Laurus Labs (NSE:LAURUSLABS) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Laurus Labs Q2 FY 'twenty seven Earnings Conference Call hosted by DAM Capital Ltd. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is now being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors Limited. Please go ahead, sir. Hi. Thank you. Hi. Good afternoon, everyone, and a very warm welcome to Laurus Labs Q2 F twenty seven earnings call hosted by DAM Capital Advisors Limited. On the call today, we have representing Laurus Labs Management, doctor Satin Narayan Chawah, founder and CEO mister Vivi Ravi Kumar, executive director and CFO mister Krishna Chattanya Chawah, ED, head CDMO Missus Songya Chawah, ED, Affordable Medicines and Commercial.

1:01 And mister Vivek Kumar, AVP, Investor Relations. Before we proceed, I would like you to do remind you that some of the statements made during your call today could be forward looking in nature and a safe harbor statement with respect has been included in the press release that has been shared in the company's website. I hand over the call to Doctor. Chawat to make the opening comments and then we'll open the floor for questions. Please go ahead, sir. Thanks, Nitin. Good afternoon to all our stakeholders. We are pleased with the substantial progress company making across various business segments. We continue to report strong growth in CDMO business, steady momentum in affordable medicine portfolio because of our major advancement in our partners clinical and commercial programs.

1:50 The strong performance reflects sustainable robust demand for our specialized capabilities, integrated offerings, depth of our customer relationship and disciplined operational execution by our team. In line with our accelerating transformation strategy, we're actually investing into building scientific capabilities and capacities across complex and new modalities. The company's total reactor one for small molecules API in operation has now reached over 9,000 kiloliters and we'll continue to expand further. We're also pleased to highlight some of the important disclosures we have made in this quarter's investor presentation on the advancements we are making in our integrated peptide CDMO capital.

2:39 We commissioned commercial scale peptide manufacturing block. Our current reactor volume for solid phase peptide synthesis is over 16,000 liters and we have taken up a significant further expansions to meet diverse program requirements. We continue to strengthen the capacity of liquid phase peptide synthesis and several new technologies. We're also augmenting our capacities to disciplined business development. During the quarter, we have announced investment into two technology platform companies. The one is an agreement to acquire majority 60% stake in Canada based Galena Sciences, specializing in oligo nucleotides and precision magnetic nanoparticles based purification.

3:26 The leveraging Galena's expertise in early stage oligo projects, process development conjugation, precise purification and fill finish, along with the large scale expertise in complex chemistry. We intend to support clients with seamless journey from complex RNA DNA based therapies as a one stop solution. Together, this will expand Laurus position to participate in emerging high growth oligo market. Second is an acquisition of majority stake in SA and C resins, a peptide resin technology focused company based out of i2bac. This will allow us to enhance long term supply security by insourcing critical solid support resins for peptide synthesis and also chromatography stationary phases for large scale peptide purification.

4:18 This will bolster a lot of manufacturing competitiveness and reliability with our current and future partners programs. These acquisitions are aimed to advance Laurus integrated scientific capabilities onto one roof. These acquisitions are strengthened by Laurus quality infrastructure that will cater to more complex customized projects along with significant increase in future therapeutic demands. Moving on to our financial business, Laurus has maintained its growth trajectory and once again delivered record revenue and profits for quarter two. Total revenues were 2,206 crores, reflecting a continued strength of our CDMO platform, growing contribution from commercial based supplies and ongoing momentum in our forward medicines portfolio.

5:06 Gross margins were also healthy and maintained around 63 and EBITDA margins further expanded over previous quarters by 2.7 percentage points to 34.5%. Our product mix and operating leverage continue to do well, supporting healthy margins overall. I would request Mr. Krishnu Jadena to share key updates on our CDMO business. Thank you. Coming to the small molecule CDMO, the business has continued to deliver robust operation execution in Q2, reporting 86% growth with the sales of crores. For the first half of the year, of the current financial year, the division recorded INR1710 crores that equates to about 77 percent growth.

5:58 This performance was driven by successful delivery of critical late stage programs as well as commercial API supplies to multiple global partners. We also continue to see encouraging demand on the newly commissioned assets across both Human Health and Animal Health businesses, both in terms of the volumes and opportunities with existing partners as well as with new client engagements. The company remains focused on enhancing our core capabilities and capacities to better meet customer demand driven by continuous expansions. As Doctor. Sathya highlighted in the opening remarks, we have commissioned our peptide manufacturing facility and our investment towards other multiple large scale API opportunities continues to take place in our WiSAX side.

