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Syngene International Ltd
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Ladies and gentlemen, good day, and welcome to fourth quarter ended March 2024 Financial Results Conference Call of Syngene International Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Nandini Agarwal. Thank you, and over to you.
Thank you, and good afternoon to everyone. Thank you for joining us on this call to discuss Syngene's fourth quarter and full year FY 2024 performance. To discuss the financial and business performance for the period, we have on this call today, Mr. Jonathan Hunt, Syngene's Managing Director and Chief Executive Officer; and Mr. Sibaji Biswas, Chief Financial Officer. After the opening remarks, Jonathan and Sibaji will be happy to answer any questions you may have.
Before we begin, I would like to caution that comments made during this conference call today will contain certain forward-looking statements and must be viewed in relation to the risks pertaining to the business. The same past calls indicated in the investor presentation also applies to this conference call. The replay of this call will be available for the next few days after this call and the transcripts will be made available.
With this, I now turn the call over to Managing Director and CEO, Mr. Jonathan Hunt.
Thank you, and good afternoon, everybody. Let me start with an overview of the fourth quarter before summarizing the full year, and then I'll hand back to Sibaji to give you more detailed commentary on the financials.
As you've already seen, the fourth quarter revenue from operations declined by 8% over the corresponding quarter last year. Profit performance came in better with operating EBITDA for the quarter up 1% to INR 317 crores, and reported profit after tax was up 6% year-on-year at INR 199 crores. The course really mark -- we entered what was a tough year for many, I think, in the pharma-based research sector. And I think it really does reflect the trends you've seen with many of our peers earlier in the year and stems from the reduction of funding that was flowing into the U.S. biotech segment. But looking at the full year, the performance is better and despite the challenging funding environment, we did continue to grow. And as discussed last quarter, the slowdown in biotech funding was most visible in Discovery Services. We also saw a little bit of a softer quarter in Development Services than we would usually expect in the fourth quarter. That said, dedicated centers delivered to plan and our biologics development and manufacturing division performed well.
During the quarter, we continue to invest in the long-term, adding some infill capabilities in development and manufacturing. That included the operationalization of a new capability for purifying and separating special content, such as [indiscernible], highly potent APIs.
So with that, let me turn to the full year. Full year we reported revenue from operations at INR 3,489 crores, up 9% year-on-year. Reported profit after tax came in at INR 519 crores and that's up 12% from last year. So let's try to put a bit of context around those numbers. I think as we're all aware, funding into U.S. biotech has gone up pretty much consistently for more than a decade. But last year, we saw a marked reversal of that trend. And as you know, new funding and refinancing became a challenge for many of the sort of biotech startups during the year. I just don't think anything fundamentally is broken in biotech or in innovation. It's just a bit of a reversal back to the baseline mean. But it clearly reduced demand for research and development services coming out of U.S. biotech. If they not raise the funds, they can't spend the money with us.
In the last 12 weeks, I think we've seen a marked improvement in that funding environment. And looking forward, I'm pretty encouraged by some of the positive signals in the market. And of course, I think Syngene is in a good position to capture any upturn or bounce back in biotech spending during the year. And I think when we get to some of the commentary, you can see that in the guidance and also in the way we talked about how the year would evolve.
The other key theme I'd give as context for the full year is just the acceleration of interest across big biopharma, so those Fortune 500 or so bio companies just looking to derisk their businesses and their supply chains. Some see it as dual sourcing. Some are seeing it as a rebalancing around China or China plus 1 or a China rotation. But in either context, I think we really are seeing a step-up in the interest levels from pharma and biotech, certainly getting more businesses coming in. And that's leading to more exploratory discussions. With that, I would temper your enthusiasm, I think it's a trend for the next 5 years. Certainly, a trend, I think, will play out during the rest of this year. But I think there will be an element of phasing to it. But as I read -- there's a number of pharma companies and suppliers reporting today, and I'm seeing very, very similar commentary whether it's clients. I read Novartis' comments today, Sanofi's as well, whether it's suppliers like Thermo Fisher. I think there's a consensus forming that, that sort of rotation is taking a little bit more form. It's not going to be a deluge, but it's certainly a change in direction, and it's one that I think is positive for us, for companies like us and I think potentially for India.
So given that it's the full year, the usual summary of key events from the year, of course, an important highlight for us was the acquisition of the biologics facility from Stelis. All working to plan in terms of the re-purposing and the upgrading of that facility with completion and qualification expected in the second half 2024. So it's the same guidance I gave you last quarter, and it's all going along quite nicely. Once it's operational, it will triple our available bio manufacturing capacity, which is good. because the rate we were growing during the last year means we were starting to bump our heads on our capacity ceiling.
