Strides Pharma Science Ltd

NSE:STAR

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Strides Pharma Science Limited. [Operator Instructions]. I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, Mr. Singhal.

[Abhishek Singhal, executive]

A very good afternoon, and thank you for joining us today for Strides Earnings Call for the first quarter ended financial year 2024. Today, we have with us Arun, Founder, Executive Chairperson, and Managing Director; and Badree, Executive Director of Finance and Group CFO, to share the highlights of the business and financials for the quarter. I hope you've 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 to Arun to make his opening comments.

[Arun Kumar, executive]

Good afternoon, and thank you, Abhishek. We appreciate everybody's time today for attending our call. Let me start by saying this has been an extremely pleasing quarter in terms of performance. We have bounced back strongly with 3 consecutive quarters of EBITDA in greater of INR 150 crores coming from post-COVID. The reset is now complete. And on a continuing basis, our revenues grew from INR 838 crores to INR 932 crores, although our reported numbers have not been adjusted for the discontinued business. So you may see those numbers as flat. But in effect, growth has been by 11%. But more importantly, we have increased our gross margin significantly by about almost 600 basis points and 3.5x growth in our EBITDA from INR 48 crores to INR 168 crores. But for the loss pickup of Stelis, which will continue till H1, when Stelis becomes EBITDA positive. We have reported a INR 30 crore PAT for the first time after many years, many quarters rather. Overall, as you know, the strike was in therapy focused on acute drugs. And we have historically a 40%, 60% split between 45%, 55% split within our revenues in H1 and H2 in terms of menarity. And from that perspective, we are bang on target to meet our guidance of our EBITDA growth and our revenue growth that we hope to achieve during this financial year. Importantly, we have been focusing on cost control, and those actions have started flowing through and have enabled our OpEx costs to reduce quite significantly, leading to improved margins. We hope our EBITDA margin from the 18% levels now will inch more towards the historical 20% in the next couple of quarters. And continued free cash generation will ensure that our debt book will be further improved. We guided between Stelis and Strides for a INR 500 crore reduction in debt. Most of you are familiar with the fact that we announced the sale of the vaccine/multimodal facility to Syngene for a consideration of INR 720 crores, which we hope to close by the end of Q3. And with those proceeds, we will beat the INR 500 crore guidance on debt reduction, which will significantly improve the overall performance of the company, the balance sheet of the company. U.S. business has grown quite significantly for us being -- we do have a very large seasonal product portfolio in the U.S., considering that we've had good growth in the U.S. with almost 30% growth Y-o-Y. This is a good start to our overall U.S. strategy. We continue to have product leadership in several products. And we do not see any margin pressure on our portfolio. We think overall, the business has stabilized, and the general sentiments around the U.S. markets are playing through in terms of improved margin expansions. Our other regulated markets grew 15%, and that continues to be a key focus market for us as we build out that market. As you probably know that the access market is lumpy in nature. It's very dependent on the tenders that we win. It's a small part of our business these days, considering that we don't focus so much on the access markets. But we continue to stay investing heavily in our growth markets in Africa and emerging markets. Although these businesses are small, we believe that this year, we will exit our growth markets from a very low base to almost about $60-odd million. That's our target for the year. And with all of these initiatives playing through, we are very happy with the overall performance of the company, and we are very confident that we will take even more stronger strides as we move forward in the next quarters. In terms of Thales, which is a significant associate of Strides, we have now derisked this business completely. We have had a good beginning of the year. We had -- as you probably are aware that we got RFD approval for the site a couple of quarters away before. And since then, we have been adding significant customer acquisitions. We now have closed contracts for $25 million of CDMO work in Q1, which is greater than our last 3 years' CDMO book. Our commercial supplies have started from the last quarter. Our customer got the first approval of a product developed and produced at a site. And we now have customers who've got 3 product approvals. We see a momentum of several product approvals coming our way. We are leading the Stelis operations through our complex manufacturing of devices and complex injectables. We just commissioned a drug substance plant, and I'm very pleased to announce our largest drug substance award from a top 10 pharmaceutical company that has come our way. This is a very significant contract for developing partnering from a CEO perspective for a key biologics product going off patent towards the end of the decade. Post the Syngene transaction, our debt in Stelis, which was a high of INR 1,400 crores last year, and it's now about INR 740 crores, will come down sub-INR 300 crores, significantly releasing the guarantees that parent has issued for the associate. One of the larger questions many of our stakeholders have been asking me about the family's commitment to run this business. And we are not only pleased to come back and run the ship but also committed ourselves to build Strides to a significant player. Consequently, to ensure that there are no conflicts, we are combining -- we are proposing to combine the CDMO businesses of the group under status so that we build Stelis into a multi-specialty CDMO with capabilities in Biologics, complex injectables, sterile injectables, which comes from the family office, but also in other complex drug delivery systems. The intent is for Strides to be a division of Strides and for Strides site control. At this time, we have appointed a big 4 for valuation and a global banker -- a leading global banker for pharma's opinions. We expect all of this to be in place in the next 12 weeks. And therefore, I'm not in a position to give you granularity except to state that we will have a CDMO business of close to about $150 million in year 1, and it's a significantly profitable business from the beginning, and it will create -- it will unlock value for both -- for all stakeholders. This is, of course, subject to shareholder approvals, lender approvals, and other processes that are involved in such combinations. But the intent is to ensure that our interests are aligned with those of the Strides shareholders. This has been a call for quite some time since I've come back to run the business, and I'm glad we took this call, and we'll give you more details in the next 12 weeks in terms of how and what this will all end up. All I can tell you is that the CDMO platform that we are building will be very differentiated. It will not have APIs or normal oral dosage format, but it will be a pure-play specialty pharmaceutical CDMO. And I'm sure that this will create significant value to Strides shareholders in the near term. With that, rather longish opening statement. I'm happy to answer questions. I have with me my colleagues, Badree and Vikesh, who will support any questions related to the financials or other parts of the business.

