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Solara Active Pharma Sciences Ltd
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Ladies and gentlemen, good day, and welcome to the Solara Active Pharma Sciences Limited Q4 FY '20 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to 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 and full year ended financial year 2020. Today, we have with us Mr. Jitesh Devendra, Solara's Managing Director; Mr. Bharath Sesha, CEO; and Mr. Hariharan, the CFO, to share the highlights of the business and the 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 the 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 to Jitesh to make the opening remarks. Over to you, Jitesh.
Thanks Abhishek. Hi, friends. We welcome you all to Solara's quarter 4 FY '20 and full year FY '20 earnings call. I hope you all are fine and in good health at your respective locations along with your families. As you all know, our world has changed over the last few months, and the pandemic has impacted our communities, our work and rather our way of living. While all of this is difficult, unanticipated and unprecedented, it is also the time for us to look forward to a new normal we have entered into and to remain highly hopeful that the world will once again thrive for all of us to do what we aspire for. Today, joining on the call along with Abhishek and me are Hariharan, CFO; and Bharath Sesha, CEO of the company. I believe you have a copy of the results and hence in the interest of the time, I would like to spend a few minutes on critical factors that attributed to the results that were reported today. Going back to the quarter, that is Q4 FY '20, during the first 3 quarters, we witnessed quarter-on-quarter growth in our EBITDA, and we were tracking it INR 820 million from Q3. Suspension of production across our sites as well as logistics issues both for RM and finished goods led to lower sales in Q4 compared to Q3.Second, we stopped manufacturing and distribution of Ranitidine as U.S. FDA has determined that the NDMA impurity in some formulations products increases over time when stored at higher temperatures. Ranitidine constitutes approximately 7% of our overall revenue. The process is on to find alternate products, which can effectively utilize the capacities.On our revenue front, we could have done better. One of the main reasons was due to the customer ordering pattern of one of our top 10 APIs as well as delay in the ordering of validation quantities of our new products. As we speak, we are happy to share that the customer has started placing orders for the API, and we will see a positive outcome in the second half of FY '21.Coming to our new products. We have completed product development for 10 APIs up to December 2019, but we only filed 4 out of these. We have learnt that just by completing the development at lab does not necessarily mean we can go ahead with filing. There are genuine issues like the time it took to finalization of the specs with the customer obtaining the necessary license for products not registered in India, and in the last quarter, delay in receipt of the raw materials, which led to a lower number of filings. With the lessons learnt, we are confident of increasing the number of filings in FY '21. Our efforts to continue expanding markets for our API has led to adding 9 new markets. We believe such efforts will contribute to revenue growth, while it aids and derisks dependence on customer and markets we today operate. Despite the challenges, we are pleased to inform the growth of our EBITDA thereby resulting in a higher PAT compared to FY '19. This has resulted mainly due to our focus on continuous improvement programs. With a strong foundation built over the last 2 years, our focus for FY'21 is accelerating growth through revenue expansion by way of commissioning our new facility in Vizag; building our CRAMS business; expanding our APIs to new markets, new customers; and ramp up our new product filings. As guided before, while we are well ahead of our 3-year guidance on EBITDA and growth, we remain confident that we will achieve the 15% CAGR on revenue. I would now request Bharath to share his thoughts on the performance and as to what he thinks will be the key focus area for financial year FY '21. On to you, Bharath.
Thank you very much, Jitesh, and good afternoon to everyone. I hope all of you are keeping safe and healthy, and I hope you remain that way in the coming days and weeks. I want to build on what Jitesh has already shared about. I would like to re-emphasize that our commitment to employees' safety and customers has been unwavering. We took and continue to take all actions to secure a healthy environment for our employees and towards being a reliable partner for all our customers.In 2021, we will be focusing on 4 themes of customer centricity; new products and new markets; continuous improvement; and, of course, engaged employees. Each of these themes will provide us with critical levers to deliver growth for Solara. We believe that the full year '21 and in the future, a few macro developments will further enable our growth and enable our growth levers to succeed. And these include pharma companies looking to diversify their supply chains, some of the policy efforts by the Government of India to promote domestic API manufacturing and an increased focus on health care by various countries. Solara is well positioned to benefit from these trends as explained about. We stay very optimistic about the future and our capability to deliver on our midterm commitments. Thank you very much, and now we are open for Q&A. Abhishek, over to you.
