the U.S. FDA to kind of progress to the next step of closing the inspection. As we understand, the norm is for the FDA to revisit the site and close the inspections. So we're waiting for that to happen. From our side, all the actions that needed to have been taken have been taken on time and with high quality.
And based on industry chatter, do you think that inspection is possible over the next 3 months or so, that might be still long drawn out?
Sorry to say, it's very difficult to hazard a guess on that one, Ashwini. I mean there are so many variables around it. And I would refrain from commenting on the U.S. FDA's priorities at this stage. So it's difficult to offer my opinion on it.
Only thing I'll add here, Ashwini. This has no impact on our ongoing business. It's business as usual. Everything is going on. So for us, we are able to move or we are able to take actions or steps which are important for us to move forward.
Sure, sure, sure. So okay, I'm going to push a little bit on fiscal '22. I know you don't have a formal guidance in place, and you had promised that you will put that out in -- only when you produce your March '21 quarter numbers. But the way at least I see it at present is that you'll probably see some tailwind from your CRAMS segment, which you think will ramp up over the next 9 months. Revenue, obviously, will get helped by Vizag. But there will be margin headwinds because it will be more sort of less regulated markets over developed markets. I mean, is that kind of, contextually, I'm in the right direction if I'm thinking about fiscal '22?
So in fiscal '22, if you look at the commentary that I said today, Ashwini, so strong presence across the markets, right? So we've also grown in regulated market space. We have breakthroughs that we have achieved over the course of this year. As you rightly point out, good presence in the less regulated space. Vizag will kick in, which gives us further impetus initially in a less regulated and then as the regulatory approvals happen in the regulated space. In addition to that, CRAMS, of course, will provide additional tailwinds, given that we have strong visibility towards revenue for FY '22. So the table is set quite positively for a good year. Beyond that, as you also rightly indicated, we will come back with more specific guidance as we conclude the year and come back to you guys.
Okay. And last question, could you give us some color on what you're doing in CRAMS? I mean what particular chemistries you're working with? Are you working with early-stage type of products or helping your clients with market extensions? What are you really doing in the CRAMS space?
So in the CRAMS space, we have most of our business in either commercialized molecules or in intermediates towards -- intermediates of molecules and a patent or in Phase III. There's very little that we do currently in our business profile as Phase I or Phase II. Most of it is commercial APIs, where we are currently working with our customers. A few of them intermediates to support their API. So that's kind of the profile of the business currently, Ashwini.
The next question is from the line of is from Cyndrella Thomas Carvalho (sic) [ Cyndrella Carvalho ] from Centrum Broking.
Sir, just a color on the quarterly margin. Sequentially, if we look at, gross margin is looking slightly lower. Any color on that, that you could help us, sir?
Sure. So gross margin is essentially due to product mix. We've -- I mean we've said in the last 2 quarters in our investor call that we've -- we had some capacity limitations in quarter 1, mainly because of COVID shutdown, quarter 2 because of the demand profile we saw on some of the products. So we had already guided then that we have allocated our capacity towards the slightly higher-margin profile. And what you see now is kind of what we had indicated already in the last 2 quarters. So product mix that kind of gives us this type of margin profile. So that's the main reason, Cyndrella.
Okay. And sir, if I look at our broad basket of products, and if you compare the pricing scenario in 1H versus now, even here in Q4 almost, do you see any change over there? Or you see a stable scenario for our basket of products, specifically the base products?
Predominantly stable. Very, very few examples where we've seen pricing pressures across the board. So it's been predominantly very stable pricing environment so far that we've seen.
We are seeing growth...
Sir, any Chinese supplies coming back, which is creating or you may expect it to create any kind of disruption?
So one of the comments I've made in my initial commentary is to say that some of the situational upticks we have now converted to structural business strength. So what I was alluding to is exactly like you asked, Cyndrella. We see increased activity from competition in China, yes. But that is not leading to any big impact for us in terms of either share of wallet or pricing. So far, we've been pretty strong in keeping our position based on the strength of what we have on quality, on reliability, et cetera. So, so far, we have not seen any major impact. And we are quite confident that we can maintain our presence where we have gained because of this.
So coming back to 9% support from new launches. How do you see this going ahead? If you could provide a little bit color on the FY '22 aspect on the new products would be very helpful.