[Operator]

[Operator Instructions] We will take the first question from the line of Shantanu Maheshwari, an Individual Investor.

[Shantanu Maheshwaril]

I have a few questions on our U.S. business. First of all, our U.S. business stays at $57 million in quarter 1 FY '24. Any guidance you can provide on the growth of this business over the medium term or over the financial year FY '24?

[Arun Kumar, executive]

So we think the U.S. business will be steady this year at around $250-odd million. That's our target in terms of revenues. It's about $240 million to $250 million range.

[Shantanu Maheshwaril]

Got it. The second question is if you can provide your view around the current competitive scenario in the market as the several report on ROC shortages in the U.S. market. Are there any short-term opportunities that you see emerging? What kind of price erosion you are seeing in our current portfolio?

[Arun Kumar, executive]

So the U.S. is witnessing the highest number of shortages since several years now in terms of the number of products in the shortage list. We don't see any immediate upside because most of the shortages are related to injectables. In the U.S, there is a lot more discipline in the supply situation. I think I don't see any immediate one-off upsides coming our way because, firstly, we are in niche therapies and acute therapies only. So we have a very good track record for compliance and for supplies. So we are not reading any supply shortages. So we are meeting all our requirements. And I don't see any significant movement of supplies shortages coming our way in the kind of products that we offer.

[Operator]

[Operator Instructions] We'll take the next question from the line of Gaurang Sakari from Elara Capital.

[Gaurang Sakari, analyst]

And congrats on a great set of numbers. So just continuing on the U.S. market, while we may not be seeing any short-term opportunities, but do you feel that the long-term trend in U.S. regarding price erosion or competitive scenario is changing? Do you see that price erosion easing because some of your larger peers have reported that pricing scenario is improving in U.S. That's why I wanted to just have your thoughts on the topic.

