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Suven Pharmaceuticals Ltd
Earnings Call Analysis
Q2-2024 Analysis
Suven Pharmaceuticals Ltd
The company reported a year-on-year increase in adjusted EBITDA by 3.6%, totaling INR 270 crores, with a strong adjusted EBITDA margin of 46.7%, up from 42.2% the previous year. Despite quarterly revenue from operations seeing a 14% decline, the adjusted EBITDA margin remained robust at 43.8%, attributed to an advantageous product mix.
The first half of FY '24 saw a pronounced revenue growth of 42% year-on-year, unaffected by COVID molecule considerations and Spec Chem sectors. The Contract Development and Manufacturing Organization (CDMO) business continued to expand, seeing a 24% growth in the same period. The company also boasts a robust pipeline with over 100 projects across various development phases, indicating sustained growth potential. However, the specialty chemical segment experienced a decline due to global supply chain destocking, though no structural business changes are expected.
The formulation segment within the Services division marked an 82% growth, albeit from a smaller base. The company has a total of 17 Abbreviated New Drug Applications (ANDAs) in process, with positive expectations on forthcoming approvals, underlining a promising outlook for the segment.
The company disclosed capital expenditures (CapEx) of INR 57 crores for the Suven project in the first half of the year. There are plans to commission a new block by the end of the fiscal year and further CapEx estimated between INR 30 crores to INR 40 crores for the first phase of a new center, anticipated to be ready by Suven FY '25.
An operating cash flow of INR 252 crores was generated in the first half of the year, with total cash and equivalents standing at INR 71 crores. Looking ahead, the company expects the Pharma CDMO segment to maintain its positive trajectory, but forecasts a softer performance in the next three quarters for the Spec Chem segment.
Following a smooth transition to new management, feedback from key customers has been favorable, reinforcing positive expectations. Leadership has expanded to deepen commercial and operational expertise, particularly in the EU and U.S. markets. The company is dedicated to retaining its unique culture while aiming to evolve as a globally recognized CDMO leader from India, leveraging macro trends and robust internal capabilities to create value sustained over decades.
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Ladies and gentlemen, good day, and welcome to the Suven Pharmaceuticals Limited Q2 and H1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's performance have been e-mailed to you earlier. I now hand the conference over to Head IR, Ms. Cyndrella Carvalho, Suven Pharmaceuticals Limited. Thank you, and over to you, ma'am.
Thanks, Alan. Good evening, everyone. Today, we have our management team with us. I'll introduce you to our network. Mr. Annaswamy Vaidheesh, Execute chairman. Dr. V. Prasada Raju, Managing Director; and Dr. Sudhir Kumar Singh, Chief Executive Officer; Mr. Venkatraman Sunder, VP Corporate; and Mr. P. Subba Rao, Chief Financial Officer.
I will now turn over the call to Vaidheesh for the opening remarks.
Thank you very much, Cyndrella. So first and foremost, before I start the presentation, and good evening, everyone. And we deeply appreciate each one of you for finding time to be in the call. Thank you very much. And also best wishes to you and your family for our festive season and advanced wishes for Happy Diwali.
This is the start of a new journey for Suven Pharma. And me and my full team are very excited about the next phase of Sun's growth. Firstly, we want to thank Mr. Jasti for giving us an opportunity to carry forward its business like lead item have created.
We believe that Suven is a world-class CDMO with a credible track record of serving select innovative pharma and specialty [indiscernible] customers. Suven has demonstrated track record of execution and delivery excellence with a strong back end. We plan to scale up Suven's capability and to build a strong leader in the CDMO space. Our goal is to rapidly scale Suven Pharma to transform into a globally respected CDMO organization. And we are pretty confident that we'll get there on the back of deep customer partnerships differentiated scientific capabilities, delivery excellence and our talented employee [ pool ].
While we have been predominantly focused both on our customers and employees in the last 1 month. And Dr. Sudhir, our CEO, will give more detail shortly and we'll continue to invest in building R&D capabilities, operational capacities and business development expertise. We will further invest in select differentiated platform technologies through both organic and inorganic rules.
We are really excited about the long-term growth prospects and confident that the unique combination of our global leadership team our excel board and strong support of our advisory council. That will help us deliver accelerated market-leading growth.
And let me also take this opportunity to inform you about the leadership growth that we have in this company. First and foremost, the way is we have organized ourselves as me being the executive channel. And I have a fantastic team of leaders accompanying me in driving the future of Suven with Dr. V. Prasada Raju, who will be the Managing Director; and Dr. Sudhir Kumar Singh, our Chief Executive Officer.
Our key new management leaders added in the first month of our operations include: Mr. Gaurav [ Bahadur ] as the CHRO is from ex Sanofi and in our board with 30 years of experience; Raju Komaravolu, Chief Strategy Officer, ex DRL, McKenzie and ITC and 27 years of experience; and Mr. Mr. Brian Shaughnessy, Chief Commercial Officer, ex [indiscernible], Dr. [indiscernible] 20 years of experience based in U.S.
If I count all the number of years experience in drug and [indiscernible] of years of experience of talented leaders have joined this company. We continue to evaluate augmenting [indiscernible] and keeping our long-term vision in buy. For instance, we are augmenting the entire sales and marketing engines under Brian's leadership covering both U.S. and EU.