Sure. So we've always said that 10% to 12% is kind of the range that we look for in terms of -- and if you look at 9 months, we are around 10% new products. We hope to keep it around that range of 10% to 12% going forward. And that will be kind of what we see as our goal in future quarters.
[Operator Instructions] The next question is from the line of Ranvir Singh from Sunidhi Securities and Finance.
Sir, on Vizag facility, what would be current capacity utilization in Q3?
So Q3, we were -- as I said, we were just ramping up. So it is less than 1/3 is the capacity utilization that we would have seen in Q3.
Okay. And Sub made a comment in your commentary that the situational uptick is now converting to structural changes. I believe that mostly in first and second quarter, the API -- overall, the industry dynamics was very positive. And so we expected that things will moderate going forward. So this moderation you see is going to stay here in Q4? Or going forward in Q4 FY '22 perspective, you see the overall demand -- demand scenario remains strong?
Our indications are that the demand scenario remains strong. As I said, a couple of select products, it has moderated and it was entirely anticipated. And as you rightly point out, we had also alluded to it in previous quarters. So our current view of demand for most of our products continues to remain quite stable for the coming few quarters.
Okay. And what was the pricing scenario?
Also stable. Most of our products see pricing stability. I had said in the last quarter investor call also, right? So there will always be price fluctuations on separate products, right? Each of them dictated by their own dynamics. The resilience and the strength of our product portfolio makes us kind of have some natural hedges against big swings, one way or the other. So that's kind of how we see it as a whole basket of products. We see stability in pricing in many markets with many products.
So especially in top products, are we witnessing any decline there in pricing?
Depends on the market. Some markets, we see some pricing pressures, but predominantly, where we are strong in markets, we do not see any major pricing pressures at this stage.
Okay. Okay. And just a clarity. Like new product contribution, if this new product is the product launched in this financial year, in 9 months?
Last 3 years. So commercial started -- 3 years. 3 years. So whenever commercial -- commercialization happens, 3 years from that.
The next question is from the line of Nikunj Mehta from HSBC Asset Management.
I have 3 questions. So the first question is regarding the Vizag facility. So since you have commissioned this facility, is it fair to say that the fixed costs related to this facility is kind of getting expensed out in terms of the P&L?
Yes, Nikunj. All the expenses of Vizag, now since it's commercialized, everything has been expensed.
Okay. So in that extent, any incremental improvement in capacity utilization would be an incremental margins to you, right, in that case?
Correct.
We also expect same, so that's right.
Okay. Okay. My second question is regarding the ibuprofen market in terms of global demand and supply. Do you see -- do you -- how is the demand panning out as per your expectation? And how do you see the global supply kind of getting added to that extent?
So if you look at the ibuprofen profile that we have in Solara, our presence is with long-standing customers in branded formulation business, a branded OTC business where we have been there in the regulated markets with customers for 10, 15 years. Now do the strength of the relationships we have and the long term that we have worked with them? Typically, we don't see a big impact that happens because of supply demand change. And we've not seen that so far also for our current ibuprofen business. And that continues to be our strength going forward, that we have these long-standing relationships, and we have seen the ability to work with our customers and going through any fluctuations that could happen. So we are quite stable that way. As I said earlier, there are -- supply demand wise, we are in a good situation. We have long-standing clients with long-term agreements. So we're in good situation in most of the markets of ibuprofen.
And for our big customers, what is the kind of demand growth is there for ibuprofen on the customer side?
Market-wise, we anticipate growth of the ibuprofen market as around 6% to 8% year-on-year. So that's kind of what we see as the kind of growth that we expect in the overall ibuprofen space going forward.
Okay. And my final question is regarding the CRAMS business. So you have mentioned in the call that you might be looking at some inorganic opportunities in this space. Just I wanted to get some sense in terms of opportunities available for the industry. We have seen that it's in a decent tailwind with a good growth visibility to that extent. And so how is the -- I mean, in terms of -- are there any assets available? Or is very far and few? Just wanted to get your sense?
So I mean, see, we are looking at assets from the filters of either signs, so where they bring additional capabilities from a tech platform or new science capabilities or they bring scale, which helps us bring multiple other products or capacities that we can add to the Solara family. So from that perspective is what we assess. To the broader question on what's happening out in the market, yes, there are tailwinds, but we continue to be active in this space, looking for inorganic opportunities. And we are -- when we find the right one, we will probably be more than happy to discuss that in more detail. At this stage, we are very actively looking, and we hope to find something in the coming years -- months.