[Arun Kumar, executive]

Well, if you see my calls -- go back to my calls over the last 3 quarters, I have been consistently saying we don't see price erosions on our portfolio. I continue to maintain that. And that is because of the nature of our portfolio being in the acute therapy, there aren't many competitors. The volumes are very small. I think it's more to do with the general commodity generics that we see stability from our perspective. So I agree with the general view of our largest peers. But overall, I think the buying universe is also becoming a lot more sensible in terms of being practical and not squeezing manufacturers out of the system as cost for compliance increases. You can't be in a lose-lose situation. I think that is causing shortages and the regulators and the cement has taken even the consolidators to talk and all of this is playing out well for manufacturers, finally.

[Gaurang Sakari, analyst]

Okay. Secondly, regarding the combining CDMO business under Stelis. So first slide, what would be the margin trajectory, let's say, in the next 2 to 3 years after the amalgamation and all these things are complete?

[Arun Kumar, executive]

Adjusted for -- so Stelis is a very large asset, right? And while we have over $400 million of contracts for commercial supply starting from FY '27, adjusted for the -- and Stelis of the EBITDA positive from H2 onwards. The CDMO business trades, we're doing 28% to 30% EBITDA. And we think that will be the EBITDA that that business will continue. And once the biologics business starts commercial supplies, then this will be a very profitable part of the group's business going forward.

[Operator]

The next question is from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

On the proposed Stelis restructuring that you're talking about, if you can give us a qualitative sense on what could be the nature of the business that will get created once approvals are through?

[Arun Kumar, executive]

Yes. So I mean, I just want to take this word restructuring away from you because it's actually a consolidation of our businesses to make it even a more attractive company. And what this will include is delivery technologies, mainly programs like Softails, which we are a global leader. It will include complex injectables devices, mainly devices, and auto-injectors. We're one of the few players who can do that. We are very big in the GLP programs. Our partners -- 2 of our partners have already been first to file. So we have a strong presence there in the GLP programs and all the GLP programs, the ones going off pattern soon in a couple of years and the new ones which are going out patenting mid-2030, we are the primary supplier for most of the GLPs that are going on place. We have complex injectables initialization. And so that's the combination. So we are not doing anything in APIs. We will not do anything in the standard vanilla oral dosage CDMOs.

[Nitin Agarwal, analyst]

Okay. And over a 2-, 3-year period, what could be the size and scale of this business, if you can hazard maybe a possible guess around it?

[Arun Kumar, executive]

So pro forma day 1, subject to approvals, it will be approximately $150-plus million in revenues, of which about $50 million or $60 million are related to Stride's CDMO. So incremental for Strides will be approximately $100 million of revenues in year 1, and we believe the CDMO business will hit about $400 million in FY '24.

[Nitin Agarwal, analyst]

That's a combined business.

[Arun Kumar, executive]

The CDMO combined business. Yes, right.

[Nitin Agarwal, analyst]

So that will include portions of biologics and everything else that is getting brought in now?

[Arun Kumar, executive]

Correct. And the Biologics is all contracted. So we have an average CSA, commercial sales agreement, which has delivered a little more than $100 million a year from FY '24.

[Nitin Agarwal, analyst]

That's interesting. And from a CapEx commitment perspective, for you to hit this milestone for the PDM mobile business and for whatever Strides intends to do in its own business. What kind of CapEx are we looking at over this time horizon?

[Arun Kumar, executive]

I think -- so basically, incremental CapEx in our CDMO business is funded by partners. So we don't see any near-term need for significant CapEx. The only thing is that we only have 8,000 liters of drug substance capacity given that we have sold the large facility to Syngene. So we will probably have to add more microbial and drug substance capacities, which will require approximately $30 million of new CapEx to get to that $400-odd million of revenues that I'm alluding to.

[Nitin Agarwal, analyst]

Okay. And I don't know, aside of this for -- excluding the Strides CDMO part of the business, I mean, how do you envisage the growth for the Strides business ex Stelis over this time horizon.