We also would like to have to evolve it that we have got a fantastic advisory council who have deep and tenured global experience in the industry and we'll be guiding our strategic choices starting with Venkateswarlu Jasti, whom you all know as the Founder of Suven Pharma and Suven Life Sciences; Abhijit Mukherjee, ex-COO of Dr. Reddy's with 35 years' experience. [indiscernible], ex President and CEO of [indiscernible], 34 years of experience and Stephane [indiscernible] ex COO [indiscernible] 40 years of experience. It's very interesting to have such qualified people supporting our ambitious journey plan that we have set out for ourselves.
And I would like to take this opportunity to introduce Dr. Prasada Raju and take you through how we a prepared for the transition across customers and employees and as such exhibitors seamlessly.
[indiscernible]. So the plan in let update on our transition plan. teens operating agenda is to stabilize or business. and secure the growth business and then accelerate the growth. Our 5 has already directed on a plans. Our leadership team has crossed of customer investments, and we have expected to report that we have done pretty base-to-base meeting with major customers. Customer transition is [indiscernible] feedback has been intelligent. They're happy with the smoke transition and looking forward for the new [indiscernible]. Our team is ensuring business that is not continuity of supply insurance and increase opportunities to collaborate.
Customers are expected to be more appetite to the op portfolio, which will expand our interesting mix. This is also related in our current direct and carpeting next one, which is much higher than last year. Some of our vital priorities will be our best use continue the engagement with customers and employees. While we have hired format leader for the to base out of 1 coalition that the robust customer clinical position, starting in the U.S. upgrade infrastructure in R&D, capital location manner to have best-in-class PHS and quality processes and controls. Initial projects to drive [indiscernible] management, invest in technologies and capabilities organically as well as esoteric. Lastly, completing the tax foreseen manner [indiscernible] engineer additionally and we could in [indiscernible] timeline. I will hand over to Director for is head of Metro and my business [indiscernible].
Thank you, Sudhir. The second narrative is what you all have followed is from Dr. Sudhir, he is our COO. Hello, everyone. Thank you, [indiscernible]. Let me take this opportunity to take you through medium- to long-term business prospects for Suven given near-term macros. As most of you know, from a near-term macro perspective, spent is significantly impacted by the ongoing destocking globally. Our business has significant revenue contributions from [ Atkem-based ] molecules. And hence, there is also [Audio Gap].
As a result, we expect following few quarters to continue to be soft due to the impact of destocking in the Specialty Chemicals segment and the base effect of COVID products. However, the medium- to long-term business opportunity is intact, and we are also quite excited about Suven's overall growth prospects. Let me take you through some of the important favorable macros, which includes secular macro tailwinds for India with both China plus 1 lead supply diversification, coupled with increased manufacturing costs in Europe. Given our experience in Spec Chem with such kind of cycles in the past, we expect business to bounce back in the subsequent quarters. Regarding Pharma [indiscernible], as [indiscernible] alluded to, fresh our long-standing relationship with our existing market customers to grow existing business while securing new business opportunities.
We have also seen positive signs based on our customer interactions and discussions at CPI, which is a very recent event. And existing customers are very keen to rebuild the business partnerships with more products evidenced by the improved inflow of RFQs in H1.
Internally, we continue to strengthen sustainability and ESG initiatives. Further, to stay relevant to our partners. In parallel, we are also working on a 5-year strategic blueprint along with our advisory council. We look forward to sharing many more details in coming times. Thank you.
And with this, I would request Sundar to take us through the financials.
Thank you, Dr. Prasada after the last meeting we have with the new management in here, I'm expected to be part of is presenting to all. So we have these financials, I think you should have got it as I firstly grow the [indiscernible] after the completion of the board meeting, just not to update that. So the consolidated financial summary for the first half that is FY '24, like revenue from operations or INR [ 579 ] crores. This is a small decline declined by reported EBITDA was about INR 265 crores, higher by 5.6%.
Adjusted EBITDA, including operating FX, was INR 270 crores higher by 3.6% year-on-year. Adjusted EBITDA margin were higher. I'm proud to say that it's 46.7% compared to 42.2% compared to previous year. [indiscernible] also we see relative increase. It is INR 200 crores, increased by about 11% year-on-year, 11.4% to be precise.
If you really look at the quarter-on-quarter, usually, as we have been explaining to our shareholders, we have not looked at based on quarter-on-quarter, but still percentage. The revenue from operations INR 231 crores, declined by about 14% year-on-year. EBITDA was INR 98 crores, marginally declined by about less than 2%, 1.9%. So our adjusted EBITDA was INR 102 crores, it's also marginally declined by about 1.8% year-on-year. Adjusted EBITDA margins [indiscernible] still higher at [ 43.8% ] compared to 37.1%, purely based on the product mix we have actually. And PAT was INR 80 crores increased by almost about 10% [indiscernible].
Some color on the revenue growth for H1 FY '24 so while overall growth has been impacted by [indiscernible] and base effect of COVID molecule, excluding Spec Chem and core molecule, FY '24 growth in the revenue is about 42% year-on-year. So there is a growth there in the overall business. As explained by Dr. Prasada and Dr. Sudhir, there was a [indiscernible] business.