6:50 Strategically, we are elevating client collaboration on complex new modalities and our focus remains on securing fully integrated projects, seamlessly supporting partners from preclinical development going all the way to finished drug product services. Driven by this end to end capability, our CDMO pipeline continues to expand. We are adding clinical programs across a highly diversified mix of manufacturing technologies as well as therapeutic indications. I would say with our capability expansion, deeper integration and expanding pipeline, Laurus is well positioned to sustain a healthy business growth in the coming years. Now moving on to Laurus Bio.

7:36 The Laurus Bio division reported a Q2 sales at 29 crores and for the first half of this financial year that is at INR 64 crores. The year over year variation is primarily due to the campaign phasing, though our underlying pipeline momentum remains strong. We are actively increasing longer term strategic relationships with our major customers across both AOF as well as CDMO programs towards anchoring our future pipeline. On the capacity front, our commercial fermentation facility, Laurus Biofor is progressing as planned, and we expect this to be operational by the end of this year. And we are already advancing on customer capacity reservations for this facility.

8:24 Now I would request Ms. Soumya Chawar to share key updates on our affordable medicines portfolio. Yes. Thank you. Revenues from the affordable medicines stood at $130.02 crores in Q2, which represents a strong 15% year on year growth. For the first half of this financial year, we achieved a healthy growth of 13%. This growth was driven by continued expansion of our order book across various established portfolios, which was also supported by stable pricing in both our ARV portfolio and developed market portfolios. Looking ahead, we remain committed to investing in the business in line with evolving market requirements.

9:10 The positive long term outlook is underpinned by a robust pipeline of new product launches, integrated CMO engagements and ongoing expansion of product registrations across the emerging markets, which is creating new business opportunities for us. I'm also pleased to report that despite the heightened global volatility, our supply chain has demonstrated exceptional agility, enabling us to maintain highly reliable delivery performance for all our global partners. With respect to our strategic Karka joint venture, progress at the formulation facility remains firmly on track. The Phase one production blocks are scheduled to commence operations in mid-twenty twenty seven, which will significantly enhance our commercial capabilities with a focus on high potent and general OSD manufacturing.

10:03 On the filings front, we have cumulatively filed 92 DMS to date. In developed market formulation business, we filed two dossiers and received two approvals during H1. Overall, we have cumulatively filed 96 products to date. Thank you. Thanks, Krishna. It's Samir for the overview on CDMO and affordable medicine segments. On the R and D front, overall spending to sales for the first half of this financial year was at 4.3%, increased by over 34% year on year. We just been an exceptional eye, primarily on account of capability development efforts for our gene therapy ADC technology infrastructure. We maintain our commitment to invest in portfolios focusing on product complexity, scale and sustainable technology platforms.

10:52 I would also like to share a brief on quality and ESG. In the past half, Laurus underwent 15 and quality audits by multiple regulatory agencies and key partners and has been successfully cleared audit inspections without any critical findings. On the ESG front, we continue to drive sustainability initiatives. We've continued recognition by leading global rating agencies. Meanwhile, we're also making operational progress, I guess, our SPTI validated near term GHG reduction targets. You can see more in our IR slides. To conclude, we are pleased with the way we are executing our transformation strategy and headway we are making into building a stronger foundation for future. By broadening our integrated capabilities, diversifying our pipeline and advancing key commercial opportunities, We are well positioned to accelerate our long term growth project.

11:50 Now I request Mr. Ravi Kumar, our CFO to share overall financial highlights. Thank you, Doctor. A very warm welcome to everyone to our quarter two and H1 earning call. Let me take quickly through the highlights. Total income from operations for H1 is at INR 4,233 crores, registering growth of 31%. We continue to deliver strong growth mainly due to continuing strength in CDMA execution and stable performance in affordable medicine. For the quarter two, total income from operation is INR 2,206 crore, which is the highest in from the beginning. Gross margin maintained at a healthy level for H1 at 62.9% and for quarter two at 63%, mainly due to better product division, product mix and division mix and improved operational efficiencies.