In line with our commitment to innovation, we brought online a state-of-the-art digitally-enabled QC lab that we commissioned during the last year, that supports our Biologics growth. And earlier in the year, if I remind you, we took the decision to acquire 17 acres of land in Genome Valley in Hyderabad and that will support our research Discovery Services business.
Other highlights for the year. The new piece of technology coming on, a centralized automated compound management facility came online in Hyderabad and that really does give us a sort of advantage in terms of the ability to do things at speed. And we continue to invest in digitization and new technologies.
Syn.AI, it's a proprietary platform we've built to facilitate the identification of effective drug targets and provide comprehensive target identification and validation packages seeing good traction. I think it's getting new build away across the business.
And with that, I'm going to move to a conclusion. So it's a challenging year, I think, for many in the industry. On a full year basis, Syngene delivered growth. I think the fourth quarter felt like a bit of a speed bump. But we've moved beyond it already and the outlook for the year ahead is getting back to growth.
But I'm going to let Sibaji cover some of those comments in his section on guidance. So with that, Sibaji, over to you.
Thank you, Jonathan, and a good afternoon to everyone. As Jonathan mentioned, the fourth quarter was challenging for the research services industry as a whole. So let me cover that before turning to the full year results where we deliver the revenue performance. I'll also provide some further comments on our guidance for the coming year.
Reflecting on the fourth quarter, revenue from operations declined by 8% year-on-year, which translates to approximately 10% decline in constant currency. Sequentially, it is a growth of 7% over the third quarter. While the dedicated centers delivered as planned, Discovery Services was impacted by the slowdown in biotech funding, which resulted in reduced demand for [indiscernible]. Within development and manufacturing, some clients deferred their work from the quarter to the next fiscal year as they reprioritize their pipeline on the [ investor support ]. This impacted the reported performance to the tune of around $9 million, [indiscernible] delivered moderate growth due to the high base as [indiscernible] commercial production has been commenced in the fourth quarter of the previous year.
Moving to the profitability for quarter. The operating EBITDA margin stood at 35% against last year, 32%. The EBITDA margin in the quarter benefited from a lower material cost and the lower power utility cost partially offset by higher grade losses during the quarter.
Turning to the key elements of cost within our business. Material costs for the quarter declined by 31% compared with the last year. To explain this, I need to provide some context. FY 2024 was the first full year of commercial manufacturing. As a research organization in the past, we were able to support fully provide for raw materials not consumed at the end of 1 year from procurement. While this is appropriate for the research business, with the share of contract manufacturing increasing, we believe that Syngene needs to have a distinct approach for raw material cost provisioning, reflecting the nature of the manufacturing business.
To explain further, in Research Services, the lead time for materials is short and typically, they're consumed over a few months, whereas in manufacturing services, the materials have long procurement lead times and can be used over a longer duration across our manufacturing cycle. Using the current approach providing for the inventory after 1-year from procurement and subsequent reversal on actual consumption in the next few quarters create artificial volatility and a P&L mismatch.
From the fourth quarter, the inventory accounting policy has been [indiscernible] change considering the useful life of the material. Inventory for manufacturing material will now be provided closer to the end of useful life. This, we believe will give consistency between revenue and cost. This change in policy has resulted in a provision reversal of INR 20 crores in the fourth quarter, entirely related to provisions made in the fiscal year 2024 itself. So while this is a benefit for the quarter, it's not the benefit for the full year under the new construct.
So leaving the technical accounting behind, let me get back to operating items within the P&L. Staff cost decreased by 1%, we slowed down our equipment during the year in lieu of the overall slowdown in the Discovery business and recruited only for the specialist roles. Hence we ended the year with a lower headcount compared to the previous year resulting in lower costs partially offset by salary increases during the year. We continue to retain the basic strength to be able to handle immediate business expansion so that we are prepared when the expected resurgence in the [indiscernible] economic revival. Project costs, largely power and utility expenses showed a decline of 10% year-on-year. This favorable change reflects reduced utility input costs and an increase in use of green energy consumption compared to the previous year.
In the fourth quarter, 87% of our total energy consumption was from renewable sources and increased from 78% in the prior year. The Hyderabad campus of ours has now started to use green energy and we have commenced to bring renewable energy to the newly acquired biologic manufacturing facility. We stand strong with our commitment to maximize use of green energy across our campuses, which is both environment-friendly and economical at the same time. Other operating costs covering items such as business travel, sales promotion and [indiscernible] overhead saw an increase of approximately 10%. Our commercial activities have gone up reflecting the increase in interest in Syngene. This has resulted in travel and [indiscernible] related expenditure. We also continue to increase our investment in digital transformation, network security, lab automation and other technology advancements which was independently of the quarter we entered and we have full confidence that such investments will give us the edge that we require to work at standards comparable to the very best everywhere in the world.