As explained CDMO business continued the growth and reported about 24%, H1 FY '24 year-on-year. The revenue growth [indiscernible] 38%.
And we saw a current number of RFQ of our Q2 FY '24. I'm proud to say that. And still, we continue to have more than 100 projects. With many in Phase I, Phase II and III and commercial pharma projects [indiscernible]. Many increasing discussions with our existing and then potential new customer site -- and we are also having credible discussions with long-term partnerships with customers to grow -- and any more the specialty chemical, there is a decline. It's primarily led by as we all know, global supply chain destocking, and we do not anticipate any structural changes in our business. to put it simple business will go on at you.
For our formulation business, the formulation of the Services segment has reported of 82% growth, but of course, it is on a lower base. Currently, we have total about 17 ANDAs [indiscernible], 12 from our Pasha facility and 5 from our newly acquired Casper facility, and we expect about another price on approvals to move on, actually.
I'll hand over this to Dr. Sudhir now to explain further.
Let me give a little update on our CapEx plan. On the Suven project, we have spent so far, INR 57 crores as of H1 of this year. And we expect the new block in commission towards the end of this financial year. Total [indiscernible] investment is about INR 20 crores. And in that, we have spent INR 46 crores on overall CapEx. We are also proving a center here and drama. We propose a Phase I to require an investment of about close to INR 30 crores to INR 40 crores for [indiscernible] center. We anticipate the Phase I would be ready by Suven FY '25.
Cash flow and cash on growth. We generated operating cash flow of INR 252 crores in H1. Our total cash, including the investments and cash and cash equivalents, our books stood at INR 71 crores as of H1 of this year. Second we also give you a little out on Q3 and H2 of '24. We expect Pharma CDMO to continue to remain positive. However, we are expecting 3 quarters to remain soft, primarily attributed to the spec Care segment.
Just to highlight many of our key customers are planning to visit and meet us some face to case, and we are clearly looking forward to the incredibly, our substantial increase in RTs inquiries and promising first prong of discussions with our customers. Being extremely encouraged, have boosted our determination, we are focused on establishing so well as the unit global leader [indiscernible] industry.
With these comments, I will request our Chairman, Annaswamy Vaideessh for his remarks.
Thank you, Dr. Sudhir. To summarize, first 30 days has been on exciting 30 days, where the transition to the new management has been completed smoothly, and we feel very good about the progress. Met our key customers in person. Customer feedback has been encouraging. I'm very glad that they are happy with the smooth transition and having multiple discussions to work together. We have also augmented the senior leadership with Crown track record and deep experience in this space and initiated building out the commercial engine [indiscernible] key leaders for EU and U.S. in process of building the team below them.
[indiscernible] interacted with all over 1,200 plus employees and is focused on retention of the existing culture and ethos of the company, and I'm quite sure that we will make it into an admired company to work for. We are in for interesting [indiscernible] tailwind macro favoring India and given [indiscernible] multiple engines of growth, our deep technology capabilities, marquee customer logos, strong R&D and operational expertise and best-in-class management. On behalf of the team, I would also want to inform everyone that we are very committed to value creation for our stakeholders, and we are excited to embark on this journey on our end or is to build a world-class institution and a global CDMO leader from India that is sustainably drive growth for multiple decades to come.
I want to thank everyone once again for your time. And now we'll open the floor for Q&A and best wishes to everyone.
[Operator Instructions] from the line of Pratik Kothari from Unique PMS.
So my first question on Sun, mean we did highlight about the strategy, the plans, et cetera, that we have. And in 1 of the presentations, we have mentioned that we have met all clients in person. So could I just highlight what has been the feedback being from them? I mean -- so historically, what our understanding is CDMO apart from technical capability, it also requires a high level of plus. And Suven had the fate of Mr. Jasti all this while. So now that he is not at how do things change from a customer perspective to then share some global context, our experience and just in a journey of scaling this up.
Yes. Let's make an update on this. Actually, this was the first priority within 30 days. The first priority was -- there were 2 first priorities. First was to interact with all the employees and second was to meet with the customers. And we did it in 2 phases. No. The good thing was immediately after taking over particulates following up. So we went to CPI, that's the way we had most of our customers and powered by the time post of our major customers. And I can tell you that we have met about one to do major customers. And the peak has been amazing. I was surprised to see that every customer gives a very good feedback in terms of delivery, fines, commitments and they understood the transition and everybody was appreciative of the professional management coming over and they're looking -- they are looking forward to work with the new management and also they are looking forward to grow the relationship with the Suven Pharma. And at this time, a very good positive feedback from every customer -- that's what I would say.
Pratik, I just want to add a couple of points to what Dr. Sudhir saying mentioned. First and foremost, we all need to recognize the fact we have people like Dr. Sudhir saying and Dr. Prasada and Brian, these people have been in the industry for decades. And most of the customers know them by go them very well, extremely well. So to that extent, the concern about whether is it something new for the customer is not necessarily because all these leaders our phenomenal relationship. So that's a good news that they see -- these leaders taking over such a good company with Mr. Jasti being around as an adviser, we are all adding a phenomenal tailwind to our customers. They are very happy about the way in which we are planning to support their interest.
