Supriya Lifescience Ltd

NSE:SUPRIYA

Earnings Call Analysis

Supriya Lifescience Sees Strong Growth and Expanding Margins

Supriya Lifescience reported a robust 19% revenue growth year-on-year, reaching INR 166 crores in Q2 FY '25, bolstered by a 39% EBITDA margin and a PAT margin of 28%. The shift from generic to innovative high-margin products has driven 83% of revenues from exports, with significant growth in Latin America. The company anticipates 20% revenue growth annually and aims to double revenue to INR 1,000 crores by FY '27, focusing on niche markets. Expansion in production capacity and new product launches are expected to propel future growth, signaling increasing operational effectiveness and solid profits.

Strong Financial Performance Amid Strategic Transition

Supriya Lifescience Limited showcased robust growth during Q2 of FY '25, achieving revenues of INR 166 crores, a remarkable 19% increase year-on-year from INR 140 crores in Q2 FY '24. The half-year results reflected a similar strong trend, with revenues reaching approximately INR 327 crores, up 20% from INR 272 crores in the same period last year. This growth highlights the company's strategic shift from a generic OTC provider to a key player in the APIs market, emphasizing operational excellence and a solid financial foundation.

Impressive Margins Reflect Operational Efficiency

The company's EBITDA margin surged to 39% in Q2 FY '25, significantly improved from 23% a year ago, leading to an EBITDA of INR 64.7 crores—a doubling of the previous year's figure in the same quarter. Furthermore, the PAT margin showed a similar upward trend, reaching 28% in Q2, compared to 17% in the prior year. For the first half of the fiscal year, the PAT increased by 73% to INR 91 crores. The management remains optimistic about sustaining strong margins, projecting annual EBITDA margins to stabilize between 32% and 34% moving forward.

Diversified Portfolio and Increased International Presence

Supriya has notably transformed its portfolio, with 83% of its revenue coming from exports as of Q2 FY '25, climbing from 81% the previous year. Particularly, the Latin American market's contribution surged to 19%, an increase from 13%. The company serves over 1,700 clients across 128 countries, ensuring a robust customer base that fuels its growth ambitions. This strategic international focus, combined with the introduction of higher-margin products beyond anti-stimulants, underpins Supriya's long-term growth trajectory.

Future Growth Drivers and Capacity Expansion Plans

To further its growth, the company is ramping up its capabilities through a newly established formulation facility in Ambernath, which started commercial production in Q4 FY '24. Upon successful validation of an additional facility, the company anticipates nearly doubling its production capacity to approximately 1,020 kl. This expansion is expected to accommodate the launch of new product lines and contract manufacturing operations. Management targets a revenue increase to INR 1,000 crores by FY '27, expecting continuous demand in high-margin niche markets.

Maintaining Conservative Financial Management

Despite growth ambitions, Supriya has maintained a conservative financial approach with a minimal debt-to-equity ratio of 0.01. This prudent strategy includes utilizing letters of credit and bank guarantees, steering clear of excessive reliance on working capital. Investor confidence remains high due to this stable financial positioning, which supports ongoing operational expansions without compromising financial health.

Navigating Regulatory Markets and Backward Integration Strategy

Supriya's commitment to backward integration has strengthened its margins by allowing the company to produce its advanced intermediates in-house, significantly reducing costs. The company is also striving to penetrate more regulated markets, where higher average selling prices contribute positively to margins. Management expects to complete registrations for several products in international markets, which will enhance growth potential in the regulated sectors, particularly in North America and Europe.

Anticipated Growth Contributions from New Products

The expectations for H2 FY '25 are optimistic, with management predicting continued revenue growth above 20% year on year, supported by traction in new product launches and continued market expansion. The commercial production from new projects, such as the DSM contract, further drives these expectations. The board expresses confidence in achieving an annualized growth rate, with a cumulative revenue target of INR 1,000 crores by FY '27 being seen as a conservative estimate, likely influenced by the ramp-up of production capabilities and increased market demand.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Q2 FY '25 Earnings Conference Call of Supriya Lifescience Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Prachi Ambre from Orient Capital. Thank you, and over to you, Ms. Ambry.

[Prachi Ambre, analyst]

Thank you, Luke. Good afternoon, everyone. On behalf of Supriya Lifescience Limited, I extend a very warm welcome to all the participants.

Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, expectations as of today. These statements are not a guarantee of our future performance and involve unfortunate risks and uncertainties.

With this, I would like to hand over the call to Satish Wagh, Executive Chairman and Whole-time Director, for his opening remarks. Over to you, sir. Thank you.

[Satish Wagh, executive]

Good afternoon, and warm welcome to all the participants. Thank you for joining us today to discuss the Q2 and H1 financial year '25 results of Supriya Lifescience Limited. To take us through the results and answers to your questions, along with me: Dr. Saloni Wagh, Managing Director; Mr. Krishna Raghunathan, Chief Financial Officer; and our Investor Relations team, Orient Capital.