Revenue for the quarter was hedged around 82.1 per USD and the revenue and margin guidance has given an expectation of revenue realization around the hedge rate. As for the spot rate, [indiscernible] in the quarter was 83.1 per USD The company saw hedge losses of INR 10 crores widening from the hedge loss of INR 4.2 crores in the fourth quarter of the previous year due to the difference with the average spot rate and the hedge rate.
Depreciation charges increased by [ 16% ] year-on-year, driven primarily by new leases, renewal of leases and capitalization of new assets. Operating profit or EBIT declined 6% in comparison to the last year, and EBIT margin was around 33% and is at the same levels as last year. Other income, which is essentially interest on our cash deposits reduced by 30%, due to a lower cash balance as ECB debt was repaid in the third quarter and due to Stelis acquisition. Interest expense increased by 24% compared to the previous year as a result of finance component of the new debt. Turning now to tax.
Our reported effective tax rate stands around 10% this quarter. This decrease is due to a tax provision [indiscernible] -- related to our previous year when we paid INR 23 crores on account of a favorable tax assessment order received during the quarter. Adjusted for that, effective tax rate for the quarter was around 21%.
Now we turn to the full year performance. Reported revenue from operations grew by 9% and 6% in constant currency. This growth was primarily driven by a strong development and manufacturing services performance and a steady performance from our dedicated centers Overall, the share of development and manufacturing services has increased from 35% last year to approximately 40% in FY '24. Operating EBITDA grew by 9%, with a margin of around 29% coming in approximately the same as last year.
While we anticipated a slowdown in the fourth quarter and revised our guidance earlier in the year, the impact was greater than what we expected and as a result, we fell short of our guidance. Beyond the predicted slowdown, the shortfall was driven by decision late in the quarter by some plans to defer projects to the next year, as I mentioned before.
Turning to the expenses and cost control within the business, the cost of raw materials increased by 8% for the full year in line with the growth of the business. Operating EBIT margin came in at 17% versus 18% in the previous year. Dropping down the P&L other income increased by 28% during the year. This is partly attributed to the receipt of [ INR 16 crores ] interest received from an income tax refund and partially offset by lower interest income as our cash balance reduced to business expenditure.
Finance costs increased by 4%, which reflects higher interest within the year as well as interest component of lease rental. We reported PAT growth before exceptional items was 12%. Adjusted for the tiered tax rate and one-offs, the tax provision reversal in the 4th quarter and interest income on -- income tax refund that I mentioned in the previous -- previously, the profit after tax grew by 4%. PAT, after the exceptional item relating to the acquisition of the biologics manufacturing site expenses, grew 10% year-on-year.
Now moving to CapEx. We executed $55 million of CapEx during the year, primarily directed to us adding new capabilities and capacity in our research business. Around 60% of this was invested in [indiscernible] including buying the land in Hyderabad as well as the investments made in automated compound management facility and the DMPK biologics lab for integrated small molecule studies respectively. Around 30% was invested into development and manufacturing, including support infrastructure such as a quality control lab and a testing laboratory for biologics manufacturing and additional capabilities for the small molecule business. The remaining 10% was invested in common infrastructure including digital technologies.
I'll now talk a bit about the cash flow for the year. Through the year, we have put a lot of focus on improving cash management within the business. Our net cash flow generated from operating activity for the year was strong at INR 1,042 crores which fully funded the CapEx and the acquisition of the biologics manufacturing plant. Thereby, our net cash in the business was maintained at about INR 900 crores, similar levels as on March 2023. This reflects the underlying strength of our business as well as our ability to drive good financial control.
Now I'll go to guidance. We expect to see an improved demand situation during the year. In development and manufacturing, we expect to see a rebound of revenue in the second half of the fiscal year, with stable revenue in dedicated centers and expected growth of [indiscernible] and Discovery Services from the second half, we anticipate high single-digit to low double-digit growth on a constant currency basis for the year.
So to help you build your models. We expect the first half to be relatively flat to low single-digit growth year-on-year as we build the business pipeline. We expect a stronger second half and a better exit to the year. The operating EBITDA margin is expected to be more or less the same as this year.