Right. Fair enough. And sir, I mean when we made this acquisition maybe a year back, we had highlighted that we intend to merge [ Cohans ]into this. So -- any fresh thoughts there? And maybe if you can share some number on [ Cohans ]? And given both of these NTT combined, how do we intend to take this from a customer perspective, now you will have a large generic API or formulations company and then some parts doing CDMO. Doesn't -- I mean how do we think about -- does it change things for us?
So there are -- Pratik, Prasada Raju, here. There are 3 important elements here. One is from an overall corporate structuring standpoint, unless it is discussed in Suven board and resolutions are fast, we might not be able to comment anything on the future matter. Number two, from an industry assessment standpoint, are there any leverages between Cohans business and Suven business? Answer is big years at a customer coordination level, it is possible. Third important element, there will be always interest of competency sharing between both the platforms -- but at an appropriate time, we will come back with specifics.
Correct. But the intention to merge is on, I mean, obviously, subject to approvals and everything. But the intention to combine this entity still exist?
That's right.
Correct. And can we share any numbers of what midpoint has done the 6 months or maybe the last year?
Pratik, if you are okay, as you understand, this call is primarily intended for discussions about Suven financial performance. I hope you understand our limitation.
No, correct. This is just from the perspective that ultimately as shareholders and we have been shareholders for many, many years. We ultimately have to think about the combined entity and hence the question, nothing else, but I appreciate that you might not.
Sir, 1 more question on CapEx. I mean earlier the earlier management had guided for the INR 600 crores of CapEx that we had embarked upon. And you have mentioned that Suryapet is almost done. What about the other 2, any change in plans, maybe we are adding something subtracting something?
As of now, we don't have any plan as we said in our opening remarks that we are doing a blue print of the new strategy and on the strategy look at our allocation of CapEx, but the immediate plan is to invest in a new R&D at [indiscernible].
Correct, fine. And sir, if you can just share the 3 segmental revenues for this quarter. What -- I mean, Pharmachemical and formulations.
Yes. The segment revenue [ we incurred ] this quarter. [indiscernible] CDMO INR 148 crores for 6 months.
For this quarter specifically.
[indiscernible] second is INR 55 crores and formulation is about INR 27 crores. If you look at for the 6-month period [indiscernible] [ INR 394 crores ] [indiscernible] pro forma INR 130 crores of Spec Chem and INR 53.9 crores of formulation [indiscernible].
Correct. sir, if you can comment, I mean, chemical has seen substantial reduction from the first half last year, maybe, I don't know, 50% reduction and formulations have done extremely well. So you can just highlight what is -- I mean -- you did talk about the inventory destocking, et cetera, but is it so bad that there's such a big drop? And also what is playing out within formulations? .
Let me enforce explain Spec Chem, as we have already explained in the past quarter also, like business is softer there local major exchanges. [indiscernible] that's the reason now compared to last year and last quarter, [indiscernible]. CDMO pharma as such is a mix of products, whether it is we talk about you talk about [indiscernible] the mix of products has been quite encouraging, and there is a growth. That's what has happened particularly if you look at [indiscernible] pharma, so [indiscernible] it has gone up [ INR 394 crores ] for the first 6 months. But particularly for this quarter, [indiscernible] [ INR 80 crore ] to INR 148 crores.
Looking back on the formulation, it is all up. No doubt [indiscernible] for this quarter to INR 18 crores to [ INR 32 crores ]. For about 6 months, it has gone up from INR 37 crores to INR 53 crores. Basically we at [indiscernible] base and then there are many labs are being added to this to be added in. That's why you see a better traction in this business as it's been at.
[Operator Instructions] The next question is from the line of Ashish from IIFL.
So if you could spell out some more details on this agri business. You did say that there's some destocking but your interaction with the clients turning out to the pretty good. So in terms of at least the custom centric part, how is the development and whether you would be adding new technologies there and did in had a concentrated portfolio and post the merger, we want to diversify. So any broad color in terms of new technologies that you would be looking at would be helpful. .
So let me give a color of new technology. Basically, we are looking at the growth with our existing customers, existing products However, when we meet our customers, we always get a fee on what are the new technologies they need it because we move along with our customers. We are definitely looking at with the immediate term also looking at the flow technology -- that's where many customers are asking for it. However, it is too early to comment on that. We will do the validation with a couple of our customers, then we will invest. However, we have already invested in R&D scale, and we need to look at how do we scale it up.
And in terms of capital allocation going ahead, is there a certain bias on the part of the management that would like to put more capital towards CDMO, pharma, less towards agri any thought [ process ]?
No, nothing like that. As of now, we have a capacity for -- as I said in the beginning that we are working on our blueprint for the next 5 years strategy. One is to say, we will allocate the capital according to that.
Okay. And in this new entity comes into Perform, any are there any tax rate benefits which would also come to ours. .
What is the new entity you are taking about?
so once the entire merger goes through, would there be any tax-related benefits that could flow to the organization on a consolidated basis? .
No, there won't any flow through asset Italy, but then those things will be interested merger discussion, not at this point of time.
The next question is from the line of Saurabh Kapadia from Sundram Mutual Fund.
Just one question on the...
Saurabh, you voice is not very clear. Please use the handset.
Is it okay?
Now it's better.