Any kind of therapy specific you are looking at? Or it's more general in that sense?
So our preference would be to have it in the West. However, we are not looking only in the West. We're looking all over the world.
Okay. Okay. And therapy wise?
Not purely. We are agnostic to that.
The next question is from the line of Nitin Agarwal from DAM Capital.
Bharath, on your -- the revenue mix that you talked about in the current year because of the onetime COVID impact and all. So is this in the nature of sales, which just got deferred maybe to subsequent quarters? Or how should we look at that, the component of miss sales?
Yes, Nitin. So yes, so the way in, Vizag -- so given that it's going to less regulated markets, it's not deferred sales. But having said that, this is not a lost opportunity for the future. So these are markets and customers where we have long-standing relationships. So it's not that we've lost opportunities for the future. It's just in that current period of time, we may have not been able to fulfill certain demand from customers. So that's how I would suggest to look at it.
Okay. And secondly, on -- when you look at the gross margins the last 4 to 5 quarters. Subsequently, we've had a reasonable sort of uptick in margin, 56% and plus thereabout in the gross level. Now is this a sustainable gross margin level for the business? Or is there anything which can meaningfully change it one way or the other?
So we believe 53% to 55% is a good range for the future. It's a sustainable and good range for the future, Nitin.
But has it been at much higher level for the last 5 or 6 quarters now on that number?
Yes. So as we expand and grow and as we see that Vizag product will kick in for the less regulated space, so there will be some adjustment on this. You're right, we've been delivering. And as we have said, that part of it was because we were allocating capacities to higher-margin products in this year so far. Part of it is also because our sales mix from a market was very favorable so some of these were contributing factors. On a sustainable basis, we've always said that 53% to 55% is a good margin level on a sustainable basis. And as you rightly say, because of all the reasons I mentioned, we've been exceeding that so far.
Got it. And if you can, since we had so much discussion on Vizag, if you can just refresh a bit around -- I mean how does the whole Vizag -- if you're going to take a 3-year view of the Vizag unit and the impact it can make on your business, I mean, how will you sort of characterize the whole investment?
So it's a very positive investment for us. The way we look at it, as we announced in quarter 1 that this will add about 3,600 tons per annum of ibuprofen for us in Phase I. Phase II will be a multiproduct portfolio, campaign-based facility. Both will help us for a few reasons. One, on ibuprofen, we've always been capacity constrained. We have not been able to service feed demand that we have been getting from our customers. So this is going to help us significantly with answering and growing share of wallet with existing customers, entering new markets like what I shared earlier. Some of the markets that we have done very well are markets that are relatively new for ibuprofen for us because we were capacity constrained. So this will help us significantly in terms of our positioning our growth from Vizag on the ibuprofen facility. On the multi-product facility, as I had alluded to in my opening remarks, this platform of outside and inside out. We are seeing a huge traction of some of our customers pulling us to make some specific products, develop them, make them to support their growth. And there have been a couple of success stories already this year that we have experienced, Nitin. So with the addition of the multipurpose facility in Vizag, this gives us the capability to support customers. And this is really very secure business because there's a lot of pull from the customers. As I said, the new products would give us a favorable profile on the margins also. And all of this together will help us really in terms of our future growth for the next 2 to 3 years. I also want to add there, Nitin, that this is not the only place where we are looking at. As we said earlier, Subhash said and I added, that we are also looking at enhancing capacity for some of these products in. We are looking at Mysore for some greenfield opportunities. We are looking to expand capacity in our other facilities for select products where we have very firm and strong customer traction. So across the board, given that Vizag is going to be a flagship going forward for the reasons I said, but also broader across the board, there's quite some strength in the pivot that we've done towards getting into a different product profile of new products with customers.
And Bharath, on that, just taking it forward. What kind of CapEx sort of agent outline you should look at, say, over FY 2022, '23? Or roughly speaking, given the plan that we have?
Okay. I'll not say '23 this point of time, but the kind of growth that we are projecting and looking forward, we do see our CapEx to be, I'll say, in the range of INR 150 crore to INR 200 crore kind of numbers.
And Subhash, this will include both growth as well as maintenance CapEx?