[ Janice, ] can you please open it for Q&A?
[Operator Instructions] We take the first question from the line of Subrata Sarkar from [ Mount Infra Finance. ]
Hello?
Yes.
Hello?
Yes.
Sir, can you just explain like a little bit in detail like what is the particular reason for this quarter's degrowth in sales? And like how many days have we actually missed out in the quarter due to this COVID issue? And what is the current status of our plants, sir? How -- at what level -- are we operating or not? And at what level we are operating, sir?
Thanks. This is Jitesh here. So yes, the quarter 4 has been challenging. When -- we had a strong order book. The suspension in our productions because of the COVID, we had to go in for a complete lockdown, thereby, it did affect our revenues and our EBITDA. And also on the Ranitidine, I would like to highlight, I know this would be a question, we have taken full provisions in terms of the Ranitidine impact what it could have in the Q4 itself. So we don't see any negative impact of Ranitidine in this financial year. Going to your next question about our current state of operations, we have started in a phase-wise manner across all our locations, following all the regulations posted by the authorities.
Sir, my question is like how many days we have missed because of COVID, if you just help us to understand? And like what is the current status of the plants right now?
I already mentioned about the current status of the plants. As I mentioned in my last investor call, we were tracking well at the last quarter that is the Q3 EBITDA of INR 80 crores. So we were tracking well and we would have expected to hit that as a minimum number in Q4. But due to the issues which I've already explained and hence the lower number in the Q4 EBITDA.
Okay. And sir, regarding our this quarter -- or this year guidance of like despite Ranitidine like going off, which is almost 7% of our top line, we are guiding for almost 15% growth in sales. So is there any specific reason like missed sales per year, where we are expecting a big traction on our contract manufacturing area also, sir?
Yes. So when we guided the market on a 3-year basis, we would -- on a -- on the revenue front, we would grow at 15% and on EBITDA front at 20%. We are still confident about the guidance of what we have given earlier, and we maintain that guidance. And as I told in my opening speech, we have now commissioned our Vizag facility also. And there is an improvement in terms of some of our key APIs in the order book.
[Operator Instructions] We take the next question from the line of Ashwini Agarwal from Ashmore.
Obviously, it's a challenging quarter. Just speaking a little bit on Ranitidine. In the opening remarks, you mentioned that there should be no impact from Ranitidine going ahead. So did you see any product returns or any finished goods at your end because from what I recall the latest U.S. FDA guidance in the first week of April, I don't think it happened in the Jan to March quarter. Please correct me if I'm wrong.
Yes, it didn't, Ashwini. And we are continuing in discussions with our customers. Of course, Strides is the largest customer. But even though it happened it was at the end of the quarter, from a good governance perspective, we have made provisions in the Q4 result for Ranitidine.
So these provisions would be by way of writing down some inventories and finished goods? Or making provisions for returns? What is the nature of these provisions?
These provisions are mainly, Ashwini, Hari is here, for inventory what we are carrying, which the dispatches are held up, only for that. And as far all the products are sold and there is no return by any of the customers.
Are you liable for your returns? I don't know how your contracts...
Not for the returns. What Hari is mentioning, the provisions have been made for the inventory what is lying with us. Yes.
Correct.
No, the question I'm asking is that your contracts with customers, once a sale is done, it's full and final, there is no potential of return, correct? Is that how I should understand?
Yes. As far as the API is meeting the specification, there is no issue of return.
Okay. Okay. And would you be able to spell out what is the provision you have made with regard to inventory in the fourth quarter? So -- because we are looking at an EBITDA number, so that obviously has 2 components. One is one week of complete shutdown due to COVID-19? Or whatever, 8 days of complete shutdown due to COVID-19. And the other is because of the Ranitidine provisions, which would be I'm assuming one-off in nature. So could -- would you call out that number please?