So the question is on the RFP, which we said in this quarter. So is it largely for the serials on the Spec Chem side
No, this is mostly pharmacy. As we said in the beginning that the Spec Chem is a little subdued because of the global situation, destocking, bales drug. But these are actually primarily for CDMO Pharmaceutical.
Okay. And can you give some color in terms of the pipeline or the -- so in terms of Phase II Phase III number of molecules in early stage or at least the molecules [indiscernible]? without the cycle?
As we said at the beginning of the call that we are about 100 molecules in the current phase. And as of now, there is no update on the movement from the customers as and when we get any update from customers [indiscernible]
The next question is from the line of Abdul Kadianwala from ICICI Securities.
Congratulations on building such a remarkable of professions for the new team. Sir my first question is in terms of the near-term opportunities that the management sees in terms of the low hanging fruit the synergies, which you can bring into the current system. And in terms of the cost savings side, if you could highlight or from a scale perspective. We understand that there is a merger which you guys plan to do at a later stage. But at least from a near-term perspective, what are the operational changes or synergies with new management things on bringing into the plate?
Abdul, as you know, given cost wise we are working on as well because at the [indiscernible] confident for opportunities .
Sir, Sudhir, you are sounding very distant. Can I request you to come close to the mic.
Yes, you are able to get me now?
Yes. Much better.
Okay. So at the cost synergy and the cost, as you know very well, we always work with a gross as the main parameters and then everywhere we try to do the cost savings. Under synergies we look forward even with kind of if there is a possibility of some synergies that happens with Cohance using their [indiscernible] and using their manpower or whatever. We certainly would like to use that. But at this point in time, it is very difficult for us to comment on this as we need to still for a blueprint and then look for overall kind of synergies that will happen to it. Yes, on a long road, yes, it will have some kind of benefit and then we will certainly look to explore the synergies, whatever is going to be there. .
And what will be your second question? I lost track of it actually.
Yes. So that was pretty much of my first question. My second question is basically, if I refer to 1 of your slides, on Slide 6, you detailed out the kind of opportunity or the addressable market size, which Suven Pharma would be catering. So I understand, I mean, historically, we had a presence in the intermediate portion, and now we are also trying to look at API. So based on the current capacities that you have what is, again, immediately on the plate or this is something what we aspire to move towards or in the near future by getting some traction from your clients.
Yes, that is a very good question. Basically, I would like to say, actually, I know very well that we have built our capacity specifically in the OEM for customers from them. It is for that market. And we would certainly like to leverage those APIs what is really being required. And then we'd like to focus on that what the new team, which is going to work on as the we were talking vertically new team, which is Brian and then the team has come, they'll be focused on to get into those lines actually to think about where we can leverage radically. So capacity, we do have. We don't have any problem at this point of time, actually. .
Sure, sure. And just a final 1 from my end. So again, referring to the presentation, you mentioned that the active commercial projects. So this includes the COD molecules as well? Is that understanding correct?
10 commercial molecules, CDMO, and 3 are specialty chemicals. 3 commercial molecules, specialty chemicals is into. That's why it is 13.
To answer to your question. The COVID products were excluded because it's one-off. .
The next question is from the line of Jinal Sheth from Awriga Capital Advisors.
Hello. Am I audible?
Yes, Jinal.
My question is on the 3 -- we have 5 molecules in the Phase III segment. Is there any update on that in terms of moving to Phase IV.
As of now, we have been entered with customers as a lot of the customers as when something comes up, we will keep updating everybody.
Okay. And given the fact that our CapEx has been very subedit at INR 26 crores or INR 27 crores in first half. If these molecules were to go into Phase I, would we be in a position to address the beef of the customer in terms of the capacity front?
See the -- there is -- it's not directly linked. The CapEx is totally different compared to what you are talking about. The molecule coming off -- it has got nothing to do with the CapEx actually. We already have a CapEx, including the new CapEx that was incurred at Suryapet what Sunder was selling at -- we are ready to go commercial there. We have adequate capacity in [indiscernible] as any of these molecules. [indiscernible] when you're referring to 5 molecules, even 1 of the molecule gets into a large position, we'll be ready to go. There won't be any, what you call, question the CapEx -- pressure on the capacity.
Yes. Okay. Okay. Great. Secondly, just on the specialty business. When I see the revenues for the quarter was around INR 55 crores -- now this number is a very low number versus what we've reported in the last -- I think the lowest number last we saw was in December '20 quarter. So I understand that there is a subdued outlook, but sequentially, should we get better or the numbers can actually go lower than the current reported number?
As we said at the beginning of the call that specebusiness is going to go on outer.and we are not working on everybody's facing that challenge. We learned from our customers' destocking, China issue, [indiscernible] drought, that will continue in the next couple of quarters and hopefully, after few quarter you should see the [indiscernible].
Okay. So there is no clarity with respect to that we are running along the bottom. It could further decline from here given the industry environment.
It's hard to say, but this is -- our [indiscernible] there probably we have bottomed out, it is [indiscernible], but it's hard to say because we [indiscernible]. .
The next question is from the line of [indiscernible] from [ Stage One ].
Hello, am I audible?
Yes.
So I just had 1 question. So from your opening remarks, you cited that we are spending heavily on a lot of commercial avenue. So hiring a sales force in U.S. or or so we're spending more on R&D for new platforms, et cetera. So given that Suven's margins are already so high today, in the next 1 or 2 years, do we intend to go in an investment phase and which may impact the margins and it may get back to these margins after a few years? Or how do we see margins from maybe a 1- to 2-year standpoint?