12:45 EBITDA for H1 stands at INR $140.06 crore with a margin of 33.2%. For the quarter two, EBITDA reported at INR $7.62 crore with a margin of 34.5%. This profitability is on account of improved operational leverage. Profit after tax for H1 at INR $80.09 crores and for the quarter two at INR $4.41 crores. So our ROCE is moving upwards to 22.5% for the H1 versus 26% of FY 'twenty six of 17.7%. On the CapEx front, we invested close to INR $4.70 crores for the quarter and INR $8.64 crores for the H1. We are making good progress in executing ongoing key CapEx across diversified growth projects.

13:36 Our net debt stood at INR 2,004 and 66 crores and debt to EBITDA is around INR 1.02 crores versus INR 1.28 for the last quarter on the back of strong internal cash flows. On the capital allocation front, our strategy remains unchanged, and we will continue to prioritize investments into high value business segments to drive near and long term growth for all our stakeholders. You can refer our IR presentation for more details. With this, I would request the moderator to open the lines for Q and A. Thank you. Thank you very much. We will now begin the question and answer Anyone who wishes to ask a question may press star and 1 on the touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2.

14:23 Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Tushar from Motilal Oswal Financial Services. Sir, firstly, on the peptide large scale manufacturing block restarted. So as a trajectory, how to think about the commercial level sort of revenue coming through, considering the customer might require certain regulatory approvals to come in place or you will have the inventory buildup quantity, if you can just explain that business trajectory?

15:13 Krishna, would you like to answer this question? Sure. Thanks for that question, Tushar. As you rightly said, for every program, there's a certain runway towards commercialization, as you rightly identified, regulated to validations and regulatory approvals. With that being said, we have several programs in the pipeline, which I can't really divulge too much about, but that are in various stages, including development, scale up validations. So we already have a visibility into how we would leverage these facilities and thereby having the visibility to invest more in furthering this capacity. For the existing capacity, can you just which considering not getting into product specific or company specific, but in terms of time line where we see the commercial benefits starting to?

16:11 And what could be the quantum for the existing capacity, maybe in terms of asset turnover period of time, how to think about? For the commercial revenues, we expect somewhere around the twenty nine time frame for some of these peptide capacities that we are talking about today. But with that being said, in terms of utilization, even for some of these validation campaigns also, it will be fairly high for the asset itself. We Prashad, as we mentioned in our investor presentation, we are also expanding our peptide capacity significantly. We'll give you more details as and when the facilities are qualified.

16:56 So we have good visibility on the programs, progress of the programs and the volumes requirement for those programs. We have visibility. One point I would like to add here is our peptide manufacturing capabilities are fully integrated. In the sense we are not making fragments, are doing complete synthesis of the peptide purification isolation. We are offering an API, not just to fragments. Got it, sir. And on the that's really helpful on peptide side. And on the overall CDMO side, like considering multiple projects at multiple stages, is there any maybe in the near term where the inventory buildup has happened at the customer end and hence, there would be some buffer before the revenue picks up on the overall basis in the CDMO segment?

17:56 Or we have certain projects, which are yet to sort of scale up and hence, we will continue to have growth in this segment maybe over the next twelve months or six to nine months? Based on what we know at the moment, we don't anticipate such a situation. But with that being said, we have several programs that are commercialized in nature. So these volume changes generally tend to balance out. So we are not anticipating any such surprises, at least from the perspective that we have today. Got it, sir. Thanks a lot. That's it from me.

18:43 Thank you. Thank you. The next question comes from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead. Yeah. Congratulations. Hi. Am I audible? Yes. Yeah. You are. Hello. Am I audible? Yeah. Yes. You are audible. Yes, sir. So congratulations, doctor Satya, Ravi, and... Sure. The numbers are finally catching up with the work you have been doing for years. Well deserved. I have three questions. First, doctor Satya, if you remember in April 2023 on that NDTV profit interaction with me, you agreed that a bigger surface area would mean better growth.

19:38 Since then, CDMO has grown about four times. What can Laurus do for customers today that it couldn't three years ago? Thank you. See, as years passed by, we are not just adding reactor volume. We are also adding various technical capital to this as well. See, our first commercial scale by technologies happened in 2021. And then flow chemistry happened later on, Flow hydrogenation happened later on. Fermentation happened later on. So we're adding technical capabilities for a period of time.

20:28 Today, if any partner comes with a tech pack, we will not say no because we don't have capabilities except to monoclonal antibodies. We and the cephalosporins and pencils. Those are the areas we don't have right now. Other than that, we can offer any chemistry, any modality, any scale, any potency also. So we just to commercialize the OAB5 facility for payload linker now. So we were adding capacity and capabilities where we put it in. In 2023, we don't have this many capabilities now, we have capacity and capabilities. Sir, you're not audible.