We won't be able to give you a breakup, Ashwini, but when I say I will talk on behalf of Bharath and Hari. We are very confident about the Q4 number being in line with the Q3 or probably even higher. We were tracking at that rate.
Yes. Yes. No, I'm just trying to break up what is the loss in EBITDA due to production and what is the specific Ranitidine production -- Ranitidine provision. Anyhow, let's move on from that. So second question is that you mentioned in your presentation, and I just had like a minute or 2 to go through it because it just came out, is that you started production at Vizag. So what's the next sort of milestone there? You're going to file DMFs and then you will see a U.S. FDA inspection, and you've also written that you filed 2 DMFs? Are they from Vizag? Or are they from your existing U.S. FDA approved plants?
They are from the existing U.S. FDA inspected plants. In Vizag, the next step is, of course, the regulatory approval. And what we are doing is both -- 2 strategies: One is, of course, an approved DMF, which is already with us. We would qualify the plant because that way, it will trigger the inspection because the new DMF goes through its own cycle of revenue and then the approval. But the quickest way of doing it is in approved DMF, we would add Vizag as an additional site. So it triggers the inspection by the European and the U.S. FDA authorities.
And -- I mean, assuming that the lockdown n is lifted by June end, would it be reasonable to expect that this inspection gets done by September end?
No, that would be too early to say, Ashwini. But definitely the European authorities would be much quicker compared to the U.S. FDA and we are hoping that there would be sales from the Vizag in the second half of this financial year. We have other markets also where there is no regulatory approval required. It is more about GMP and submitting this for a quicker approval, we can access those markets.
Which is what my follow-up question is going to be that in the meanwhile do you plan to operate the plant and supply to other markets?
Yes.
What’s the gross block at Vizag which has been added?
Around INR 200 crores.
About INR 200 crores. And in light of what’s going on and you probably will continue to operate at subdued capacity utilization over April and May, I mean, would you say that there -- the first quarter is likely to continue to be a weak quarter? Would that be a reasonable assumption to work with?
Yes, Ashwini, because the production also at our various sites, as I mentioned before, is doing it in a phase-wise manner. And I'd like to reiterate to give the confidence that we have a strong order book and it is more about execution from operation and to ensure that the safety of the employees we have to do it in a very gradual and a phase-wise manner. As of now, touch wood, there has been no incident in our -- any of our facilities with all the safety measures what we have implemented.
Where are you facing the bottlenecks? Is it employees? Is it shipping? Is it raw materials? Where are the key bottlenecks?
It’s a combination of all, Ashwini, and given that we operate in multiple states, the ground realities are different than what it is mentioned out there that the pharma is an essential thing. But every state has its own challenge. But it’s good to say that over the last one week, at least it is eased out. We are getting the raw materials for initiating the manufacturing.
And last question is that is there any change to your CapEx plans in the current year looking at how the world has suddenly changed?
Ashwini, we would be looking at it because cash flow is very important, and we will be, again, deferring some of the CapEx what we have planned in the second half. We really want to see how the first half works and then take the, I would say, the B category CapEx into play.
And what is your existing CapEx budget for the current financial year?
We say normally that our CapEx is in the range of INR 100 crores maintenance and debottlenecking CapEx, and this year we’re estimating to INR 50 to 60 crores only.
[Operator Instructions] We take the next question from the line of Kunal from Antique Stockbroking.
So just a couple of questions. Sir, you made one very interesting comment that -- in the beginning that you are seeing improving macros for the API industry and maybe a bit of it is from the government, I think. So, can you just talk a bit more about it, are you sort of getting more inquiries from new customers? Is it from developed markets or developing markets? What exactly is it?