Yes. Thank you. I think that a very good question. So at the end of the day, all our investment that we are making is not for just for a couple of quarters or for a couple of years is for a decade. All our business expectations that we have out of these investments are towards the long term. So we wouldn't be worrying too much about what it is due to our current EBITDA because that's not the way we are designing our organization. This is for a long term. And at the end of the day, we'll all start seeing the results even after a couple of years, all the investments will start paying off. But we are here for a long term. and obviously maintaining a the kind of margin that the company is used to. SP1 But in the near term, do we expect margins may come off slightly? Or do we intend to keep it at the current levels?
As you know that our aim is to keep the current margins, will be in and around the current margin levels?
But there will be a couple of percentage points because of the fact that we are investing. You may see some variations -- but at the end of the day, it's not something for us to worry about. It's not a big issue for us to tell you that there is going to be a big drop in our margin. But we'll be in and around what we have been delivering in the past.
The next question is from the line of [ Sunil Kothari ] from Unique BMS.
Sir my point I just wanted to comment or ask is, since long time seller of pursuing the way Mr. Jasti and created this unique and very specialized company. So my point is to ask you is what are the plus point which you have been encouraged to buy this out to this company? And second, which are the places and areas where you file do better than what the past management was doing. So a little bit qualitatively, if you can talk will be really helpful.
Yes. So already you're pretty bang on in terms of why investment has to happen why did we engage in investing in other companies. So, first and foremost, as rightly said, Mr. Jasti and his management did a fantastic job of creating -- they created this niche market and created [indiscernible] and CDMO. The biggest opportunity is in scaling up. One of the biggest strengths that we have, we and the management team, as you must have seen, the kind of team that we have put together is in scaling up our big customer partnership for example, just an earlier management, they develop partnership with certain set of customers, which is pretty good. Now it's our job to deepen those relationships, take it to the next level, what I call the Sun differentiated scientific capabilities, right? Now the kind of talent that we are bringing in are going to be addition to what the organization has done, which because the macros are so good.
As Dr. Prasada and Sudhir had mentioned, the macro is so good. There is a time for us to scale up and go and get this opportunity. Delivery excellence is pretty good, and we need to scale that up and make sure that we are able to meet more customers and [indiscernible] whatever we have and also to. And the last but not the least, the talented employee pool that we are bringing in, they are going to give multiple engines of growth. So thankfully, [indiscernible] it's no-brainer for many of the investors to come and take this opportunity and take it to a new level of what Jasti has left. And I would -- Dr. Prasada would like to say a few watch.
Yes. Thank you, [indiscernible], and thank you, Sunil, for your comments. Just to summarize, we are primarily looking for marquee customers with a decent relationships. And wherever we go, we always very heartened to hear clear message of reliability and delivery orientation, it completely differentiates Usven from any other partner in the CDMO. This is 1 of the biggest motivation for us. second, scientific capabilities and innovation through science has been one of the another important pillars.
Third, normally, any company comes with a lot of risk mitigation outside of the strategy and outside of the business, but this company since when we have multiple engines of growth. All the engines have immense potential to substantially grow the Primarily, these are all the 3 important elements which we feel are the key elements for us to be able to really to get this company. These are all the elements that help us to really grow this company to an extra bit as you also have followed us, we felt following the question what you mentioned, what you feel could have been done better or what you feel could be invested. We have found answers for it. That's where the commercial engine has been completely [indiscernible].
Just my observation, I would like to [indiscernible] dependent on very few global giants. And the way Mr. Jasti his proven track record of without any accident, without any optimism without any problem I feel in a hurry to scale up new management will not make any mistake and we will definitely grow faster than the past. My good wishes to you, sir.
Next question is from the line of [indiscernible] from [ DSP ] Investment. .
Sir, typically, we indicated that we have 3 to 6 months visibility on the pharma business. So can you some provide some color on how the second half of this year, particularly for the pharma business looks like versus the first half.
As we said in the beginning that we look very positive. Pharma CDMO looks very positive. However, at this point, it's very difficult to give you the bad as a number. But as I said in the [indiscernible] that pharma CDMO is [indiscernible].
We're quite excited with this [ Sharat ], in addition to what Dr. Sudhir has rightly mentioned. As you understand our business, it all depends on our customers and products growth. From an organization, we are trying to do everything right internally, and we are fully prepared to co-grow along with our partners.
Understood, sir. There is nothing unusual happening this year post the change in ownership. That is a very clear message there.
Yes, of course.
Yes that's a big yes Sharat.
Understood, sir. Okay. And sir, in 1 of your slides you are mentioning that 75% of your active projects are global innovators oven is a partner of choice. When you say global innovators, do you mean big pharma or emerging biotech companies as well?
It's fully big pharma only.
I would put the large [indiscernible] because that includes the big pharma as well as the Spec Chem.
Understood, sir. Okay. And sir, just if I can squeeze 1 more question -- what are your plans for formulations business? Where does this fit into the overall scheme of things as far as creating a CDMO post the merger, et cetera, is concerned. Where does formulations both the factory as well as the ANDAs et cetera? Where that -- where does that fit in, sir?