I hope everyone had an opportunity to go through the financial results and investor presentation, which we have uploaded on the stock exchange and on our company website. We are excited to share that Q2 financial year '25 has been another successful quarter for us. Revenues were 19% year-on-year to INR 166 crores. We have achieved an EBITDA margin of 39% and a PAT margin of 28%, underscoring our operational excellence and strong financial performance.

Supriya Lifescience Limited is committed through strengthening its position as a strong API manufacturer. Our strategic focus remains on expanding our product portfolio with while enhancing our presence in regulated markets and maintaining robust margins.

Over the year, Supriya has transformed from a generic OTC provider to an innovator within high margin revelative, export contribution has increased to 83% in Q2 financial year '25, up from 81% in Q2 financial year '24. LatAm has shown strong growth, with its share increasing to 19% this quarter from 13% in the same period last year. We have also seen positive momentum in other regions, including North America and Africa, further driving our grower expansion.

Our diverse customer base of 1,700-plus clients across 128 countries provides a strong foundation for our strategic shift. We have developed a promising pipeline of new products that exchange beyond our expertise in anti-stimulants incorporating anesthetics and the exact medications, antidiabetics and more.

To further accelerate our CMO and CDMO business, the new formulation facility in Ambernath has already started commercial production from Q4 financial year '24. Additionally, the validation of Mode C is underway with commercial production anticipated by Q3 financial year '25. Upon successful completion of this capacity revamping our total production capacity will nearly double, reaching approximately 1 0 2 0 can.

We are confident in achieving our 20% plus revenue growth guidance maintaining strong margins. We expect this year to be our highest in terms of EBITDA and PAT margin compared to the previous years. Our goal is to double the revenue to INR 1,000 crores by financial year '27 focusing on high-margin niche markets. We remain committed to expanding exciting molecules in regulated markets and fast track the commercialization of new products.

As we turns vision into a leading API manufacturer with exceptional capabilities, we are leveraging CMO, CDMO, opportunities to diversify and strengthen our revenue streams.

I will now hand over to our CFO, Sri Krishna Raghunathan, to present the financial highlights of Q2 financial year '25.

[Krishna Raghunathan, executive]

Thank you, sir. Hello, everyone, and good afternoon. I will now share the operational performance of the quarter and following which, we will open the floor for questions and answers.

In Q2 FY '25, our revenue from operations rose to INR 166 crores, reflecting a 19% year-on-year growth from INR 140 crore in Q2 FY '24. This momentum carried through the first half of financial year '25 with revenue reaching around INR 327 crores, a 20% increase over INR 272 crores in H1 FY '24.

Our EBITDA performance was also impressive with Q2 FY '25 EBITDA doubling to INR 64.7 crores from INR [31.some] crores in the same quarter last year, resulting in an EBITDA margin of 39%, up from 23%. For H1 FY '25 EBITDA reached INR 137.3 crores, a 68% increase compared to INR 26 crores in H1 FY '24.

On the bottom line, PAT nearly doubled in Q2 FY '25 reaching INR 46 crores compared to INR 24 crores in Q2 FY '24. Our PAT margin for the quarter improved significantly to 28%, up from 17% a year ago. For the first half of FY '25 PAT was INR 91 crores, a 73% increase from INR 52 crores in H1 FY '24 with PAT margins reaching 28% up from 19%.

Our annualized per turnover ratio has strengthened to 2.2 this quarter compared to 2.1 in the corresponding period last year. We continue to hold a strong financial position with a debt-to-equity ratio of 0.01. Significantly, we have maintained a conservative approach to borrowing by utilizing only letter of credits and bank guarantees without tapping into working capital limits.

Now we can open the floor for questions and answers. Thank you, all of you.

[Operator]

[Operator Instructions] Our first question comes from the line of air, MSC Capital Partners.

[Unknown Analyst]

Congratulations to the management for the great set of results. So sir, I wanted to quickly understand from you that we got 15 products that are now backward integrated. They generate 72% of our revenues and this has sharply improved from 69% last quarter. I wanted to understand from you, is it -- is that the reason that our gross margins improved significantly?

And a sub point to that would be that are all these backward integrated products like the 15 products that we've highlighted, are they all registered and regulated markets?

[Saloni Wagh, executive]

So yes, backward in, I would like to take that question. Yes, backward integration definitely helps in improving the margins because we do not outsource any advanced intermediates from outside. We make our own advanced intermediates right from the basic stage. So backward integration definitely helps in bringing the costs down.

One of the other reasons also for the margin improvement is better penetration into regulated markets. If you see for most of the regulated markets like North America, Latin America, our sales has gone up. So penetration into regulated markets where the average selling prices for the products are higher also adds to the margin improvement.