Yes, this includes both the CapEx. Our regular CapEx is not that higher. Our regular CapEx is to the tune of, I'll say, around INR 50 crores, not more than that. So it's -- most of our CapEx is what we are looking as a growth CapEx.
Got it. And last thing, but just going back to that. On ibu, by when do you see the 3,600 of tons of capacity being largely utilized to you? By what period of time?
So in the coming, I would say, 3 to 6 months, we should be at boilerplate capacity. As I said, in quarter 3, Nitin, that our customer traction was very positive. We sold out whatever we made in quarter 3 in Vizag. So it's just that as we ramp up, we will continue to place that product in the market. And so by the next 3 to 6 months, we should be at boilerplate capacity.
And when does the [ MPP ] kick in, in the Vizag plant?
[ MPP].
[ MPP ] will kick in FY '22 quarter 1 through the Vizag validation.
The next question is from the line of Sajal Kapoor from Unseen Risk (sic) [ Unseen Value ].
I have a couple of questions for you. First one is Solara is the sole DMF filer from India of high potential [indiscernible]
Sir, sorry to interrupt you. Sir, sorry, but you're not quite audible. May I request you to speak a little louder?
Okay, sure. Is it better now?
Yes, sir.
Okay. So as I was saying that Solara is the sole DMF filer from India for a high potential molecule called colchicine. The molecule has shown promise in clinical trials in Canada by reducing hospitalization rates by 21%. So once the patent is expired, I believe that there is still on patent molecule but we are the sole DMF filer from India. So how do you see the medium to long-term opportunity for this molecule, please?
Quite positive. So we already see some traction from customers on this molecule. We're talking to a few of them. And as you very rightly pointed out, we are very, very well positioned to gain from any traction that happens in the overall demand. So we are positive based on customer discussions on this molecule.
Excellent to know that, Bharath. And secondly, after the Cuddalore U.S. FDA reprimand and the OAI, where I believe warning letter is imminent as the next step -- and of course, that happened before you took charge, Bharath, but what lessons in CAPA have been implemented on other sites since this has happened? Can shareholders be reassured of federal regulatory compliance from Solara going forward?
Sure. So just to clarify. I mean we are very confident that whatever the FDA observed in our -- in the inspection they did at Cuddalore has been adequately addressed with very high quality on time. So we are good on that regard. Now coming to your question on the other sites. Yes, so just to clarify. There's no warning letters, no OAI, and there is no indication that anything further is going to happen with that, at least from the FDA to us, just to make that very clear. But coming to your question on what we've done subsequent to that. We have institutionalized a process, which is a cloud-based platform, where we are instantly sharing any observations from either client audit, customer audit, regulatory audit of Solara sites or regulatory audits that are publicly available. Every quality head in every site looks at applicability of those observations, comes up with the relevant CAPAs and that is reviewed in the leadership team regularly. So we have institutionalized processes from a quality system perspective, which will make sure that there is always learning that happens at a very quick speed across all our sites. The other learning that we have taken from that and which is more to do with not just Solara, but all the people that were in the API of Ranitidine is the NDMA type issue. So for example, all our new products developed come with prior testing to make sure there is no NDMA risk in any of these products. Also, all our existing products have gone through the protocol of testing that FDA has prescribed to make sure we don't have any risks of these things. So some of the learnings have now become very structural and part of the DNA here in Solara.
That's reassuring, Bharath. And finally, if I could just squeeze in one last. As a question regarding the possibility of improvement in our gross margins over the medium to long term on the back of several favorable factors, both internal as well as external. So internally, we have seen increased R&D investment that should lead to both cost optimization as well as the better product mix. CRAMS focus and scale up will, obviously improve our margins because pure play CRAMS players make 75%, 80% gross margins with 35% EBITDA. And then, of course, there are external factors like increased support from government of India, global supply chain diversification is also sustainable tailwind. So in light of all these 4, 5 factors, can we see material improvement in our gross margins in, say, 5 years from now?
In the short term, we still stick to the 53% to 55%, right? And we'll come back to a more of a medium-term discussion as some of these evolve and unfold. Not just for Solara, but for the entire industry because some of the tailwinds you talk about are macro. We are well positioned in any of these indicators that you mentioned, right? We are well positioned when it comes to customer partnerships. We are well positioned when it comes to cost improvements. As you rightly point out, our R&D strength is very strong. So all of the enablers that you indicate, absolutely bang on. How this plays out in the medium term is something that we will keep our eye on, and we hope that like you do, that this will all be favorable as we go forward.