So this is Bharath here, so let me address that question. So the answer is all of the above. So on some of the products, we see traction from new customers inquiries going up. Some of our existing customers also have given us more bullish view about their requirements for the coming 6 months on. So it’s a mix of both.The other macro that we talked about in terms of diversification of supply chain risk is happening across the industry. I mean, this is not just specific to Solara and we have all been reading about it. The need for all sectors and particularly in the pharmaceutical industry to diversify the supply chains and we see that in a couple of our interactions with our customers that this is now becoming more of an urgent topic and something that they want to make tangible progress in, in the coming couple of quarters. So yes, we see the initial signs that these will eventually end up being a big beneficial macro development for Solara.
So, if I understand correctly you are saying that you will see some tangible improvement maybe very soon and even in your numbers in FY '21, correct?
Yes. So the discussions are preliminary with our customers in terms of -- but we do see the trend in a very positive manner.
Okay. I understand. But if things are progressing so well then why you're deferring your CapEx plans? I mean, why are you being a bit cautious here then?
I think it’s just prudence at this stage. As Jitesh mentioned earlier, we are monitoring the situation as these discussions mature and we get into a more confident situation with regards to how these will pan out during the year. We will revisit some of these decisions. As of now we are being very prudent about how the year will shape.
Okay. My second question is bookkeeping one. Your inventory has gone up such sharply year-on-year when -- even when revenues are down. So does it mean that some orders were probably delayed, and we could see revenue coming in 1Q FY '21?
Yes, you are right, sir. The inventory in the last 10 days we could not complete the -- all the products are in work-in-progress status and we could not convert it into finished products and complete the quality process. That’s the reason that inventory is a little high during the year-end. It will get normalized during the first quarter.
[Operator Instructions] Next question is from the line of Aditya [ Sinha ] from DSP Mutual Fund.
Aditya Khemka here. Just couple of questions for you, gentlemen. Firstly, if I look at your presentation, you have given a number on fixed asset turnovers. So fixed asset term for this year seems to be about 1.7 earlier -- which was 1.9 in the earlier year and this 1.7 now is adjusted for your Vizag unit, so it’s not that the Vizag unit is contributing to it. So my question, therefore, to you is given that some of our capacities might be slightly older and therefore the book value of the assets may not be close to the replacement value. Do you think for the -- for you and for the industry as a whole, the fixed asset terms will somewhat moderate from what the industry is currently reflecting because the newer capacities would be at a higher cost whereas the end product price would largely be the same regardless of whether it is manufactured at the new plant or the old plant?
Sir, the fixed assets value in our books is more on its revalued assets, which is to the current level of -- during the merger, we revalued all the fixed assets to the realistic value. We will be in the range of -- 1.9 will be our target we are working towards for FY '21.
And that 1.9 you say including the Vizag unit?
Some portion of the Vizag unit but not the full year revenue of Vizag.
Okay. Why would that be because you are accounting for the marginal capacity utilization that Vizag would have during the year. Is that right?
Yes, second half only that Jitesh has mentioned that in the second part of the year only that production will be starting from Vizag.
Right. So that’s why you are taking just a portion of it. Okay.
Correct. Yes.
And next question, your yearly concentration in customers and products seems to be 50 and 77, top 10 customers are 50, top 10 products are 77. But in the quarter, your top 10 customers seem to be 63, which is significantly higher than the yearly average of top 10 customers being 50. So does that basically mean that some of your customers gave you -- some of your larger customers gave you a pretty large order this quarter? Because that’s what the higher concentration would basically indicate?
Yes, it's -- so again I would say it’s a mix of 2. One is our existing customers the business continues to grow, which is good. And second is there is a marginal percentage also because of we did not ship out the inventory during the last 1 week or 10 days because of the lockdown.
Right but that wouldn’t increase the revenue from top 10 customers for the quarter, right?
I think that's right.
Yes.
Yes.
I think that's okay. Nextly, if I look at your cash flow statement, there is an intercorporate deposit of INR 50 crores done during this year and there is also a INR 55 crore investment in subsidiary. So, 2 questions here. Firstly, if you could elaborate on what's the investment in subsidiaries? Is this the Vizag plant, which is in a subsidiary? Is that what the investment in subsidiary is?