21:21 Doctor Satyan, thank you. And so my sense is execution. No. I am. I think there's slight delay, but I think I'm audible. So thank you. And so my second question is execution to my mind is earning customer trust, and trust is bringing more complex programs, something you alluded to in a private function at the CPHI. Over the next five years, what is most likely to break this winning loop? That's my second question, and I've got one more. Thank you. It is difficult to predict, sir. Have put in our best efforts to keep our service level constant, if not increase.

22:08 So our ability to take projects, we are very cautious not to compromise on our service levels. So our project capabilities, we are choosing where we will add value to our customer, not decrease value to our customer. That's where we would like to maintain service level business will not come today, we will come tomorrow. So we don't want to spoil partnerships or relationship by taking too much that we cannot handle. That's helpful. And finally, doctor Satya, alongside the large CapEx, you are making small bets across peptides and oligonucleotides, which one could become a flywheel for Laurus in, let's say, five years, give or take?

23:03 Thank you. Our investment in peptide resins is not going to give so much of financial benefit, but it will strengthen our position now peptide synthesis. But our investment in oligo peptide startup Galinas in Canada, we don't we have no customer right now in oligos. So we believe that will add significant value in the near to medium term future. And I think, doctor Sate, is is that exactly the loop that we have been playing over and over again? We try and control the full value chain integrated.

23:49 And I think what we did with ARV, we are kind of, in my view, and correct me if my understanding is wrong here, we are just playing the same playbook of integrated end to end value capture in the entire pharmaceutical space and new model... Modalities are... You know, the thinking along... You know, for the new modalities is along the same playbook as we have already executed over the period of time. Is that how one should look at this transaction? Because you're not spending too much into this, but the capability that you are getting is meaningful perhaps five years, six years out if not immediately. Thank you. Thank you. Think it is I would say it is not same, but maybe similar.

24:36 The scale is also not same, but could be scale could be different. ARV is a mammoth, but I don't expect to be aligos will go to ARV level in the next four, three years. We are investing because our customers are not asking. It's not that we are investing, we are liking. Our customers are asking us to get there. So we're investing. Yes, that's the message I can give you right now. Sure. Thank you. That's all. Wish you all the very best. Thank you. I'm done. Thank you. The next question comes from the line of Chirag Shah from White Pine. Please go ahead. Yes. Thank you for the opportunity and congratulations for the set of numbers. Sir, I have first a very short term question. If I look at Q1 to Q2 on the CDMO side, can you give some color what has driven such a strong ramp up sequentially?

25:32 Is it on large size molecule like you have supplied? Or is it some projects have moved from either phase one to phase two or phase two to phase three that has driven or which your number of molecules for which the supply has happened is driving it. So it would be helpful if you can give some more granular whatever you can share on the on qualitative side. I think it's like a meaningful growth between the quarter one of this year and this quarter. But as we've highlighted in the quarter one conference call, we expect this to be pretty consistent is what we've alluded to also in the last call.

26:23 But to answer your question, there's no specific one offs that we are looking at in this case. Okay. No. It's not about one off. It is about the quality and the nature that is driving it. Is it more molecules getting added or it is some large molecule or some phase two, phase three movement which is driving this? So I'm just trying to understand that. I I think the... If you look at the increase in quarter one, quarter two by 200 crores is because of the overall revenue increase. The CDMO revenue increase only contributed by 40 crores, but the rest of the... Our affordable medicine increased by $1.60 crore. It is the overall comp... Overall performance. Good point. And, sir, second, on the peptide side, can you just indicate the kind of capacity that we have currently and the infrastructure, what kind of capacity addition that can happen?

27:25 So that's one. And I presume you already would have soft commitments or soft confirmations from customers or that is also yet to happen because it's a new facility, that's why I'm asking. So on the capacities for the peptides, on the only coating the SPPS synthesizer capacities as we captured in our investor presentation, it's a little over 16 ks. And of course, LVBS, I don't want to quote at this point in time. But like we've always maintained, we'll provide a meaningful update whenever we reach that stage. But yes, generally we tend to shy away from quoting too much information, which might not be meaningful or translate into actual numbers.