Yes, most of the products that we manufacture about this team we are fully backward integrated. And most of these are already present in regulated market. However, we are still expecting U.S. DMS. We are also expecting registration of some of these products in markets like Japan, Europe. By hopefully, Quarter 2 of next year, we should mostly have CEPs and USDMFs for all the products. But yes, the 15 products are mainly into more regulated markets.

[Unknown Analyst]

Okay. I also wanted to know, so you all went for the CFM conference, and I was seeing the banner of Supriya Limited also and phenomenal, I would say, the entire team that went with you. So wanted to know what was the feedback that you received from the formulator, from the innovator that came there? Any new takeaways from the trip?

[Saloni Wagh, executive]

Yes. I think the show was a great opportunity to showcase all the new products that we have launched. We have had a very good presence in CPHI for over 20 years, and all our customers have also seen the growth happening in the company.

We had a lot of new products coming up in our portfolio from anesthetic antidiabetic categories plus the launch of our new Ambernath site, which is focused on contract manufacturing for finished formulation. So a lot of new opportunities are on the card.

They have been approached by a lot of new companies for the newer products as well as for some of our existing products, we are seeing great traction in regulated markets. All in all, I would say that the show was a very successful one for us, and you can see the commercial implications of the show happening in the next coming quarters.

[Operator]

The next question is from the line of Hitesh from Lucky Investment.

[Unknown Analyst]

I have 2 questions. If you could see the capacity utilization pre and post this expansion that is being undertaken. My second question is whether the cost of these -- of the expanded capacity, 2,020 kiloliters, is it a part of P&L? Or is it going to be a part of P&L?

[Saloni Wagh, executive]

So I'll answer the first part of the question. Before modules you see what introduced. We were at almost 550 capacity and our capacity utilization was upwards of 76%, which is the optimized capacity utilization considering that it is a multipurpose facility. The Module E has just been added. We have completed the validation. We are expecting to start the commercial production in Quarter 3. So once that is done, it would take us at least 1.5 to 2 years to have maximum utilization of this new added capacity.

And for the second half, Krishna will answer.

[Krishna Raghunathan, executive]

Basically, when it comes to the cost of Modules, there could be another couple of crores, which can get added up to the P&L. As of now, there would be a you call around 30, 40 person, which we might have and the power costs, which will increase. Basically, we also see a saving in power costs overall because we have already initialized solar power for the plant. And that will give us some bit of a saving, which has already started.

So to answer your question, yes, might be a couple of crores on the OpEx front can get added up apart from EBITDA on the power side.

[Unknown Analyst]

Couple of crores per month, a couple of crores per quarter?

[Krishna Raghunathan, executive]

12 months yes, not 1 month, it would be per quarter.

[Unknown Analyst]

Per quarter, okay. So in your last call, you had mentioned that your H2 will be better than H1. So are you sticking to that thought process? Or there any change there?

[Krishna Raghunathan, executive]

On the top line, yes, of course, we will have an improvement in the -- when compared to H1.

[Unknown Analyst]

And what about margins?

[Krishna Raghunathan, executive]

Margins?

[Saloni Wagh, executive]

On the margin front, also, definitely, we think, like our Chairman said in speech also in terms of the absolute EBITDA value and the fat value, we definitely think that this would be our best year so far.

[Unknown Analyst]

Okay. So basically, H2 should be better than H1 on an overall basis?

[Krishna Raghunathan, executive]

Yes.

[Unknown Analyst]

Okay. And my last question is when you look at the half yearly margin number and when you look at your commentary for H2, versus that you guys have given a guidance of 50% only in the EBITDA margin. So how should we read both these statements?

[Saloni Wagh, executive]

So we have also informed this after our first quarter results that we are definitely expecting better margin profile for the rest of the year. Quarter-on-quarter margin variation will be there because it is the earlier function of product mix and geographic mix. But like I said, if you look at the annualized number in terms of the absolute EBITDA and PAT value, it will definitely be our highest so far.

[Unknown Analyst]

Okay. And this expanded capacity of 500 kl, can you help us with the utilization ramp-up possibility year 1, year 2, year 3? And what is the total revenue potential out of this capacity?

[Saloni Wagh, executive]

So revenue potential at this point, I will not be able to say because it depends on the product that we are going to put in this plant. But it will take us at least 2 years to get to complete utilization of this new module. It will start. The commercial production will start in Quarter 3.

[Unknown Analyst]

So 2 years in, should we say FY '27 where you reach the full utilization?

[Saloni Wagh, executive]

Yes.

[Unknown Analyst]

On an exit quarter basis, 27%. On a full year basis is 2-year basis?

[Saloni Wagh, executive]

By '27, by end of FY '27, we'll be able to utilize full capacity of this new...

[Unknown Analyst]

So that means, exit quarterly basically. Exit quarterly FY '27 will be a full year -- full utilization.

[Saloni Wagh, executive]

Yes.

[Operator]

The next question is from the line of Nirali Shah, from Haitong Financial Holding.