If there is opportunity, yes.
The next question is from the line of Saket Mehrotra from Tusk Investments.
Congratulations on the great set of numbers. So Bharath, the first question I have is on the capacity utilization. Could you show -- could you throw some color on how your current capacity there is utilized?
So our capacity utilization in the first half was in the early 80s, and that's kind of where we are currently.
Okay. So I believe there was some conversation around CapEx plans. You were saying that this year, you're planning to do somewhere around INR 180 crores INR 200 crores, which will be followed up again next week. Is that a fair estimate?
Yes, that's right.
Yes, Saket.
And -- okay. And finally, my final question is. Could you throw some light or some details on how the whole CRAMS and CDMO business is evolving? Because in the competitive landscape, we are seeing more and more to the companies who are moving away from API and getting into FDA from CRAMs and CDMO. So is there like a similar projection that Solara is planning to do? Or do we plan [ to do a pure play ] or something?
So you're right that there is a lot of companies that have aspirations. Now our CRAMS platform is built on a few very clear differentiators. First is legacy relationships. We've had relationships with some of our CRAMS customers that extend beyond 10 years. And we've been with them through that period, and we continue to be very fortunate to have them as part of our customer base. So that strength continues to give us opportunities on newer molecules that we work with them. The second is, as I alluded to earlier, the scientific capabilities that we have built in our R&D setup, which is enabling our pivot to new products, which I again described earlier in my commentary, also is extremely valid for CRAMS. So the strength of what we bring from science is also helping us differentiate us. The proof of the pudding, of course, is the fact that we've added 8 new customers this year already, out of which 2 are big pharma companies, and one of which we are working on repeat opportunities already within 3 months of the first engagement. So we see that we've got the activities going in the right direction. We've got the business building blocks set in the right way. Our inquiry pipeline keeps growing year-on-year. Our revenue visibility for next year is very, very strong, 9 to 12 months, I should say. So all of this makes me believe that our differentiated approach towards this industry is going to pay off in the long run. Just one caveat. As we have said, CRAMS is still less than a 10% part of our overall revenue. So the headroom for this to grow for us at Solara is still very strong, and we'll continue to pursue all these differentiators that I talked about.
Okay. And any update on the brownfield expansion that was planned? Are we looking at any update -- anything -- can we expect some announcement this year? Or again, nothing has materialized as of now?
No. So we do a regular expansion of capacities, as I said earlier, a couple of products where we have seen quite some traction with our customers. We will be -- but nothing that is significant at this stage that we would like to kind of share. As we analyze our next year CapEx, we will talk more about this, Saket.
The next question is from the line of Alankar Garude from Macquarie.
Sir, my question is when you said that new launches will continue to contribute anywhere between 10% to 12% over the next few quarters as well. So I was a bit surprised by that, given that in the next few quarters, you will have a much higher contribution coming in from ibuprofen. So does it mean that versus these 2 new launches, which you have done in the 9 months, and I'm not including the extension, can we expect a significant increase in the pace of new launches over the next few quarters?
So some of the products that we have now kind of in the stage of validating with our customers will scale up in the next, let's say, 6 to 8 quarters. Those will also contribute. We have some very, very interesting opportunities there. In addition to that, the filing that we will do in the course of the next 9, 12 months will also lead to some scale up that will happen. So all of this -- and also, we continue to kind of scale up, as I said, the 2 launches this year, we are just in the initial stages of scale up. They will contribute also significantly next year. So Alankar, all of these are what contribute to our statement in terms of 10% to 12%. And you're very right on ibuprofen, that Vizag will contribute. But because of the other reasons that I just talked about, we are still expecting to clock around that 10% to 12% on new products.
Any guidance you can share, sir, as far as new launches are concerned in FY '22?
So [indiscernible] our filing last year was 4. This year it's going to be 5. And I'm just talking U.S., I'm not talking Europe, right? So you can calculate for yourselves that once you do a filing, it takes some time for validation to happen and commercialization maybe within 18 months of that. So you can kind of calculate based on that, roughly, what will be the number of products that we will be able to launch in the coming 16 -- 18 to 24 months.
Understood. And final question. Subhash, sir. How should we look at the tax rate over the next 2 years?