[Arun Kumar, executive]

So Nitin, at this time, this whole year, we are very focused on margin expansion. I think we've come a long way from where we started 4 quarters. So our revenue CAGR is forecasted only at 15%. But as our EBITDA CAGR has to be greater than that. And that's what we have achieved in the last 4 quarters. And that's going to be our focus also for the next year until FY '25. The whole idea is to generate significant free cash and bring our debt to EBITDA on the combined entity to under 2. So once we do that is when we can again press the accelerator. Remember, we have over 150 ANDAs that are not commercialized. So it's not a function of us waiting for product approvals to launch and increase our market. It is a calibration of price discipline that we have brought about the business that we want to maintain for another year. And that is why our free cash generation has started to improve. Our debt is starting to reduce. And you'll see a lot more free cash generation coming up in the next quarters as we rightsize our inefficiencies that we acquired in the last couple of years. So I'm more focused on that item to be candid and building out the CDMO business to be scaled because that's all contracted. We have 15 customers. We secured $25 million of CDMO contracts in the first 3 months of this year, which is greater than our contracts we secured in the last 3 years. So I'm very bullish on building that part of the business, while the product division will continue to grow, and we'll expand not necessarily in the U.S. as much as it will expand in emerging markets and in other regulated markets.

[Nitin Agarwal, analyst]

If you can squeeze the last one on $25 million of contract that you mentioned that you won in Q1. Typically, what is the time period above which such contracts are executed?

[Arun Kumar, executive]

Typically, a mate service agreement is executed between -- it can be as low as 12 months but not later than 24 months.

[Operator]

[Operator Instructions] We'll take the next question from the line of Jaimin Shah from JM Financial.

[Jaimin Shah, analyst]

My first question is on the expenses. Our other expenses and employee costs have declined. So can you highlight what are the cost initiatives that we've taken, which has led to this decline?

[Arun Kumar, executive]

I'm going to request Abishek, who's young CFO to answer this question.

[Abhishek Singhal, executive]

So on the employee cost and other expenses, one of the major factors that have played out is our cost optimization initiatives. So we had last year mentioned that we are doing a cost optimization at Chestnut in our plant in the U.S. So that has fully played out from this quarter. So that is one significant benefit. The freight costs have also improved. Outside of that, there is a small impact because of exchange, which is on a positive side. So we expect overall both the operating cost and the employee cost together to settle at around INR 400 crores per quarter.

[Jaimin Shah, analyst]

Yes, that's helpful. And how much of the debt reduction are we looking at from here? I mean, obviously, you're going to raise around INR 700 crores from Syngene sales.

[Abhishek Singhal, executive]

Yes. So we are upping our target from INR 500 crores consol between the 2 companies to now closer to INR 700 crores.

[Jaimin Shah, analyst]

Okay. And what is the rationale for selling our units to see when we are creating an entire CDMO business under one roof? So just a little more color on the...

[Abhishek Singhal, executive]

If I didn't sell it, then your question would be why are you cutting so much debt? So as a chicken or ex situation, we needed to rightsize the Stelis balance sheet given our challenges with Sputnik and the write-offs. And it was strategic for us to do it at that time. And incremental capacities can always be added in our FDA complex very quickly. The facility that we built for the multimodal facility is very large in terms of capacity. And it will take us a few more years of underutilization of that plant, which dragged down our P&L in sellers and would not have allowed us to consolidate our CDMOs and create more value by being a very comprehensive CDMO company. That also -- the whole Selim of the process got acceleration by that tactical or strategic move in the way you want to put it.

[Operator]

[Operator Instructions] We'll take the next question from the line of Atul Kadarran Wala from ICICI Securities.

[Atul Kadarran Wala, analyst]

So I had a question on the gross margins. So this quarter, I mean, there was a good swing in the gross margins. But going ahead, when we talk about the 60 product portfolio, what you have in the U.S. and the rest 100 and 150 products we would be launching. So I mean, the per-product realization of CC, it's close to $4 million on an annualized basis. So out of this 150 I mean, are we reasonably confident that whatever we're launching would not be margin dilutive? And for the -- not only just drive revenue but EBITDA as well.