[Nirali Shah, analyst]

Congratulations on this great set of numbers. I have 2 very quick questions. First one is on the Brazil. We have -- we were registering some products in the Brazil geography. So any update on that registration states? And if you could add on -- any color on the market opportunity for these products is IV when quantitative terms?

[Saloni Wagh, executive]

Yes. So like we have mentioned in the past also, the Latin American market is one of our focused markets, and we have done extensive registration in Brazil for at least sign off our products. We even heard the Visa audit without 0 observations beginning of this year. And you can see the revenue growth happening in the Latin American market. It has gone up from 9% to almost 19% in this quarter. And you can expect a similar time moving forward also when some of the other products also start getting traction.

[Nirali Shah, analyst]

Okay. And just one more on the cancer detection. So any progress on the delivery tied guess we had an identified partners in progress on that?

[Saloni Wagh, executive]

So yes, in the -- at the moment, we are in the process of filing all our international taking -- so we have already selected a first cut of these countries like Korea, Thailand, Indonesia, Philippines, where we are now filing the patent in those respective countries. So we expect that this activity would be completed in the next 2 or 3 months after which we will start with the clinical trials and all the other related information.

So in the next 2 to 3 years, you can expect the commercialization of the project. But yes, it is very much on track, and the filing of the patent has already started in a lot of other markets other than India as well.

[Operator]

The next question is from the line of Aditya Pal from MSA Capital Partners.

[Unknown Analyst]

So I was trying to reconcile the capacity that is there in the presentation as well that you're discussing that capacity will be increased to 2,020 kl per day. So I'm not able to reconcile, can you help give the numbers?

[Saloni Wagh, executive]

So it is approximately 550. Currently, our capacity out of the ABC B-block where we are operating. It is approximately 540 kl. And then we are adding about 400-odd kl capacity with the new Module E, which is coming in. And then we are also adding the Ambernath site, which is about 70 kl. So all in all, put together, it would be about 1,020 kl in terms of capacity.

[Unknown Analyst]

In thousands of with all the numbers that I have, like, I'll take the top line with you. So that's not an issue. Just another data point that I wanted was that -- so 83% from exports, if I were to bifurcate it between regulated and semi-regulated market, what would be split?

[Saloni Wagh, executive]

So for us, approximately 50% to 51% would be a regulated market, and then the balance would be the semi-regulated markets and a little bit of the domestic market. But over 50% -- I think about 52% or 53% is regulated.

[Unknown Analyst]

Understood. One last question that I had was trying to understand the raw material status of Supriya. So which would be that one key raw material that Supriya requires to start because we are backward integrated. So we are not really relied -- we're not really reliant on the inputs. But if I were to say, with one key raw material that you need to start production.

[Saloni Wagh, executive]

No. So for us, if you look at our product portfolio, and it is also one of our key strengths. It is very diverse in terms of the processes we are able to handle in-house. There is no one common raw material that there is a high dependence. Each product has its own starting raw material. And we are backward integrated up to the basic chemical stage.

And more -- I mean, mostly, these are -- these basic chemicals are available across different industries. They are not very specific to pharma as well. So they are cheaply and widely available across the group. So as such, I would not say there is any dependence on any key starting material for us.

[Operator]

[Operator Instructions] The next question is from the line of Richa from Equity Master.

[Unknown Analyst]

Sir, my question is if you could share some updates on how CDMO and CMO opportunities are shaping up. I think you had earlier mentioned that there would be some revenue contribution from third quarter. So what kind of visibility do we have for this year and maybe for the next 2, 3 years from this CDMO, CMO space?

[Saloni Wagh, executive]

So this CMO, CDMO opportunities are moving fairly well. We already have started seeing some contribution from one of our European CMO opportunities, which will get reflected in Quarter 3 of this year. So overall, they are moving well. The full effect of the CMO, CDMO, you will be able to see in the next 2 years, our anticipation is that in the next 3 years, it should contribute closer to 20% of the total revenue.

[Unknown Analyst]

Okay. And my second question is that your guidance for EBITDA margin has been in the range of 28% to 30%. And that is conservative as compared to what we have seen in the recent quarters. Is it because you expect the share from regulated markets to come down over the next 2 to 3 years? Or what is the reason for that conservative guidance?

[Saloni Wagh, executive]

No. Actually, we have -- after the first quarter's earnings call, we have already said that we would like to revise our margin guidance. It will definitely be higher than 28% to 30%. Like I said, in what range of 30s, it would be, it completely depends in that quarter on the product mix and the geographic mix. But what we would like to say is that in terms of the absolute EBITDA and the absolute PAT value, you will definitely see a growth from this year onwards.

[Unknown Analyst]

Okay. And can you also share after this year, what is the plan for CapEx if there is any meaningful CapEx planned by the company or budget so far?