As explained earlier, the effective tax rate is expected to increase to around 23%, up from the underlying tax rate of 21.5% in fiscal year 2024. This increase in effective tax rate will continue to provide a headwind for the profit after tax growth and hence we anticipate the growth in PAT will be single digit for the current fiscal year.
We plan to invest around USD 60 million of CapEx. Close to half of this is expected in research services, which include additional scientific capabilities, automation programs to increase productivity, development of the newly acquired land in Hyderabad and completion of a new building at Biocon Park in Bangalore.
Around 40% of the expected planning the CDMO business improving setting up the newly acquired biologics plant for operations and strengthening process development capabilities. Over the years, we have invested in building capacity in the CDMO business, both small molecule and large molecule. It gives us a runway we need for growth in the next 2 years. However, there are strategic growth areas which hold potential, including new therapy modalities, and we'll make investments in these capabilities to make us future-ready. We'll also make select investments in areas which cement our position as a one shop stop such as an antibody discovery platform and high potent API offerings.
We believe technology deployment and digitization are important [indiscernible] speed, quality and cost competitiveness, the importance of which has only magnified in the current environment. The remaining 15% of CapEx includes investment in digitalization and ESG initiatives around the renewable power and water conservation. In summary, in the next year, we expect to see a return to stronger growth, better than this year.
That concludes my remarks, and I'll now open the floor for questions. Thank you.
[Operator Instructions] We'll take the first question from the line of Karan Vidan Surana from Monarch AIF.
Sir, I would like to understand from the management, then what would be our 2- to 3-year strategy would be on the core business across all 3 segments like Discovery, Development and our Dedicated R&D? Especially in the light side, we are facing significant pressure from the funding winter in biotech in our key geographies. And you also mentioned, sir, that there'll be some positive surprises that you're seeing that...
I'm sorry. Sorry, could you -- could you adjust your microphone, I can barely hear you. So I'm not actually getting the question.
Is it more audible now?
May you request you to use your handset mode please Mr. Surana.
Is this better?
Are you on your handset mode? Mr. Surana, please use your handset.
I'm on my handset.
Okay. And well -- make the question simple, because it's really difficult to hear you. You're indistinct. But go on, go ahead.
So the first question was what is the strategy for the next 3 years, I think. Is that the right question?
[indiscernible], when you're saying that the biotech funding in government is improving what evidence do we have from what we have seen on the ground that gives us...
The $23 billion of new funding went into the U.S. biotech sector in the last 12 weeks. But that's not my data, that's widely reported by a number of banks. Jefferies do a very good tracker. Other banks are available, I shouldn't just choose one, but that's data that I've looked at. So you can track that from the capital markets.
Okay. And sir, in terms of our ramping up of both the [indiscernible] Mangalore API as well as the Stelis Bio facility that we just acquired. Can we see some ramp-up happening in FY '25 for the same in the later half of the year?
Well, it's all rolled up into our business guidance. So when we guide for revenue growth of high single digits, low double digits on a constant currency basis. Remember, of course, we did 9% for the full year last year reported, but you have to take the currency off gets you back to a 6% baseline and then you get -- compared to 6% last year, you get high single digits or low double digits, the 2 ends of the range. I don't know sort of 50% to 100% step-up versus last year. All of those things include all of our thoughts around rebounding in the U.S. biotech sector, geopolitical sector rotation and research services from large Pharma and the CDMO businesses growing.
To try and help you on the specifics, I don't have a lot of expectation coming out of the Stelis facility in the year ahead. We're going to spend most of the year working upgrading it and qualifying it. So that's a growth engine for longer term which tells you that the high single-digit, double-digit growth doesn't include much for that. Hopefully, that's helpful.
And sir, on the Mangalore API plant? Because we've been repaid for its ramp-up for the last couple of years. So just some color would be really nice.
No, no. It's all rolled into the guidance. I -- where we have facilities -- I mean we have 90 acres here in Bangalore with I don't know how many different buildings and facilities. I don't give revenue guidance for every building that we've got and every lab. So we rolled it up all into one. So you have the guidance for the year ahead. Return to growth high single digits, low double digits, margins around where they were this year at the EBITDA level, PAT growth in the single digits. And I think quite a lot of color from Sibaji on how to frame that during the year.
Don't expect a strong growth momentum in the first half, pick up during the second half, which mathematically suggests that the second half exit must be reasonably strong.
Okay. Sir, last question from my side. There is some reports suggesting that Librela has been not good for the PAT and it's making PAT sick. So have you seen the same from our from our -- from whatever conversations we are having with the Zoetis or it's all stable?