28:22 Again, think we'll keep you updated on peptides as in when there's some updates there. But yes, that's something that I can share at the moment that we continue to invest extensively in enhancing the capacity further. And is that fair assumption that weak times are longer in peptide versus small molecule, it's a fair assumption, right? It depends on which I mean it's not a statement that's always true. It depends on the complexity of the small molecule, the number of steps involved and also the complexity of the peptide if you're doing the fragments, if you're doing the API. So it's a it has a question that has probably three, four all on questions.

29:09 But, yeah, I think at a high level, maybe you could say that, but it might not be always true. Perfect. Thank you very much and all the rest, sir. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question comes from the line of Shekar Kariala from Family Office. Please go ahead. Hello? Yes. You're audible. Yeah. Yeah. Thank you. So, doctor Jawa, congratulations on, you know, adjustment for this quarterly numbers where I think the the journey that, you know, Laurus has been giving all of the investors quarter after quarter.

29:56 My question is primarily on the peptides, although many questions were already there, but I think I wanted to, you know, get a broader color from you or or from mister Krishna. So, you know, in the peptides world, I think what we've been, you know, hearing about is the solid state, liquid state, hybrid, and then, of course, I also read somewhere that fermentation, this is the price of the cheapest one in terms of manufacturing. So what I would like to understand from you is how do you see this old scenario emerging in terms of how over the next three to five years would it be the hybrid that will probably drive most of the manufacturing or could it be fermentation? And how Laurus is preparing in, you know, as as you... As we are building the CapEx capacities and then the fact that we also have the fermentation capabilities, How we are preparing for this three to five years sort of a story, if you could throw some color. I don't need any numbers, but just the color on the manufacturing and how we are developing our capabilities.

30:54 Thank you. The use of fermentation and peptide synthesis depend on how many amino acids, naturally amino acids are there in sequence. If it is the sequence is small, nobody will go to fermentation base. Currently, the programs what we have mostly SPPS, LPPS are hybrid. So that's where our capacity expansion is also going. Just to add on to that, I think every program in the peptide space is unique and comes with its own unique requirements. So it's not very easy to say that five years down the road, there'll only be a certain type of programs.

31:42 We believe there will continue to be a space for SPPS, LTPS hybrid and as you've said, for the fermentation base as well. That they'll continue to play a meaningful role because they offer unique characteristics for depending on the peptide requirements. Thank you. My second question and the last question is if you could throw some light on the fermentation, you know, in terms of our facilities, if they are, you know, GMP approved, do they have any limitations, so to say, or they could do any type of a fermentation requirements of the our customers may have? See, we have one GMP facility in Bangalore that will do up to 500 liter, 5,000 liters fermentation.

32:33 And we have food grade, industrial grade facility in Tumkur with 200,000 liters fermentation capacity. And we are building 500,000 liter facility, which will be operational in this quarter. That's also food grade and industrial grade not a GMP grade. We're also building a GMP grade fermentation facility for some of the products in animal health that will be operational second half of next year. Okay, great. Thank you. Thank you and all the best. Thank you. The next question comes from the line of Forum Parekh from Bob Capital Markets. Please go ahead. Yes. Thank you for the opportunity.

33:20 My first question is on the CapEx. We have announced 3,000 crore CapEx over a period of twenty seven to twenty eight. And it's across various modalities. So could you give us some color which modalities would have like higher contribution or would the CapEx be equally distributed amongst oligo peptides, some color there? It's difficult to break into several segments for combination purpose. So we are investing significantly in growth CapEx. Yeah. And majority to API. Yeah. Okay.

34:08 My second question is on the EBITDA margin. While on a sequential basis, I see gross margin is almost flat, but EBITDA has increased. EBITDA margin has increased, and I see that's largely because of r and d cost rationalization. So just wanted to understand why has r and d come down steeply on a Q o Q basis and how sustainable is it? I think the quarter one, we have filed some ANDAs. So that's the reason the cost has gone up in quarter one. It is not that we are refocusing on our R and D expenditure. Second, there is operational leverage as well. So from Q1 FY twenty seventeen to Q2, already we also achieved 200 per extra revenue.

35:00 So our EBITDA margin improvement not just to lower R and D cost, but higher operational leverage. Sure. And sir, any guidance on the sustainable run rate of EBITDA margin because 34% seems to be the highest ever. And now CDMO segment is also stabilizing at 40% contribution. So what's the stable EBITDA margin we can expect for the year? At the beginning of the year, we already indicated we were comfortable in maintaining over 60% gross margin and over 30% EBITDA. I think that's we still stick to our guidance. But it could that's the number you should take in your mind.