[Krishna Raghunathan, executive]

See, the current year, we will be closing the Module E and the Ambernath facility. And I think beyond which we might have to take up the Module ABC for our repairs, I think which would be to the tune of around INR 100 crores, which will be taking it over phases. I think that is something which we are planning at this stage. And the stock it would be the normal CapEx, which would be the maintenance CapEx for the existing modules that sold.

Other than that, we don't anticipate. The next 2 wave if at all, if it has to come, it would be the next level of expansion in Patalganga, that will be something, which we would be looking at this year. It's around 2.5 years to 3 years down the line is what we are thinking.

[Unknown Analyst]

Okay. Okay. And sir, my last question is that for FY '27, you shared a guidance of INR 1,000 crores. Does it include any contribution from oral cancer detection kits? And if not, I mean, what -- how is that shaping up both these areas? And by what year can we expect any kind of significant breakthrough or developments in this regard?

[Saloni Wagh, executive]

So no, it does not include any projections from the oral cancer kits. As of now, we don't have any projections in hand because this is still in clinical trials. But definitely, the overall global market for cancer detection kits is very, very large. So we can expect some commercial revenue to start coming in the next 3 years' time. And right now, we will not be having any number to give you. But if you take at least 3 years for this product to commercialize.ll

[Operator]

you. The next question is from the line of Pratik.

[Unknown Analyst]

I have 1 question. So when we say backward integrated, I mean, how do we define that or how backward integrated? And where do we start when it comes to any molecule that we do?

[Saloni Wagh, executive]

So backward integration means that we do not rely on any advanced intermediate outsourcing from outside. In APIs, usually N-1 is equivalent to a final product. Most of the API manufacturing companies before COVID they were outsourcing 1 or 2 and then only doing Banno stages in-house. Once you are getting the N-2 minus 1, it is as good as you're getting the final product and just doing the powder processing, which is the final step.

In this case, you have very little control on the costing of the product. In our case, we are backward integrated all the way up to the key starting raw material levels. So in many products, we manufacture in-house as much as 8, 9 steps.

So basic raw materials, which are the basic inputs in our products, these are available cheaply and widely. And these are just basic chemicals, not only restricted to the pharma industry. So as such, there is no scarcity shortage or dependence on any 1 country for availability of these key starting raw materials.

When you get these, usually the contribution of these key starting raw materials to the final price of the API is also not very high. So that is how you get a complete grip on the costing of your product, and it helps to bring the cost down. So this is why since the inception of the company, our Chairman and our philosophy has been focusing on backward integration.

Not only does it help with the cost and it will also definitely helps in the supply chain continuity. Also impurity profiling as far as regulatory is concerned, you have a far better grip as some paper when you are getting advance in the media from outside.

[Unknown Analyst]

Sure. In terms of, say, identifying new products or getting into something new. This would also be a key criteria for us before we develop a new product.

[Saloni Wagh, executive]

Yes. So eventually, when we launch a new product, we try to scale up that product in semi-regulated market. And once it has reached a certain size and we start focusing on backward integration. Since we take the product, the eventual plan is that, yes, we want to be fully backward integrated, but we do it in a phase-wise manner.

[Unknown Analyst]

Correct. Correct. And then for the last 3, 4 years, our gross margins used to be in 60s and for past 2 quarters, at least, we are in 70%. So this is just a function of reshifting our focus to regulated markets? Or is this something else to?

[Saloni Wagh, executive]

Yes, it is only us focusing on more regulated market. Most of the products that we have in the current portfolio, they are mature products where we already have backbone integration, where we have already got all the regulatory approvals. Also these products are doing really well in regulated markets, and that is why you see the improvement in the gross margins as well as in the EBITDA.

What will happen is that in the Quarter 3, Quarter 4, when we start adding new products into the product mix, there will be some level of margin dilution, which will happen because new products usually scale up first in semi-regulated markets. And then they mature into more regulated markets.

So that's why we believe that there would be some slight margin dilution. But of course, we will grow in terms of revenue, 20% plus year-on-year. And with that, definitely there will be an improvement in absolute EBITDA in the PAT numbers.

[Unknown Analyst]

Correct. Correct. And then last on the LatAm opportunity, I mean you did -- I mean, we are seeing that in numbers, too, right? I mean proportion is increasing very quickly. So one -- I mean, 1 factor, which was playing in our favor was the Chinese players did not have this GMP compliance and that is where we came in. So how hard is it for them to get the GMP compliance? And then are you seeing any changes on their side that they have started taking this to kind of compete with us?

[Satish Wagh, executive]

See, basically, if you see in China, nobody bothers for GMP at all because so far a couple of years, everybody was really to buy from China and get the profits on a more higher side. In our case, we have decided that we will do everything at our aid because we have GMP, CGMP, U.S. FDA, EU GMP, all that factors in our favor.

So we consider our own policy and our things that we will manufacture rather than going to buy from China. So we work about China. And even if you say and go to them and put GMP, they will not get GMP for another 10 years. That was we know because we have been going to China for at least not within 25 years.

[Operator]

The next question is from the line of Aashish Upganlawar from InvesQ.