I've seen nothing, but then we don't have those sort of discussions with Zoetis. The discussions I have are around manufacturing, quality, on-time delivery, our ability to innovate in processes and bring more value to them and those have been healthy conversations. Beyond that, not something we have any insight into. I think you probably need if you're an investor in Zoetis as well to direct your questions to them.
[Operator Instructions] We'll take the next question from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one, is on the 3 businesses, Dedicated, Discovery and CDMO. How should EBITDA backdrop of that revenue growth range that you have given? How should we look at each of these businesses doing well or not well in that sense? I think that's question number one.
Okay. Well, give me question #2 as well.
Sure. I think question #2 is more on your opening remarks, Jonathan, where you mentioned that fourth quarter development activities have been softer than you usually anticipate. So if you could give us some context, please?
Okay. Well, I can sort of roll those all together. Hopefully, you can tell me that you're getting the broader context. If you look across every single services business, whether in India, in China, in Europe and the U.S., if you look at all of the biotech companies, and you look at the commentary coming out of the venture capital firms. It was a challenging year for fundraising in U.S. biotech. Challenging only in the following context. Go back and look at the amount of running -- money raised and deployed into U.S. biotech each month or each quarter. Go back to the pandemic, and we saw a generational high over the 18 months or so coming out after the pandemic. The very nature of those start-up businesses for the market. They get funding, they have, I don't know, a year to 2 years' worth of cash burn runway, they have enough money to run the business...
[Technical Difficulty]
Sorry to interrupt, sir, this is the operator. We were not able to hear you for a few seconds. Can you just repeat it, please?
But I don't know which few seconds you missed. Where would you like me to go back to?
Mr. Srinivasan, can you please inform sir?
Gentlemen, maybe just a sentence, I think maybe that's all. So I don't know how to frame it.
I'll tell you what I'll go from the top. As I think its actually quite important. So it just seems to me, and this is my sense of this. We had at a peak a couple of years ago in biotech funding, and they have about 2 years' worth of money when they raise, we'll now have a peak of demand for refunding. And not everybody refinanced during the second half of last year. And candidly, with some of our small biotech clients, if they don't refinance, they have no money to spend. So that was one of the factors that was playing out in the fourth quarter. We didn't lose clients because we're not competitive, we didn't lose it because we don't provide good service. It was just as simple as them saying, look, we haven't managed to refinance. Often, they were restructuring and downsizing. We're laying off some of our staff because we don't have the money to pay their wages, which means we're not spending money with you. My comments on the development.
[Technical Difficulty]
I'm sorry, sir, are you on mute?
Ladies and gentlemen, we request you to stay connected, please, while we check the management connection.
Ladies and gentlemen, we have the management team back on the call.
Mr. Srinivasan?
Yes?
Yes, can you please inform sir, where he stopped -- I mean where the line went blank?
Yes, Jonathan, I think we were good. I think you're just talking about the challenges to the business, I guess.
Yes. We're in danger that my answer is going to take longer than the recovery in the market.
So there is -- I mean, I was being humorous, but there is an element of that. The fourth quarter is done. We'll back into the first quarter of the new year. And we think there's going to be growth in the year ahead. Trying to caution everybody, don't think of too much, don't phase it too much in the first half. I think it picks up in the second half. And I'm just trying to explain why I think that. And the reason I think that is biotech companies that have raised new financing in the last 12 weeks, won't be ready to spend it until the midyear. That's one factor.
The second factor is just the China rotation, biosecure dual sourcing, however you want to describe it. I'm starting to sense a material shift, not an acceleration, just a shift that big -- particularly the large cap companies are taking this much more seriously. And to some extent, it's been elevated from being a procurement or purchasing issue to being an audit and risk committee topic and therefore, you're getting a very different lens and a different tone to some of the discussions. People are now saying, well, look, even if we've got great partnerships with some of our Chinese vendors, we don't want all of our supply coming from one geography, particularly one that's certainly the focus of all sorts of discussion and legislation in the U.S. and that's moving them to look for alternatives.
India. We've got a great opportunity. I think we do as a leading company in the Indian market. But so is the U.S. and so is Europe, it won't all naturally flow just from one country to one other. But I think it's a good -- it creates a good environment. But that's a market environment and a trend that should play out over years, and I would echo some of the comments that I've heard from other companies. Even as recently as today, I think Thermo Fisher's CEO said that they felt that it was a structural shift to play out over the coming years. And I'd echo that.
So with that, that was my third attempt at trying to answer your question. Hopefully, if you put the jigsaw pieces together, you get something useful out of it.