[Arun Kumar, executive]

Yes. So Atul, just for your benefit, our gross margins are in this range for the last 3 quarters. So we have brought the margins up from 50 to the 57% to 60% range in the last 3 quarters. So we have been consistently improving our gross margin because of our pricing discipline. In previous calls, we have mentioned that out of the 150-odd ANDAs that we have, which we have not launched. Only 60 of them qualified are price discipline in terms of margins, gross margins, and EBITDA. So you're right that our average revenue per product is about $4 million, average revenue, but there are many products where our revenues are greater than $10 million. So out of the $60 million, it will take care of growth. It will ensure that the gross margins don't drop and will also ensure that there is some EBITDA flow-through because the gross margin is equal to EBITDA after a certain point in time, except for distribution costs. We don't intend to sell anything which do not meet the current gross margin set. So I hope that addresses your question.

[Atul Kadarran Wala, analyst]

Sure, sir. And sir, just one more on the Stelis. So the gross value of Stelis is close to INR 702 crores. And the debt retirement, we are talking about roughly INR 400 crores, INR 440 crores. So I mean, where are we usually using the balance amount from the Stelis?

[Arun Kumar, executive]

Yes. So there are certain CapEx creditors and others that will also be settled part of this transaction, and approximately INR 550 crores will go into Stelis. As you probably know that there is debt reduction of close to INR 500 crores -- about INR 400 crores, but there's also INR 150 crores that we reserve for our OpEx losses because we will be EBITDA positive only from H2.

[Operator]

[Operator Instructions] We'll take the next question from the line of Rohit Mundra, an individual investor.

[Rohit Mundra]

Just following on your initial lines about maintaining your store that you will be maintaining the guidance. So we have guided for an EBITDA of INR 700 crores to INR 750 crores per FCL. And if we were to achieve that, it would imply [indiscernible] INR 200-odd crores over the next 3 quarters. So are we confident of achieving the same number over the next 3 quarters? And what will be the driver?

[Arun Kumar, executive]

Yes. So when I opened the statement, I did say that being the type of portfolio that we have historically, for more than a decade, H2 is a typical 60% of our revenues and gross margins and EBITDA, and 40% is our H1 because we have got a lot of seasonal products, and we are very dependent on the flu season for several of our upsides in H2. And historically, we have a much higher H2. So if you look at that, then we are already at around -- if you look at a 45%, 55% split, then we are bang on target in Q1 with results that EBITDA.

[Operator]

[Operator Instructions] We'll take the next question from the line of Sarvesh Gupta from Maximal Capital.

[Sarvesh Gupta, analyst]

Congratulations on a steady set of numbers. So first question is on this proposed deal. So if I understand correctly, Strides holds around 30-odd percent in Stelis right now. Now in case some of the promoter businesses are merged into Stelis, that would mean a further dilution of Strides shareholding in Stelis, so how do we intend to increase the shareholding of Strides into Stelis so that it becomes a majority shareholder as per the slide?

[Arun Kumar, executive]

So I also mentioned that Strides will win its CDMO business into the Stelis infrastructure, subject to co-share approvals. And that will result in Strides having a lot more equity. Like I said, the scheme, the valuation reports, and the finance opinion will be available between 10 and 12 weeks from now. And the scheme details will be available then. It's a little too early for me to discuss specifics.

[Sarvesh Gupta, analyst]

Okay. So this $50 million, $60 million of Strides CDMO business will also be down streamed into Stelis. Is that the right understanding?

[Arun Kumar, executive]

Yes.

[Sarvesh Gupta, analyst]

Understood. And secondly, this debt -- on the debt reduction piece, so the INR 740 crores and so I understand INR 550 crores, which you explained, but how much of that is going under transition cost and capital gains of this INR 740-odd crores?