It’s an old acquisition. We did get Ambernath unit from Strides. That is -- during last year. That is what you're seeing reflected. And we canceled the part of the amount that has been paid during the current -- first quarter of the current financial year.
And this intercorporate deposit of INR 50 crores, sir?
It is our cash deposited.
With whom?
With one of our group companies and with the current market rate interest, which is expected during June.
But why do this, sir? I mean this could raise questions on the governance of the company. You could have deposited in the bank and your group company could have borrowed from the bank if they wanted to, right? Why we follow this practice of intercorporate deposits?
That is in line with our requirement -- we have done that in line with the statutory requirement we have done that.
No, no, I know statutorily it’s allowed. It's -- I’m not saying it’s illegal. I am saying from a perspective of corporate governance, intercorporate deposits between 2 entities maybe because we don’t know whom you have deposited to and what is the liquidity situation of the entity you have deposited with...
In fact, all consideration has been given and proper decision has been taken by the Board, based on what we have done, and it as part of the cash-only [indiscernible].
And as Hari mentioned, this will come back in the books in June. So we take note of your point.
Yes. I just wanted to make this point from a corporate governance perspective it leaves a bad taste in the mouth, that’s all I’m saying. You guys are large entities. You could do this with the banks instead of doing -- avoid situations like this.
Point noted.
Yes. Sorry, last question on this. If I may go back to the cost side of things. So, with the prices of crude coming down, could you give me some sense on -- so I understand that the prices of solvents and excipients to an extent depends on crude and given the shock that crude prices have seen, have you seen a decline in the prices of solvents and excipients, number one?Number two, if so, then are your customers asking you to pass on that cost benefit to them? And number three given the current situation of supply constraints within API and China taking opportunistic price increases, how are -- how is your pricing discipline in the current environment?
This is Jitesh here. So from a pricing policy, we have always maintained that Solara has never been opportunistic. We have always looked at long-term relationships. But the crude price, we don’t buy excipients, but we do buy solvents. We have not seen any reduction in the raw material price as on today because of the crude going down and not many raw materials depend on the crude factor for us.And the customers about asking for a price decrease because of the crude, we have not yet got any request from the customers to lower the pricing. And again, just going back to my statement, we have never been opportunistic. We have always looked at long-term relationships and that’s what has even guided us earn more business from our existing customers.
Sir, may I please request you to leave the line and queue for your follow-up?
No problem at all.
We take the next question from the line of Pritesh Vora from Mission Holdings.
Sir, you guided for 10% revenue growth and 15% EBITDA growth. Which are the products, which will contribute towards this over the next couple of years?
We did guide on a revenue growth of 15% on CAGR and 20% on EBITDA. Unfortunately, we don’t give product-by-product revenue breakup, but it is -- what I can say is, it is a combination of our existing products as well as the new products, which we have launched over the last 2 years, including the new product filings what we are doing, we see a revenue coming from the sale of the validation quantity. So these are the 3 aspects as far as the detail is concerned and the fourth is the CRAMS. We are seeing a traction in our CRAMS business. As we laid out, we have open bids over there with the customers and again because of COVID, there is some delay in the decision, but we are -- there is a high probability that CRAMS business also will constitute to our revenue growth.
So CRAMS business is a manufacturing business?
Yes. It's contract development and contract manufacturing. Yes.
And you already have put up a plant for that? Or how it will be worked out?
It’s our existing plants. Keeping Vizag aside, we have 5 manufacturing plants and we already have some legacy CRAMS business what we do from these sites.
And if I were to consider overall utilization of all your plants, what level you are running at?
Utilization of the plants, last we said we are at about 70% to 80%.
Including your Vizag plant?
No. Excluding Vizag.
Sorry?
Excluding Vizag.
Excluding Vizag. And Vizag can do what kind of turnover? A block of INR 200 crores, right? Vizag gross block is INR 200 crores, right?
Yes.
What kind of turnover it can be there?
The best way to look at it as an asset turnover.
What kind of asset turnover?
We have mentioned around 1.7x. Largely, we try to kind of achieve 1.7 to 1.9. We should be pretty much in that range.