Got it. Just my last, just a housekeeping or a bookkeeping question. I think historically, Librela contract, when we look at it 10 years, $500 million. For modeling purposes, we were doing like $50 million a year. Maybe my understanding, it could be incorrect. But is that how it has played out in fiscal '24?
Yes, it has played out. We are in full capacity production now. And if you have done $500 million by 10, $50 million, we will be -- we are there, probably over there.
Yes, it's one of the easier bits of modeling you'll ever have to do.
The next question is from the line of Shaleen Kumar from UBS.
Yes. Jonathan, I understand your comment about and about the recovery to be back ended. But what kind of a divergence are you looking at in first half versus second half?
Sorry, what -- I missed you? What sort of?
Sorry, come again?
We just -- say the question again because you broke up, what sort of and I missed what you said.
So I was asking the kind of divergence, right, the divergence in the performance of the company in the first half versus second half. So obviously, we ended the 4Q with minus 8%. We have a growth expectation of high single, low double digit. So any sense on like we are looking at mid-single digit or low single digit in the first half and then mid-teen and second half? Or are we looking at a flattish in the first half and high teens in the second half?
Come on. Well, why don't you ask me for morning and afternoon forecast for the year. If you go back and listen -- if you re-listen to Sibaji comments, I think he gave you the answer to your questions. So just to help everybody we'll go back and do it again.
I think you said flattish -- flattish to low single digits in the first half. Of course, you've got a range.
[indiscernible]
Yes, I know. You'll be able to do it. You can go back and calculate and get a reasonable shape. Any more than that, and I really will end up having to give daily forecasts.
I think that's good enough for me. And second thing, so -- in the second half, we are hopeful that the biotech funding should come and help it. But just -- okay, maybe just for my understanding, the API unit, is it also dependent on the biotech funding, because that's where, again, most of us are concerned about.
Not really. No, not really. That's just a long-term play around whether or not -- you've got multiple sources. So you can discover, develop and then manufacture. So you can just follow the molecule, follow the life cycle. You can often find opportunities where you've got a development capability which allows you then to move into clinical manufacturing, and that gives you a shot at a later date to maybe do the drug substance API manufacturing. And then you've got dual sourcing. You've got people derisking their own supply chains and looking to supply chain diversity, all of which roll up with a certain thing. Getting out there in front of the customer, making sure you're visible, making sure your capabilities are known.
But you did prompt a thought, it wasn't in your question, but I do think it's worth thinking around. Cross action, not just Syngene, across the sector and across businesses that provide service in multiple geographies. If you were going to take and transfer some work out of China, the easiest and the most fungible, certainly the quickest is just the research part of it, so Discovery Research contracts. Just because of their very nature, they tend to be short-term or annual FTE contracts. Once you move into development, it's a bit stickier and of course, then product manufacturing, whether it's API or drug product [indiscernible] is much less agile and easy to move. So it plays out over quarters and years when you want to do that. Just think about what companies tell you when they have to tech transfer to a new site. That's a -- that's quite a lot of work to do that. So you've got different turning circles on those different types of business. Hopefully, that comment helps.
Yes, yes. The only thing is that if there is so many scopes out there, it still kind of not seeing the kind of traction we anticipated to see in API. So is there -- we are in some final stages of discussion or something or some visibilities in that over there [indiscernible]
I don't know. I think our investors -- surely, they're investing in the whole corporation, the whole equity, not just component parts of it. And from that point of view, Syngene's performance certainly seems to be reflecting well by comparative standards, we're competing well. We continue to grow. We've indicated we expect to grow in the year ahead. And I don't look at it as a small or a large molecule. I look at it as a CDMO strategy.
Okay. Got it. On a bookkeeping side, I just want to understand...
I missed you.
Can you repeat the question?
No, sir, just on the bookkeeping question now. How should I think about the gross margin for the next year, like for my modeling purpose, given that there's change in accounting?
See. Two things happened this year on the gross margin. If you compare year-on-year gross margin FY '24 over FY '23, you'll see broadly, they are at the same level. So there are 2 compensating factors for that. One is as our CDMO business share in our overall business increased, our material cost to revenue ratio increased a bit. At the same time, as we mature as a CDMO business, we have started driving more efficiency in material cost utilization. So these 2 have offset each other and kind of came to the same level of material cost utilization ratio. I think you will not be wrong at all if you are to assume that the same will be continuing into the next year because we are stabilizing at a commercial manufacturing organization now in terms of these kind of things. So you can assume the same ratio will extend into the next year.