[Aashish Upganlawar, analyst]

Most of my questions have been answered, but just to understand, sir, historically, your margins have been kind of high, but there has been volatility across the years. The last instance was because of Chinese customers, I think there was a drop. So we had drawn on the margin. So now that we've recovered to around close to 40%, how do you rate -- how do we read this actually because probably today, everything is going well. Probably demand side is strong and also there are issues with GMV, as you mentioned now for the Chinese players.

So is there any third to give margins again being volatile over the years, an inventory situation on customers and was anything else that you would like to highlight? Or this is going to be stable at these kind of margins?

[Saloni Wagh, executive]

So like I said before also, see, quarter-on-quarter, there will be some volatility in the margins because it depends on which product is going in which geography. And most of our products, some of them have already matured in regulated markets. Some are still under registration. We will also be launching a lot of new products, which will first scale up in semi-regulated markets.

So depending on the product and geographic mix, you can expect that quarter-on-quarter, there will still be a little bit of volatility in the margins. But what we would like to highlight here is on that annualized basis, we are expecting our margin trend to be somewhere between that 32% to 34% moving forward.

And year-on-year, definitely, you will see that in terms of the actual growth in the EBITDA number and the PAT number that you will be able to see very clearly. Quarter-on-quarter guidance, we will not like to give. But annualized, this is like I said, 32% to 34% is something. Moving forward also, we are confident that we will be able to maintain.

[Aashish Upganlawar, analyst]

Yes, my point was mostly related to how do we grow on annualized basis. So if I have to take a view as to going 2 years ahead, will this margin suffice? So you said that base would be 32% to 34%, but one can not say whether this 39% will stay stable or is it going to go down or up. That's what the reading is?

[Saloni Wagh, executive]

Yes. So 32% to 34% would be stabilized because what will also happen is that we are introducing a lot of new products in the portfolio. Currently, what revenue you're looking at is mainly our existing mature products in regulated markets. But as we grow, our revenue base is also going to grow. The products which we are going to add, it will be more diverse portfolio.

So with us growing much larger in top line, there will definitely be some dilution in the margin. But if you look at the absolute number of EBITDA, what we are doing today and what we will do in the next 2 years, you will see a significant growth.

[Satish Wagh, executive]

I would like to add on this one more. I will tell you the Supriya's ideology. See, we don't manufacture any products, which are being manufactured in India, and we fight with Indian manufacturers. This is very clear. What we going to manufacture and what we are going to do is the products, which are being catered from China to whole of the world.

Now you understand. All over the world where it is being supplied, the plants are non-GMP plants. But there is no manufacturer who is having the GMP, GMP with the supply buyers, that is why people are continuing to buy. Now you have seen Latin America, there is a massive change that without GMV, they will not buy.

Similar rate, there are more and more or the countries, which are coming, and we will be doing only chemistry based on the products, which will hit China. There, we are confident that we are telling our customers please don't ask for any reduction in the price. This is our ideology because you should be happy that rather than the non-GMV plant, you are buying the material, even intermediate API from U.S. FDA plant. And that is being given a gearing signal to many of the multinationals and many manufacturers that they feel very much secured.

We give end-to-end solutions. We don't buy N-2, minus 3, minus 4. We go for the basic where people use cyanide is not avoid cyanide, and we will give the confidence. This is our ideology. So I'm sure we will definitely get a better EBITDA and better margins. And securities, sustainability to the business because people in the world expect that a good manufacturing U.S. FDA plant is giving all this to them.

[Aashish Upganlawar, analyst]

Okay. Okay. Sir, continuing on this, I just wanted to ask is for our set of products, which typically would be small issues that we always target. Would there be competition when you are bidding for -- where you are kind of convincing the clients to move from Chinese to your supply? Is there competition for that same pie? Or we are -- we have a very good right to win over there and less competition over there?

[Satish Wagh, executive]

Sir, why should we say it like this, every buyer is being forced to buy because he has no alternative. Correct? Everybody in the world is talking about GMP, CGV. Impurity profiles are going down. That means everybody is curious and wants a good quality product.

So in this case, it's some qualified good manufacturers with all these things. With this facility comes, we will have some few days, but it will definitely change.

[Aashish Upganlawar, analyst]

Okay. Okay. Okay. And sir, we worry with what you said right now, I think, for the last 3, 4 quarters. So how much of a maybe order of business that we would have won on this logic of us until now? Or is it still we are work in progress? Or we have seen initial success in this endless?

[Saloni Wagh, executive]

So this is still work in progress. For some of our existing products, yes, we have seen good traction in Europe and Latin American markets. But this philosophy and this will come in play in a very large way with some of the new products that we are launching, which you will be able to see hopefully from Quarter 4 of this year. But the full effect of the new products, we'll be able to see in Quarter 3 of next financial year.