[indiscernible] you understand this business very well. What we are actually trying to do is 2 things. One, we wanted to build 5 years blueprint to understand what kind of strategic choices that we wanted to see. Irrespective of it, we feel while our biasness is to stick to the core, which is CDMO pharma and Spec Chem, we wanted to make sure that SB business should go grow to the flat extent of its potential. That's where our basins goes more to the core business. However, to the possible extent, we try to see capacities are properly managed. And today, the formulation business, especially on the case side, we see the opportunity for capacity optimization. Our endeavor is to make sure that capacity is optimally utilized. .
Understood. And why has R&D increased -- R&D spend increased in the second quarter, sir?
It increased basically because of the findings so that has happen the cost of [indiscernible]
Would it go back to earlier levels? Or will it remain at the level.
We cannot say that way actually [indiscernible] because it's more related to that. Let's not talk about [indiscernible].
The next question is from Nihal [indiscernible] from [ Vallum ] capital.
Just one question I have as has been asked prior. But if you just look at commercialized molecules that we are making for the pharma. So is there any possibility of any contracts happening in there? Because previously, the company has said that that doesn't necessarily work on contracts, but more an understanding between the pharma company and Suven. So I was just wondering if that can work on a contract basis?
So if I understand correctly, Nihal, as you understand, there are certain multilevel contracting happens, especially quality and supply agreements. Commercial event always goes with the partnership model that is being insured. And we also see if there is any possibility to improve further otherwise [indiscernible]. Quality and supply agreement. Without that, no pioneering company will come back for any CDMO. .
Right. And so my follow-up question to that would be that in earlier phases, what are the again, like you said, it's just quality and this thing that you let us the contract based on in earlier phases?
That's right. That's right Nihal.
Next question is from Darshit Shah from Nirvana Capital.
Yes. [indiscernible] legacy and credibility...
Darshit, your voice is muffled, I'm sorry to interrupt. It's not very clear. We'll move to the next question that is from the line of [indiscernible] from Goldfish Capital. .
Just 1 question from my side. You mentioned that in the last 1 month, you have met a lot of clients, right, and probably conveyed them this whole transition of ownership. But have you also been communicating to them about this whole Suven plus approach? And if you can share some clients' feedback that what are the -- I mean, how excited are they about the whole Suven model that you just mentioned a few questions back. If you can just give some anecdotal kind of an evidence or conversation that client -- that you had with the client that will help. .
Yes. Thank you for the question. As we said, that definitely, we met measure of our price and they gave us their own feedback. We are excited with the new journey. Our focus is mostly on 2 things, improving our capabilities in R&D and investing in the. And -- as you know that in today's world, every big pharma is looking for a big way and ESG investment. And that has been our focus since we took over improving our R&D capabilities and enhancing our [indiscernible] capabilities.
Sure. So what -- where I was coming from was that obviously, a lot of people have asked about this whole merger with the platform entity that is going to come right in sometimes and that was 1 of the One of the reasons, if not the only reason for a change in ownership. I mean, are clients also equally excited about an entity, which is going to be much larger than [indiscernible]? And are we getting the kind of confidence that we had before meeting them? I mean, is the confidence level the same as it was before meeting them as well? .
Actually, to be honest, I mean, since we are -- our set is not clear when it will happen, what will happen, and we did not bring it up and no customer could ask this question. There was no question on any customer around this merger issue.
The next question is a follow-up question from the line [ Sharat ]
Yes, sir. Sir, what will be the CapEx for this year and next?
As a part of our overall blueprint, we are still evaluating whatever has already been approved by the Board. we still feel there is no need for us to immediately relet it. However, the next coming quarters, we will again review whatever is needed to be invested on the various growth engines. Then we -- again, we'll calibrate the existing accrued CapEx can be repurposed and used. Otherwise, we'll come back with a full answer. Immediately, we don't feel the necessity of immediate CapEx right now. .
So you've done INR 25 crores in the first half, likely second half also will be similar, sir?
Likely same run rate will maintain. However, you should please look at 2 model elements. There is already approved CapEx, for example, INR 200 crore of R&D and [indiscernible] facility expansion that we are not spending right now. Hence, consumption of existing CapEx, we will try to phase it appropriately. Is there any need for new CapEx, we will come back to the comprehensive answer once we complete our overall 5-year strategic blueprint. I hope it answered your question.
Understood, understood. And just the last question, sir. Can you -- by when do you think you can talk to us about the Cohance merger with numbers and a proper plan? By when, in terms of time line, if you were to guess.
So like all of you, we are also quite excited, please allow us for some time. Appropriately, we'll get back to you, please. .
Next question is from Mayur Parkeria from [indiscernible] Manager India Private Limited.
Just one question I had. While we understand in such a large takeover acquisition, it takes time for the new management team to set themselves, get into the group, understand the business fully from inside out. And then execute that plan of action as we go ahead. While this is very true -- and the long-term picture, as you said, we are in the process of preparing a 5-year blueprint. But while all this is happening, we also know that on a practical ground, there are certain near-term near-term targets also on the near term things which have to be managed and they are targets in terms of from an execution for the execution team -- from that perspective, I know it's a little near-term outlook, but given the fact that from a shareholder wealth creation perspective long term has been very historic.