[Arun Kumar, executive]

Capital gains is very marginal, and the transaction costs are also very large. So this -- between 740 and INR 550, which is INR 190-odd crores how is that...

[Sarvesh Gupta, analyst]

705 million is the deal value. You have 720 or something. So if it's not 750. It's 720. So this INR 150 crores between INR 700 crore and INR 550 is going where?

[Arun Kumar, executive]

It goes to creditors. There are some CapEx creditors outstanding and also goes to partly lots to fund the loss funding of Stelis. Stelis continues to lose money for this first half, and it will be cash positive from next half of the financial year.

[Sarvesh Gupta, analyst]

Okay. And just to clarify on the CDMO plan. So overall, the plan is that at Stelis level, we want to increase the revenues to $400 million by FY '27. It should carry a 28% to 30% EBITDA and incremental CapEx is $30 million from here. Is that right?

[Arun Kumar, executive]

Correct.

[Operator]

[Operator Instructions] We'll take the next question from the line of Omkar, an Individual Investor.

[Unknown Analyst]

Congratulations for good operating margin number in this quarter. Sir, last time, I got a very last time to ask my questions. So please allow me to ask 2, 3 questions properly this time. I remember your sentence in the last conference call, setting Strides focus will be on improvement in gross margin and operating profit margin. Both of these things are in line with expectations, and operating profit margin is improving. That is a great thing. But Strides was planning for U.S. revenue around $65 million to $70 million. But again, in this commentary just now you said we have got a good Y-o-Y growth. But Q-o-Q, U.S. revenue has gone down by 10%. Any reason for it? Because we were planning $65 million to $70 million revenue last year also.

[Arun Kumar, executive]

No. So we have never guided that we will be doing $65 million to $70 million. So you are not paying attention to my commentary to say that historically, Strides has got significant sales in the U.S. in H2. And it's because we have a lot of seasonal products, which are linked to the flu season in the U.S. We have several products that meet that criteria. So we have grown significantly Y-on-Y, and we are in the right trajectory to get to a $250 million, $240 million to $250 million revenue this year. I guided that our U.S. revenue had last year, approximately $20 million of a specific contract that came part of the Endo transaction, which is no more there. So the actual growth is going from 200 to 240 to 250. So there's a significant growth in the U.S. core business because when we acquired the facility in New York, we had a one-off contract that lasted for about 24 months, which is no more there, but it is there in a very small value. So our core business has grown and has grown well. So we have not communicated to you or to anybody that we will do 70 million this quarter. We have grown quite significantly Q-on-Q, Y-on-Y, and Q-on-Q because Q4 was big, Q3 and Q4 are big quarters in the U.S. because of the trough season. It is quite natural that Q1 is. Historically, this is the story for Strides for the last 10 years. So this is not a new phenomenon.

[Unknown Analyst]

Okay. So you mean to say basis from 200 million to plan for EUR 240 million to EUR 250 million this financial year?

[Arun Kumar, executive]

Correct.

[Unknown Analyst]

And my second question regarding other regulated market revenue, which came from $40 million to $48 million in last quarter 4, thanks to Australia business in Q4. But again, this quarter, U.K. revenue is back to $325 million, which is a little bit lesser as compared to our, you can say, exit run rate of $40 million. So any specific reason other regulated market went down again from EUR 48 million to $35 million?

[Arun Kumar, executive]

No. So again, when we announced our Q4 results, we indicated a reorganization of how we will report. Earlier, our South African business was part of our other regulated markets. Now our South African business is part of our emerging markets and growth markets. So we have reported the reclassification of all the businesses in our Q4 results. If you would like to -- if you don't have access to it, it is there on our website, but more than happy to send it across to you.

[Operator]

Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Vishal Bohra from MK Ventures.