Got it. Got it. And just last one on Stelis. How should we think about the fixed cost and depreciation?
[Technical Difficulty]
I'm sorry sir. You are not audible. This is the operator here. We cannot hear you, sir.
Mr. Shaleen Kumar, you're there on the call, right?
Yes, I'm there.
Okay. Give me a moment, please.
Ladies and gentlemen, we request you to stay connected, please.
Ladies and gentlemen, we have the management team back on the call.
Mr. Shaleen Kumar?
I sincerely apologize for this. We don't know where the technical issue is, but we'll try to be more diligent next time. But I don't know why I lost you, Shaleen. I was talking about the useful life of assets for the and during the acquisition process, we estimated that to qualify professionals and 15 years. So we'll depreciate Unit 3 over a period of 15 years.
Yes. Yes. Yes. And should start from when? From now onwards or it has already been started coming in?
No, it has not come in yet. It will come in from the second half when you start -- when you commission the plant.
The next question is from line of Udit from Catamaran.
So if you can just talk about how many salespeople are carrying targets of -- with the large pharma accounts like -- and usually, how do you do this target set for those people? And secondly, how many Boston VC clients did we have at our peak? And currently, how many like VC clients do -- are we serving?
Well, super questions. I am going to disappoint you by talking around the issues. Both of those are questions that I'm not putting into the public domain as they are competitively sensitive. I'm not about to tell our direct competitors, how many salespeople we have in the field or how we allocate the [indiscernible] segment.
But if you want -- do you want a comment on the methodologies by which everybody sets sales targets. I'm not sure how it would help you. We will happily do it, if you want me to.
Yes, even that would be helpful. We are just trying to understand like. Obviously, we have done a lot of hiring over the last 5 years, right? So currently, what our structure looks like, are we -- do we now have all the...
But even that -- we've done some hiring, I'm not sure we've done a lot and the sales organization, it's more about quality than quantity. We want people who are technically capable of explaining our scientific and manufacturing capabilities. You need them to be close to the customer. Life Sciences and Pharma is one of those industries, which is really around almost city states is a way of thinking about it. You can go to Boston, you can go to the New Jersey Turnpike, Chicago, Indianapolis, San Diego, San Francisco. In Europe, we probably go in the U.K. the Cambridge, Oxford triangle then up to the Northwest in the U.K., and we cover most of the pharma companies, so on and so forth. The Ruhr Valley in Germany, Stockholm and Gothenburg, Denmark into Switzerland. So you can go around the world and you know where the clusters are where Life Sciences companies tend to congregate and you make sure you've got salespeople close to those, close to the customer. So gave you plenty of them.
But it's just a bit of sense like that, do you think that now you are well covered in the top 20 accounts, let's say? And is -- are you happy with the client mining, which is happening? Or do you think that will take some time because still the team is new or can just comment on those aspects?
Broadly happy. I think we're well covered. I mean we're fortunate any which way you slice it, 15 of the top 20, 25 of the top 50. You would struggle to find a major or medium-sized biopharma company that we don't have a connect with that we don't interact with. It doesn't always mean to say that we're the preferred provider or that we're currently doing project work for them, but we engage with them.
Same thing in Animal Health. It's a smaller industry by sort of number of players and more concentrated, but we're super well connected. At a personal level, I'll spend a fair amount of my time in the year, meeting with the executives and the senior research development and manufacturing leaders of those sort of companies. So I think we do pretty well.
And then the other part of me, which is the CEO, I'm never going to publicly go on record and tell my salespeople I think that they couldn't do more and that targets couldn't be higher which was the other implication in your question.
And sir, I think earlier, I think it might be you and you had mentioned that you're seeing a lot more client visits and audits, right? Prospect, even for prospective clients, right? If you can just talk about some numbers, like how many client visits or audit have happened this year compared to last year?
I'll talk around it only to try and give you the music around the quarter. But we're just not -- I mean, that's such operational detail to tell you but I just don't think we have to report as a public company, how many clients, how many people came in the cafeteria on a Wednesday. It's more just to signal something I think, more strategic. And again, I was trying in my earlier comments to say look across all of the earnings seasons. You had the CFO at Novartis this week make a comment that they were rotating away from China. I think you had Paul Hudson at Sanofi this morning as the CEO, they say that they felt they've made good progress on that, that they were rebalancing their geographical suppliers. You had the CEO of Thermo Fisher I see on this morning's wires make a similar sort of comment. I'm just saying us too, I see a similar patent. I think it creates opportunity and a good environment for us. I think it will play out, not just this year, but next year and beyond.