That is depending on once we gait -- it will be based on the full year and once we have regulatory approvals from all the authorities.
We take the next question from the line of Saravanan Vishwanathan from Unifi Capital.
Can you take us through the debt reduction plans because you have mentioned that there won’t be major CapEx this year. So are you planning to reduce debt in this year?
So this -- we'll be availing the debt for the new facility for Vizag -- construction of the additional new facility in Vizag from the debt we have [indiscernible] and we will be repaying the INR 120 crores of debt repayment in the next financial year. More or less, the debt level will be in the same range.
Okay. In FY '21?
Yes.
Okay. This is a topical news, so our Vizag facility, is it away from the gas leak areas in Vizag, which is the unfortunate incident that has happened today?
Yes, it’s around 40 kilometers away from this -- our facility.
Okay. And the other point I wanted to have clarity was Ranitidine. [indiscernible]
Yes, we are looking at our facility for other products so that work is already in progress.
And the Ranitidine inventory, can it be sold in [indiscernible]
Yes, it can, but we [indiscernible] of how we do it because we don’t want to sell something and then get a recall. So we want to be cautiously [indiscernible] because there are other markets where ranitidine [indiscernible].
[indiscernible] you would try to seek some regulatory approvals [indiscernible]
Yes, and also the customer [indiscernible] repeating again, but I don’t want a situation where we send the material and then it is [indiscernible] recall and that tarnishes our image. So, we want to be cautious about that.
Even for India?
For any market.
For any market. Okay.
For any market because we don’t distinguish market based on the quality requirements. We have one quality policy across all our sites for all markets including India.
Next question is from the line of Rajat Setiya from VRDDHI Capital.
Just one question. Our gross margins expanded by around 5.5% in this year. Just wanted to check how much of that is sustainable?
So our gross margin, as we guided, we’re always looking at -- to be at a minimum of 50% to -- well, in this quarter it's beyond that, but it would not be less than 50%. And it’s also a mix of various things because there are certain times certain products there are campaign-based products, which have a higher gross margin and then the new product validations sales, those also are at much higher margins compared to the commercial products.
So -- and now you believe that the product mix and the scale has been reached that we can maintain 50% margins at all times and...
Yes.
Okay, understood. And one more follow-up question. What is the share of CRAMS in our overall business right now? And what's the outlook?
For CRAMS, it -- today, it is less than 10% of our overall revenues, but yes this is a significant pillar, which we want to build and one of the reasons also for raising equity through the promoters as well as through TPG is to look at inorganic acquisition in CRAMS, which can faster the process of growing this pillar of business.
The next question from the line of [indiscernible].
My questions have been answered.
We take the next question from the line of [ Jayesh Parekh ] from JMP Capital.
Yes. My question is for Mr. Hari. Till what period this tax provision would get adjusted by deferred tax?
Next 2 years, sir, minimum.
Next 2 years minimum.
Yes, sir.
And thereafter we should be following within normal tax, 25%.
Within normal tax, sir, because we also got that Vizag unit and that tax holiday will continue and other units will come under the normal tax, sir.
Mr. Parekh, have the answers helped you?
Yes. Yes. It's replied.
Next question is from the line of Sachin Kasera from Svan Investment.
Two questions from my side. One was this Ranitidine provision. So if you could just help us know whether it is reflected in the raw material cost? Or it is something that is reflected in the lower revenue? At least that would help us get some sense on the gross margins adjusted for the provisions?
Whatever the inventory what we are carrying has been already written off and it is adjusted in the gross margin.
Second was this net debt figure of INR 600 crores. Now you mentioned that this year you are looking at not more than INR 60 crores of CapEx. And you are looking at a 15%, 20% growth in EBITDA. So are we looking at reduction in the net debt? The INR 600 crores should come down and plus we have some warrants, which are still pending conversion, right? So how are we looking at the net debt figure next year?
We expect INR 280 crores warrant infusion fund during current year and we expect to repay around INR 120 crores debt during the current year. And we will be availing -- for the Vizag expansion we'll be having INR 100 crores more in the net debt [indiscernible] there will be a reduction in debt [indiscernible] compared to the current year.