[Aashish Upganlawar, analyst]

Okay. Okay. And likes of CDMO, the new products that we are launching now, what can be the contribution? I mean I understand it's very difficult to say, but what can be the contribution maybe 2 years out from these products on the top line at least? Is that a way to match that? Would you like to share that?ll

[Krishna Raghunathan, executive]

I think it's very, very difficult to quantify, but we believe that it should be in the range of around, say, 15%, which is something which is possible number to cap.

[Aashish Upganlawar, analyst]

Okay. So it's a material addition that new products will do to our top line?

[Krishna Raghunathan, executive]

Of course, yes, of course, of course.

[Saloni Wagh, executive]

Because most of these new products that we are launching, like our Chairman said the global volumes of these products high. And there is a lot of dependence on a single manufacturer for these products. So definitely, we can expect to get very good volume traction as soon as we launch these products.

[Aashish Upganlawar, analyst]

Right. And lastly, given the revenues that we have achieved in the first half, I think INR 325-odd crores, it looks likely that with H2 being heavy, we might -- would be around INR 700-odd crores in this year. So the guidance of say INR 1,000 crores for FY '27, the growth seems to be maybe in the [middle of 61%]. So is that really the picture that you would like to give us? Or is there a possibility of things getting added here on the driver, and this is a very conservative estimate that we are talking about?

[Saloni Wagh, executive]

Yes. This is definitely a very conservative estimate based on whatever projects are already in hand and the volumes where we are very clear with it. But definitely, with the Ambernath facility getting launched with the Module E coming in full effect and the new products also gaining traction in regulated markets, there is definitely a very positive upside to this number that we have communicated.

[Aashish Upganlawar, analyst]

Okay. So can we talk on a previous case rather on a very conservative case, maybe INR 200 crores of top line, which we used to talk maybe around that we intend to achieve this INR 100 crore mark that was taken then. So is that something in like maybe in 2017 or FY '27? It's you would not like to share any thoughts on that?

[Krishna Raghunathan, executive]

As of now, the base case is what we are looking at this INR 1,000 crore number, yes, I think there could be a lot of upside like what Dr. Saloni has said. The higher utilization from Ambernath, the higher utilization from Module E. See, as of now, we haven't factored some of these numbers, most probably during this year's budget.

In fact, that is what I was just talking to the Managing Director as well as Chairman today morning in our Board meeting that we will start this process now, and we will try and finalize this number.

See, there could be a lot of upside to this. The number of INR 1,000 crores, what you are seeing is base -- that is the base case number we are talking about.

[Aashish Upganlawar, analyst]

So what are the drivers for this additional that might come?

[Saloni Wagh, executive]

As I said, this is our existing portfolio growing in regulated market. Some of the new products getting traction in semi-regulated as well as regulated market. And then contributing to revenue. And of course, the CMO, CDMO opportunities that we have, both on the advanced intermediate API front as well as the CMO opportunities that we have on formulations from this moment now. So these are going to be the 4, 5 major growth drivers. And of course, Module E, what we have added, that is only going to facilitate the growth from API and the new products.

[Satish Wagh, executive]

It might be in a new therapeutic segment also. This is I can tell you.

[Aashish Upganlawar, analyst]

Yes, sir. So I mean, my point was that you are a pretty R&D-focused company and your focus is very -- I mean, very, very sharp on what you want to -- what kind of business that you want to do on which products and star? That's why I thought if there are opportunities, which are beyond the almost INR 1,000 crores, I should know that was the only purpose. Anyway, maybe we'll catch up one on one and try to understand more on where you're headed.

[Operator]

[Operator Instructions] The next question comes from the line of Shubham Hanna form investment Advisors.

[Unknown Analyst]

Congratulations on good set of numbers. Just want to know the margin profile in LatAm market versus European market?

[Saloni Wagh, executive]

So we will not be able to give you numbers on country or region-specific margin profile.

[Unknown Analyst]

Okay. And do you see actions to the semi-regulated market or a regulated market?

[Saloni Wagh, executive]

So LatAm we considered as a regulated market because going by our experience because we recently also had a Visa Brazil audit, and we have done 9 product registration with AMRISA. So given our experience, we feel the regulatory standards of Brazil and the Latin American markets are as stringent as U.S. FDA or Health Canada or Edikan. So we classify that as a regulated market.

[Unknown Analyst]

Okay. And what's the status of the U.S. FDA audit, which you have mentioned earlier in 1 of the call?

[Saloni Wagh, executive]

So we had our U.S. FDA in FY '20. And after that, we have not had any U.S. FDA audit. But beginning of this year, in February, we actually had a desktop EDQM and Health Canada audit, which we have feed. So we are not anticipating any U.S. FDA audit happening immediately. -- we do have a China and NPA audit in December. But other than that, we don't have any major upcoming regulatory audits.

[Operator]

The next question is from the line of Tushar Bohra from MKVentures.