35:47 Sure. And my last question is on the, again, custom synthesis side. Sir, some color or some dynamics, like how many molecules have become commercialized and how many molecules are there in Phase III? Unfortunately, that is not something that we are in a position to divulge, ma'am, because of various confidentiality reasons. And also, like you've alluded to in the last call as well, that at least internally, we believe that number does not necessarily translate into the actual numbers like in terms of revenue because one program might give, let's say, 1,000,000 versus another program could potentially give $100,000,000 So that number, at least from our end, we believe does not paint the full picture and that's why we always refrain from quoting that number.

36:40 Okay. And sir, lastly, if you can give us the number on the CC in a constant currency growth and the percentage exports of the total sales? Percentage exports, think we'll check. I think majority is there, actually, I think we domestic domestic must be less than 20%. And the constant currency on a sequential basis is not a significant number on a sequential basis. It's about 12 crores. Sure. Yes, yes. On a sequential basis. Yes. Those were my questions. Thank you.

37:26 The next question comes from the line of Rahul Bharatwaj, an individual investor. Sir, you're not audible. Can you hear me? Don't... Yes, sir. Hi. Yes. Thank you for the opportunity. Yeah. So my my question is primarily to understand the CDM of phase a little better. So we probably have around 100 plus active programs. Can you give us some color into what percentage of the commercial state supplies they they are originating either from HCFA's one, two development versus late stage at transfers?

38:19 I think it's difficult to give that granular answer for this question. See, as Krishna mentioned, the number of projects may not give you right color of revenue come. So we have projects from $200,000 to several tens of million dollars. So we give say around 200,300 projects, whether you multiply that number by 200,000, multiply that number by 10,000,000. So I think that may not give you right picture to our investors. So we refrain from giving that number. Thank you. And I don't have any further questions, sir. Thank you. Thank you and good luck ahead.

39:07 Thank you. The next question comes from the line of Dawal from Jefferies. Please go ahead. Hi. Thank you for taking my question. So again, joining the peptide bandwagon, what is the gross block of the peptide facility that we have put up? And any very broad high level estimate of what, you know, peptide business can generate in terms of peak asset turnover whenever we achieve, but very high level? I think after a lot of deliberation internally, agreed to give the reactor volume. I think beyond that we are not going to give you how much of CapEx we are invested, what is the asset turnover ratio we going get. So that's unfortunately we weren't able to give you further details on that.

39:59 Okay, sure. And in the call earlier it was mentioned that even the validation batches will require significant capacity and will drive a good utilization. So any broad timeline when these validation batches you think could begin for the peptide? In the modalities like prepays, the complexity of synthesis is very high. So nobody would like to do validation at some scale and scale up later on our move reactor, our move facility, move manufacturing block. So for these modalities, the commercial scale facilities are needed for the validation itself. So we have built facility not just do validation, but also meet our customer commercial demands from the same manufacturing block.

40:58 Yes, yes. Definitely got the concept. But any broad time line you think when these validation batches could begin? So broadly speaking, twelve to eighteen months is the number that you can take. But again, in clinical programs, things can move around, but you can assume that number. Okay. And last question, it seems like we are trying to do some backward integration in SPPS manufacturing by investing in resin, you know, facility and resin capabilities. So, again, approximately how large is resin cost when when the peptide is getting manufactured using SPPS or hydrate?

41:50 Again, it can vary a bit. I understand depends on how large the fragment is, how much is SPPS, how many LPPS. But very broadly, given you guys are doing investment, what is the typical resin cost versus the total cost of manufacturing the peptide? I will be able to give you a range. It's a smaller the fragment, the cost of resin is higher. The longer the peptide, the resin contribution is less. So you can take in the cost of manufacturing of raw material cost of peptide, it will vary between 10% to 20%. Raw material cost. Raw material cost. Raw material material cost to peptide resin contribution vary between 10% to 20%, depending on the length of the fragment of the peptide.

42:45 Got it. Understood. Very helpful. And any other major costs beyond resin which is involved or is it all the regular solvents and typical raw materials, nothing specific beyond resin that one should be aware of. We will not give you that granular. Hope you are not building a model here, cost model. This is... So I think it is difficult for us to go that granular. Sure. Okay. Okay. Thank you. Thank you. The next question comes from the line of Vivek Agrawal from Citigroup. Please go ahead. Sir, one question is on CapEx. So this year, for this as well as the next year, you have guided 3,000 CapEx.