But from medium to near term, there was -- there has been a stagnation there. And we are looking at how the -- we are also excited and anxiety is there with respect to the near term also. So do you believe that FY '23 revenues of INR 1,340 crores odd, do you think we will be in a position to protect that even on 1 side, the huge correction in spec chem, but on the other side, the pharma and formulation outlook is doing reasonably better. So do you believe that we'll be able to protect that kind of a revenue for that year how to look at? And also going into FY '25, it's a relatively near term, do you believe or that we can start looking at growth from there on.
So thank you for facing this point. It's a very important question. And just try to divide this into 3 important elements. One is the proven experience of M&A, let's such a large investment, we are very happy to inform you that as a team -- we have proven track record of last 41 months where successfully multiple transactions have happened without compromising on core of each business and also protecting the culture of every organization. That gives most confidence to us, as you have also seen, we have installed right professional team and the competent team is already built in, and this has been thought through as a part of the transition. Hence on day 1, majority of the highs are already in place. So answer to your first point, on M&A side, we feel that is the unique competency and capability that we have with proven track record. Hence, we believe that they're going to be a substantial strength for us. Coming back to while we're trying to address about a long-term view, how are we trying to do what is -- can be done in short term to midterm.
As you understand this business, we wanted to be a preferred partner of choice to our customers, as Dr. Sudhir mentioned we found there are certain strategic interventions, which are needed, for example, investing and expanding in R&D capabilities while we have [ OAP ] facility at a scale-up level, we don't have R&D, which can handle the product at OAP level in a meaningful manner. Hence, we have decided to strategically go ahead with investments in [ genome valley ].
These are all the certain interventions and actions possible to secure midterm to long term, we are short term. However, it's very difficult for us to predict how the product level and customer level growth is going to happen. Hence, we might not be able to comment specifically on the current year closure. However, next 6 quarters, which is going to be a full year of next year, we are quite convinced that there is going to be growth avenues, which will be completely unlocked. -- because of 2 reasons. One, matters will be softened. Number two, whatever interventions that we are putting right now will also be resulted. As you know, anything that we do in the current space in CDMO business takes time. I hope the questions were answered.
Next question is from Darshit Shah from Nirvana Capital. .
sir my question pertains to Suven has historically generated a good amount of cash flows. And Suven right now, we have around close to more than INR 700 crores of cash and [ equivalents ] in our book on probably by the end of this year, it would change towards INR 1,000-odd crores. So I understand you are in the mix of booking this 5-year blueprint -- but would there be a dividend policy also in that new print where we probably have a formalized a payout to the shareholders. .
As of now, if you have to really come back, yes, there is a healthy cash position right now. the way current priority for us is right now to look at the 5 to 6 years of strategic blueprint. As we know, strategy has 11 unless it comes into execution excellence. And we are definitely looking for an accelerated growth opportunity for Sun, which means we might have to choose to decide on inorganic options of acquisitions through Steven. Hence, we wanted to preserve this cash situation so that our abilities to go and accelerate the growth via M&A will be protected. This is how we are looking at right now. However, as all of you know, with Mr. Jesse legacy company has been securing the shareholders' value creation. Whatever we do on the M&A side also, which is going to be completely a value accretive.
Got it, sir. And just to confirm, in terms of molecules, you mentioned there are 5 molecules currently in the Phase III. Is that correct?
Correct. Yes.
Okay. And then lastly, just since the open offer has been concluded, what will be our total stake if you could highlight after the open or the tendering process has been done?
Currently, we are still waiting for the...
The merchandisers are still to give the final data. We don't know as of now [indiscernible] disclosed [indiscernible]. We will need to get the data from merchandisers then only we will be able to. We are working on it.
at this stage we are waiting for the final consolidated report. Once you receive we'll certainly share with some commentary to all of you.
Sure, sir. Just lastly, sir, if I can squeeze in, in fuel, as earlier participant as the understand more of intermediate internal supplier to the innovators. And even the [indiscernible] management has spoken about migrating towards [ API ] [indiscernible] value accretive business for. So what's your take on that? And where are we in that process of value migration from intermediate to supplying APIs to innovators?
We are quite excited and happy to inform you that, that plan is still active. Yes, you must have followed the previous conversations, innovator has to come back to us by auditing our facilities and completing certain formalities that is still on, and we are quite hopeful that soon we will get into the graduation of supplying from intermediate to API. And we hope that we should see 1 such example in LATAM.
Next question is from Varun [indiscernible].
All my questions have been answered. Just in addition to the previous question, as and when this API or, let's say, power or backward integration activity starts, would it be on an experimental basis or it will be a full sage and good value business for us. How should 1 look at it?
If you're asking about graduation of CDMO on pharma side from intermediate to API, it is a commercial molecule by the innovator, it is going to be a long-term project.
So would it be a good value business or...
It is going to be very value accretive and it's going to be commercial and it is going to be a very long term. As you know, the patent cycle goes on.
Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing comments. Thank you, and over to you.
Thank you, everyone, for your time. If any questions unanswered, please reach out to the Investor Relations [indiscernible]. Thanks a lot and wish you all a very Happy Diwali.
Thank you very much. Ladies and gentlemen, on behalf of Suven Pharmaceuticals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.