Second thing, in terms of the pipeline that we have, what is the number of launches we are looking? And are we looking at incremental launches being much better gross margins, so the gross margins could tend to go up next [indiscernible] 1 to 2 years [indiscernible]
Based on the DMF filings what we have done over the last couple of years, we do expect some new launches also to happen in FY '21. While the gross margins, of course, for these new products are better than the commercial ones, we will not have a big significant impact on the gross margin because while the value is high, the volumes would be in [indiscernible]
Just one question regarding return on capital. We have almost close to double digit in the last 2 years. So how do we see this number in the next couple of years? Because you mentioned that the gross margin may not see a significant improvement. So is it just purely by operating leverage improvement? And what do you think is sustainable return on capital for the type of business that we are doing?
It will be around 18%, sir.
We take the last question from the line of Vibha Ravi from Scrip Intelligence.
I have just 2 questions. One is related to Ranitidine. So is that a story that is over because FDA at that time when the ban was imposed had said there could be some workaround in terms of their presence of NDMA, it could be a fixable problem. So do you see it as a fixable problem and do your customers view it as fixable problem or it’s like now this is a story that is over in all respects even with -- whether with respect to EU or India?
So to answer on Ranitidine so the US FDA has suspended. They have not banned the product. They have asked the finished dosage manufacturers to conduct more studies. So, we cannot completely write off on Ranitidine. The FDA has, of course, given some guidelines and if those guidelines are met, the customers can relaunch the product. So while that could be a very positive news for players who operate in Ranitidine API and finished dosage. But at Solara, we are already working to derisk [indiscernible] for future scenario [indiscernible] We will not be able to launch the APIs. We are already working on the derisk plan.
I just wanted to know what do you mean by the [indiscernible] plan? [indiscernible] that you are looking at using the facilities for other products. So, could you give some more additional details on that or you will try to rework the product itself Ranitidine? Are you moving out completely [indiscernible]
It’s not about moving out completely. When I talk about the derisk there are some APIs, which we have where the demand is sort of beyond our capacity and we are looking at, can we qualify this block for the products that we have [indiscernible] already having a higher demand. That’s one. Second is we are also looking at what are the new products we can file from this facility. Third is this facility is also available for our contract manufacturing business. So, these are the 3 ways what we are working in terms of how we utilize the capacity of Ranitidine.
Which are the other products that you are currently looking at that can be produced from this facility?
Unfortunately, we don’t give product details, so I will not be able to answer that.
[indiscernible] also spoke about opportunities in terms of diversification of supply chain that you are seeing and that’s an industry-wide trend that you said. So, where the opportunities in this case, which are the new molecules or where do you see your customers asking for more product areas [indiscernible] owned products?
So let me try and answer that. This is Bharath here. So, on 2 elements of the business, right, on CRAMS for sure that this will lead to some positive discussions with the customer when it comes t diversification of supply chain. So that is very dependent on the customer. Each customer has a different requirement on the product and we will work with them accordingly. On the overall APIs, it’s a bit too early to pinpoint to specific products. The general discussions, as I said earlier, are happening now at a very early stage with our customers, about some of their critical end products and we are looking at working with them on a few APIs. It’s difficult for me to pinpoint specific products where I see this, but what we can say is that these discussions are progressing with our customers.
Just to clarify one last time that is you are not completely moving out of Ranitidine, though you are looking at other products to kind of supplement or replace the income that was coming from this block from Ranitidine, but you are not completely moving out of it?
We continue to support our customers for them to ensure that we are able to relaunch the product meeting all the regulatory requirements.
So, there is a possibility of a relaunch?
Yes.
Well, ladies and gentlemen that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Over to you all.
We thank you again for participating in our earnings call and thank you for all those questions and we look forward to speaking to you in the next quarter. Thank you again.
Thank you very much. On behalf of Solara Active Pharma Sciences Limited, this concludes this conference. Thank you all for joining, and you may now disconnect your lines.