Okay. In fact, we don't expect anything for this year. We are comfortably okay with a new budget, which has come in yesterday. We are trying to understand the impact. We don't see a major impact coming to us on a tax side, but we would like to do some more work before we give a guidance on tax. Maybe in the next couple of, I'll say, in a month or 2, when we come out with the guidance, we'll able to give a better view on the tax. But we don't see a major impact coming to us on a tax side. That's our initial impression when we've gone through the budget fine print.
The next question is from the line of Kunal Randeria from Edelweiss Financial Services.
Sir, supply is normalizing from China. Don't you see probably their portfolio that maybe a threat to some of the pricing on some of the key molecules?
So a couple of ways to look at that. So with supplies normalizing from China, we've been able to hold our own where we compete with suppliers from China. And we've done that across markets. I mean, we have very strong positions in regulated markets that we have gained in the last year, which we hope to keep -- or we know we will keep -- we're very confident of keeping. Then coming to the second part of it, there is not a dominant share of our products where we actually compete with supplier from China as the biggest threat. Most of it is from other parts of the world. What we expect will happen because of the issues around supply chain reliability in China is new opportunities could come to us, where people are looking at the reliability and our quality and our manufacturing infrastructure. And that we've seen in real life in a couple of examples across the world where customers have come to us and said, we're looking to develop second sourcing. We like working with you. Can you develop this product? And I also talked about it earlier in terms of our new product development strategy. So we see more new opportunities coming from that. We don't see a big impact when supplies normalize from China. I think there, we have been pretty good in taking positions and keeping them.
Sure. That's helpful. And my second question is a comment that you made in your opening remarks, where you said you've scaled up capacity for 2 products in this quarter. So I'm not sure if one of them is ibuprofen. But in general, I mean, if you can just run us through your thought process, why these 2 particular products are the kind of investments you have made, how your capacity stands against revenue and the growth rate of these molecules.
So let me clarify. What I meant to say was we've scaled up our production, not our capacity. So we had capacities already that in one of our facilities. So we scaled up our production, which means our market presence in these products. And it does not include ibuprofen. It's 2 other products which were newly launched and scaled up in this quarter. We actually newly launched, launched in the last couple of 16 months or so. So these products, I mean, we don't give product level information, but I'll give you some general color around the products. These products are complex to make, limited competition, strong customer agreements for the longer term and higher margins. So this is kind of the profile of these products, and both of which we have just started to scale up. Q3 saw the first phase of scaling up, and we will continue to scale that up in the course of this year and next.
Right. Okay. And just a follow-up to this. Maybe going forward 2 or 3 years down the line, what would be the proportion of some of these hard-to-manufacture sticky kind of revenue products?
I may come back to you on this, not because of any other reason, because that's something that we would like to give as part of the broader guidance that we will give on the coming quarter because we would like to make it as part of the overall guidance. So just allow us some time to come back to you on that.
The next question is from the line of Vaibhav from Ashmore.
Why is the depreciation constant...
Sorry to interrupt you, Vaibhav. May I request you to speak a little louder, please?
Why is it that depreciation is constant despite Vizag going online?
Vaibhav, you're not audible. May I request you to speak a little more louder, please?
Sir, why is it that depreciation is constant despite Vizag going online?
It's basically -- I won't say constant. It has some increase. But at the end, it's not addition. But also some of the assets go down to the value where they stop becoming more depreciable. So they have been charged off. So you don't see all the time depreciation going up at the same rate the way capitalization goes up.
[ In quarter ]?
Vaibhav, do you have any follow-up question?
No.
The next question is from the line of Vishal Jajoo from The Tycoon Mindset.
Team greetings for the good set of numbers. So my first question for the team is like, sir, how do you see going forward 3 to 5 years down the line? Which segment do you see becoming more profit -- will deliver huge growth to the company, both in terms of product segments and in terms of geographical locations as well? Where are we seeing growth for the near term on -- for the near 4 to 5 years?
So -- and I'm saying this looking at all 3 segments: base molecules, new molecules and CRAMS. If you look at each of these and you look at our strength in terms of base molecules, our existing customer portfolio, our strength in the regulated market space, our new entry in, particularly, markets which were underserved in the past, we're very confident that the growth trajectory on the base business will continue for us. On the new molecules, I talked about it already quite a bit. It's a pivot that we're doing, and we've already seen quite some initial momentum that will lead us going forward. And on the CRAMS side, again, I talked about the fact that we are still in the incubation space, huge headroom to continue to grow. So not just kind of balancing my answer for the sake of balancing, but all 3 we see as giving very good and strong contribution towards our future growth and profitability. So that's kind of how we see the coming 3 to 5 years.