[Vishal Bohra, analyst]

Congratulations to the management for a very good performance. Sir, first, just want to understand there's more [indiscernible. Strides have done very well with the injectables portfolio, the Agila portfolio that was built earlier and sold off, I think more than 10 years back. When we were building this business under steady signs, and we were looking to merge that earlier also. Just want to understand now with the promoters finally deciding to consolidate these businesses under Stelis and taking in the tolling stake through sides. How do we look at, say, from a 3- to 5-year perspective, philosophically, the promoter's intention now to build this business again into a much bigger entity because historically, Strides has been more about building niches and then moving in, moving out. So in this round, how do you intend to build the business?

[Arun Kumar, executive]

Yes, Vishal, I think the environment keeps changing, right? I mean I don't think this is a time for us to build business to sell. This is a time for us to build business to consolidate, which is what we're doing. Secondly, if you recall from 2017, when I stepped off from active operations, we invested in high CapEx long-decision businesses. And typically, it takes 3 to 4 years for these kinds of complex businesses to make profits. It had been extremely dilutive for Strides and its shareholders for us to build a business when we were already struggling through COVID and reset to carry forward the business. But now that the circumstances make us commit to strides for long term, it's logical for us to consolidate our interest so that we take away all those challenges around businesses that potentially would compete with strikes, which is because now that if Stelis is a pure-play biologics company, this was not required. But now that we are now converting it into specialty CDMO, then obviously, there are conflicts which we are trying to avoid, and we would like to avoid, and we've been very focused on governance from the beginning. That's why we are taking great pains to appoint global advisers and at great cost to ensure that everything is cautious in terms of process. So the reason why you're bringing a business now is it's accretive. It should be accretive to Strides. The incremental EBITDA and the margins should be accretive. It will discover a significant value for Strides shareholders in some parts of this business that is currently sitting in a products company and not getting valued correctly. So I think all of this value unlock will benefit all stakeholders. And remember that we have been a minority shareholder for Strides for many, many years, for many decades, and is in our interest to protect all shareholder interests. So we just want to do everything proper, taking a little more time than we hoped for. But when you see the fairness opinion and stuff like that and the names that we have used, I'm sure you'll be convinced that this is in the best interest of all stakeholders.

[Vishal Bohra, analyst]

And sir, if you can describe a bit more about the businesses that are being considered, what kind of contracts or what kind of -- you mentioned a bit about the capabilities, but the contract...

[Arun Kumar, executive]

At this time, like I said, I started off in my opening that I will -- the reason why we decided to go public is that we have an in-principal approval of our Board and we are obliged to go public. I can't get into the granularity of the sum of parts of the business. All I can tell you is that this will be a powerhouse CDMO is very highly differentiated. And please bear with us, it's just 8 to 12 weeks away before you can get access to a lot more information and how we come about the same of parts.

[Vishal Bohra, analyst]

Noted, but given that you're guiding this business to be, say, a $400 million-plus business for another 3 years, as '27 onwards, given that that is very similar to the scale at which Strides itself is operating today. In 3 years' time, this business would be a meaningful component of the overall business and some attractiveness to potential investors' perspective, possibly even more active than the formulations generic formulations business. So any thoughts around this in the context of the overall scheme of things of Strides? Or is it too early to comment?

[Arun Kumar, executive]

It's very early to comment. And I would strongly request Vishal to be with us for 12 weeks. We will get a lot more granularity when we have information, which is where third-party organizations are currently conducting and then we can address more specifics around this.

[Vishal Bohra, analyst]

Sure, sir. If I may, just one last hygiene question. There is this write-off on Ranitidine, I think, taken this quarter as well. It's been some time since...

[Arun Kumar, executive]

The tail end of our litigation costs for the class action suits and all those things. So it's more or less done with, fully related to litigation.

[Operator]

Thank you. Ladies and gentlemen, as that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.

[Arun Kumar, executive]

Thank you. Thank you all for attending today's call. And if you have any questions, please feel free to contact one of us in our Investor Relations Group, and we'll be more than happy to address them. Thank you all.

[Operator]

Thank you very much, sir. On behalf of Strides Pharma Science Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.