[Tushar Bohra, analyst]

Congratulations to the management for a good set of numbers. First, a quick clarification on the previous Parexels question, while we may not have specific numbers for LatAm. But is it safe to assume that LatAm margins are similar or maybe slightly better than the corporate average because the higher contribution from LatAm has not prevented the margin profile from being strong?

[Saloni Wagh, executive]

Yes. So like I said, the regulated margin profile is higher as compared to the others and we consider LatAm to be a regulated market. So it would be similar.

[Tushar Bohra, analyst]

Second, despite a very, very strong gross margin performance, 70%, with -- the EBITDA margins are in line with last quarter primarily because of significantly higher operating costs. Should we assume that this is due to some of the buildup that we've had in anticipation for no new product development either on the search side or maybe operating cost with the new facilities have already started coming in from this quarter?

[Krishna Raghunathan, executive]

Yes. I think some of the formulation and also some of the R&D recruitments have already started pushers, you are right.

[Satish Wagh, executive]

The new plant, even validations and all are going on because before launching any API, we have to do all validations. So those things are going on.

[Tushar Bohra, analyst]

Got it, sir. Sorry quickly, on the CMO project, which I think in the previous call, you mentioned that DSN. Do we assume that this INR 50 crore per year starting FY '27, we have been conservative on the maximum annual potential and also on the launch time lines? Because I believe we've already launched this product out are going to the launch side?

[Saloni Wagh, executive]

So the project with DSN is getting launched in 3 phases. We have already launched because it's a vitamin product. It has applications across food, feed and pharma. So what we have currently launched is the feed application where you don't need any kind of regulatory approvals. But for the full you need the FSSAI approval, which we have just got last week. So next year, you will see the feed and the food volumes coming in.

For the pharma volumes, we still have to wait for 2 years because these are mainly targeting extremely regulated markets like Japan, U.S., Europe. So once the CEP, the USDMF number and the Japanese DMF number comes, then only we can start seeing the volumes from pharma.

So it will take us 3 years to reach that peak volume. After that, yes, there is a possibility that the number could be higher because both the companies, DSM as well as Supriya are aggressively looking at marketing this product. So there is definitely a potential for this number to be higher than the INR 50 crores, INR 60 crores what we have indicated.

[Tushar Bohra, analyst]

Then are we also looking at other products with DSM potentially?

[Saloni Wagh, executive]

Yes, I mean there is always a possibility because most of the multinationals like Chairman said, they have been given a mandate to consolidate portfolios with good manufacturers who have all the GMP and the regulatory requirements. So once we have established the confidence with DSM on this 1 project, there could definitely be larger opportunities for us.

[Satish Wagh, executive]

As you also know that they have already sold off their API plants. They are sitting with the cash and they want to concentrate on vitamin sector only. So there will be a possibility that once we complete this project, another projects will come from their end. That's a preliminary discussion has been taken place.

[Tushar Bohra, analyst]

Fantastic. Also, H2 revenues, we are looking at higher than H1. Should we assume that the DSM contract coming through, there's a CMO opportunity you had highlighted earlier in hospitals, some hospitals in these products, as well as the way opportunity. Some of these could start contributing in H2 and these, we expect a significant bump up in revenue going forward?

[Saloni Wagh, executive]

Yes. So definitely, some volumes from DSM will be added in the H2 number. Also some of the new products that we are launching in Quarter 3, we are expecting them also to get some traction in the nonregulated market. For the rate protein project, we are just waiting for our licenses to come. We are waiting on our FSSAI license, which also we are expecting should happen by end of Quarter 3. So with all these other products also contributing, we are expecting the revenue to be slightly higher as compared to H1.

[Tushar Bohra, analyst]

One last question, if I may. Just want to qualitatively understand some of the CDMO, CMO opportunities we are pursuing going forward, which -- where you may be some -- if you can give some color on the kind of opportunities we are pursuing. And if we can confirm that these will be in line with our margin guidance or higher in terms of the profitability potential for us.

Also, if you can -- Dr. Wagh mentioned, some new therapeutic area, you can share a bit more details on that, please?

[Saloni Wagh, executive]

So definitely, most of the contract manufacturing opportunities that we have on hand, are in line with the margin profile that we are currently doing. In fact, on the formulation and in contract manufacturing, we expect the margins would be even better than what we are currently doing. Also, definitely, that aspect is taken care of.

On the API advanced intermediate front, we have at least the 4 opportunities, which can start giving commercial revenue from Quarter 4 or Quarter 1 of next financial year. And on the Ambernath side, definitely once the validation is completed because Ambernath side on formulation is also going to be only a contract manufacturing site.

We are not certainly planning on coming up with our own level. It would just be for contract manufacturing formulation. So definitely, from Quarter 4 of this year or Quarter 1 of next year, we can start seeing some revenue generating from there. But all would be in line with the current margin, what we are doing.

[Operator]

In the interest of time, that was the last question for today's conference call use this conference. Thank you for joining. You may now disconnect your line.