Okay, okay. And sir, one other question. With respect to our current operating cash flow, and we are also investing in our CapEx, so does the management have any view on purchasing its buybacks -- or taking further buyback opportunities to own share? Or whether the fund has been secured for the -- as expansion only?
As of now, we are looking at expansion, yes.
And any thoughts on reducing the debt? Or it will be -- remain at the same guidance it was -- it was conservative on the previous conference call?
No, we are in a growth phase. So intent is to continue with our growth focus. And we do see an opportunity to grow. So the CapEx -- or I'll say, the positive cash flow will get deployed on growth side. When we see a right time to optimize that, we'll do that.
Okay. Okay. And any guidelines on the working capital? Like how is it moving into this last quarter or in the couple of last 2 to 3 quarters? Whether there is any change in the receivables or inventory or payable side?
Okay. If we talk about structural working capital, it's consistent, it's going in a similar trend. We don't see much change. But if you're looking in absolute working capital, yes, it has seen an increase, primarily since we are growing, and sales is going up. So the absolute receivables, we do see an increase in receivable. Coupled with, yes, there are some government collections which is being delayed because of COVID that we expect to normalize in the coming quarters. So structurally, we'll continue to be a well efficient working capital managed company.
The next question is from the line of Tushar Manudhane from Motilal Oswal.
Sir, just clarity on the Vizag facility. Given that there has been delay because of the regulatory part on the, let's say, developed market. Can there be a delay on the other regulated markets or semi-regulated markets as well because of this delay in the -- getting compliance in place?
So let me clarify that, Tushar. There is no delay on getting compliance in place. There is fully -- everything is going as per track in terms of validation quantities, et cetera. We had always guided that in quarter 4 or early quarter 1 FY '22, the validations will be complete, and we will wait for regulatory approvals. So I just wanted to clarify, there is no delay in that. What has happened, of course, is the ramp-up is a little bit less. We talked about capacity utilization earlier. We had expected that to be higher than what it is now. That's the only variation to the original thinking or plan of Vizag.
Got you. And just while the validation stays or continue, is there any product from the shortage which could trigger much earlier inspection for this facility?
So we don't -- I mean, that's something that we'll have to see how it plays out. At this stage, we don't see any visibility of such an event happening. We'll see how that plays out and then take it as it comes.
Ladies and gentlemen, we will take the last question from the line of [ Ishmed ] from Sionic Advisors.
Congratulations for a good set of numbers. My question was, are we seeing a structural change in the API pricing dynamics and the API industry itself?
So see, it's difficult to paint it with a broad brush. There are multiple areas where we see structurally that situation is very conducive and positive, not just for Solara but also for the broader API industry in India. But talking particularly about Solara. I mean, as I've said earlier, the base molecules that we are currently in, we see stability in pricing in most of the markets where we are strong on the new molecules where, of course, differentiated, gives us the opportunity. As the structure in the API industry, yes, I mean, of course, now with the supply chain reliability being a key indicator for many of our customers, the balance between reliability and pricing when it comes to choosing an API partner is much better and much more balanced than in the past. So that is definitely a change that we have seen.
And sir, second question was in terms of the acquisition that we like -- that we might do on the CRAMS side. So there's this another CRAMS company [ that I'll be including ]. So in 2011, they acquired -- they did a bolt-on for acquiring backlog of products. So are we looking at something similar? Or are we planning to acquire a separate capacity or something?
So we are looking at either science or scale. So science means that they bring tech capabilities or acquired -- the target brings something that we don't have from that perspective, or they bring us capacities and products that we currently don't have. So we're looking at either that or this or hopefully both. So that's how we are approaching our inorganic strategy.
Thank you very much. I now hand the conference over to the management for closing comments.
So once again, thank you, everyone, for joining this call, participating in this last hour. We wish you the best for the coming year. We all hope it's healthier and safer for all of us. From Solara side and all our employees, thank you again and have a healthy, safety -- safe 2021 ahead. Take care. Thanks. Bye.
Thank you.