And then you tie it back to the earnings, the revenue guidance that we gave you that -- that's our guidance for the year. I'm not going to jump from one to the other. Does that at least explain why I made that comment?
Yes. Got it. Got it. Understood. And just the last question, if I can ask. If you can just talk about what was the attrition level at the whole -- at the company level? How many employees do we have currently? And how -- what was the accretion for the [ BDT ]?
Tell me what you would do with that as an investor or a market commentator?
If there is less attrition, I would think that the company is stable and going forward. That's the only thing which I would try to understand with that number.
There is attrition in general across -- and the majority of our workforce in India, like your business, every other business in India, there was a rise in attrition during the pandemic. People often swapped work from office to work from home. Work from home, came just popping back to my natives and living with my parents. Or going back to wherever I came from, and then bit by bit, that was -- I quite like it there, let me find myself a new job. And the whole economy has been through that.
Compared to that peak, attrition rates are down -- continue to come down. You don't want a lot of attrition, but actually, you don't want too little or no attrition because you've got to keep renewing your capabilities, the energy and the skill sets in the business. So if you ask it from a strategic point of view, I'm not seeing anything within the business that makes me think attrition is a barrier to performance or growth.
We have a next question from the line of Kunal Dhamesha from Macquarie Capital.
So the first one on these material shifts that you are seeing in terms of client queries, et cetera. Would you put it as more like in a panic purchase of capacities or a very careful move away from the China or it's like a moderate increase in -- moderate increase on the normalized business that you see?
Yes, I don't -- as long as you promise not to tie it back to my revenue guidance for the year, the comment is the following: there's been a step-up post pandemic in the number of people visiting our facilities, visiting India, visiting our competitors in India as well because you don't travel 10,000 miles without making sure you look at every option in the market. And over the start of this year, I think that's gone up a level. And increasingly, people are saying, we've got long-term relationships in China. We're likely to rebalance that a little bit less in China, a little bit more in other places to give us diversity and risk diversification. And we're having a look what's available all the way around the world, in the U.S., in Europe, in Asia and here in India. And we're delighted to host them and we'll make our case for why we can bring value to them.
Would you accelerate your CapEx plan in response to the change in the market environment?
Would we? Well, yes, I mean, yes. If somebody came along and said, you know what I'd like is an enormous research center building and then yes, I do have the CapEx to do it. So -- but just let me check what again, I love the question behind the question. What are you trying to get at?
No, I'm just trying to get at whether we will -- we, as a company, will be able to capitalize on this material shift given you are saying that the large cap companies are someone who are actively looking and obviously, large cap companies would like to go with a larger capacity [indiscernible] each one bio side, we are just stepping up our capacity and...
[indiscernible] you're thinking about. I'm just -- I commented earlier, I think -- we should take [indiscernible] I think what we have to conversation every quarter for the next 2 or 3 years. So we may as well get the frame of the question. Yes.
Yes. So let's say unbeknownst, one of your competitors [indiscernible] purchased roughly 3 lakh 30,000 liter capacity from Roche in U.S., right? Samsung opened some 2.8 lakh liter capacity at a plant [indiscernible], right? So is there anything for us like that in the making? What you are thinking that this is something that we see that...
It's coming purely from a biologics manufacturing. I'm talking about the whole business, research services, development as well as the CDMO part of the organization. I'm thinking as much about the 17 acres of land that we bought in Hyderabad that will house scientists as we build labs there as much as I'm about biologics capacity. When we bring Unit 3 online, we'll have 3x the capacity. But relative to, I don't know, who the 2 biggest levers, Samsung as being a sort of giant in biologics manufacturing. I don't think our change in capacity makes a structural difference to them. But we probably serve very different customers.
Okay. So you being on a more, you can say, small to medium Biotech companies is the...
People with single assets, people that want clinical scale manufacturing but it also then depends on the drug. If you've got a drug that is going to be in very large volumes that requires 10,000 liters, 15,000 liters stainless steel [indiscernible] to get optimal capacity [indiscernible] on the cell line, [indiscernible], reperfusion technologies. There's a myriad of things that make a project specific that are not as simple as -- big companies buy big volumes from big vendors.
Ladies and gentlemen, we'll take that as last question for today. We apologize for the technical issues faced during the call today and also thank the management team for extending the call for offsetting the time laws due to the technical glitch.
I now hand the conference over to Ms. Nandini Agarwal for closing comments. Over to you.
Thank you, everyone, for joining today's call. If you have any further questions, please do get in touch with the team, and we'll be happy to assist you. Have a good day and thanks once again.
On behalf of Syngene International Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.