43:34 So how good you are in terms of completion of this amount, given that in the first half, the run rate is slightly on the lower side? And second, a related question, how do you see investments or the overall CapEx, let's say, beyond this year, June 28? And if you want to look at, let's say, another three years, so twenty nine, thirty, thirty one? Vivek, your voice is not clear. Can you just remove your speaker? Should I ask this question again? Yes. Yes. Now it is better. Yes. Thanks. So in terms of CapEx, right, so we have guided INR 3,000 crore CapEx for this as well as the next year.

44:20 And given that the current run rate is slightly on the lower side, how good you are in terms of completion of this? And second, even beyond these two years, if you want to build the model, let's suppose another three, four years, what kind of the investment or the overall CapEx you are envisaging? Thank you. So although the first half the number is less, most of the investments are going on track. So as we guided 3,000 crore CapEx for 2728 is the right number. And the second, we expect the investments will continue to add that range in the years to come. So around INR59 crores per year capital expenditure based on the current understand. We go up if the opportunities come, but otherwise it will be in that range.

45:16 Understood. And if I look at asset terms, right, so you're consistently seeing that asset terms are moving up. So what is a fair level of asset terms, let's say, you are expected to reach in the next couple of years? And at what level you think that overall asset terms can stabilize? See, the average asset term even for six years is 1.1. We're at one. Definitely, we can move up to 1.1. But, you know, the... Our peak asset turn was 1.4. We also wish we should go there, but, like, no. Somewhere somewhere in between, it will go. But it's a for a period of time based on the maturity of the projects, it depends. Understood. And one question on peptide.

46:03 So when you are expecting the commercial revenues to kick in of this 15,000 in liter capacity? And how much has already been committed? What percentage of the capacity has already been committed by the customer? Unfortunately, Vivek, for both of those questions, we'll not be able to give you an answer primarily because of confidentiality reasons and also for strategic reasons. I'm sorry about that. No problem. And you also talked about that you're also looking to expand the peptide capacities, right? So is it a aspirational statement or you already have some visibility from some of the customers that you are looking to expand the capacity, or it's like that it depends on the execution in the existing capacity projects, etcetera, you are expecting more products, and that can't even the expansion. I'm just trying to understand the thought process behind the statement that you are looking to expand the capacity.

47:06 Current capacities we foresee may not be enough for us to cater to the requirements in the near to mid term. So we are significantly increasing capacities because we see some of the programs in the early clinical phases and they move When they move to validation phase, we wanted to move those programs to a commercial manufacturing block. That's the intention we are building new capacities. Are you also involved or let's say, do you sense any opportunity to be involved in some of the existing GLP-one products or to prepare GLP-one product? We don't want to comment. Yeah.

47:54 We we reserve our... Yeah. No. No. No problem at all. And just to drive here a bit more, in terms of backward integration, how important it is? Right? So you are building the regions, etcetera. But in terms of building blocks and amino acids, so how backward integrate you are on these effects, or are you also looking to add capacity in building blocks and you know these programs will have multiple sources of amino acid supplies including us. So these partners programs are so large. They don't want to depend on one vendor for any of the key amino acid derivatives also. So we have a progress where our derivatives will go into the validation like we buy some M and A derivatives from the other party, third vendor shops.

48:50 Understood. Understood. And sir, one question I have on affordable medicine side. So this quarter, have dropped decent number and first half around 1,300 grow. So what drove the sharp uptick this time around? How sustainable it is? And how you think that this finished those foundation revenue can pan out, let's say, in the next one to two years once this product become live? So for the formulation revenue, as mentioned earlier, we are doing project registrations in multiple countries. So we see our formulation revenues will continue to grow in the upcoming quarters as well. And regarding the pricing for the APIs, they've stabilized.

49:40 Though there is a lot of geopolitical pressures, our supply chain resilience has stabilized those prices. You. The next question comes from the line of Nayan Patsala, an individual investor. Please go ahead. Am I audible? Yes, yes, you are audible, Good evening, sir. Regarding the KRKL joint venture, how is the business progressing? And when can we expect it to make a meaningful contribution to Laurus Labs revenue and profit? So the CARCA formulation facility is getting ready, and we will start the validations for products mid twenty twenty seven.

50:32 So we're already working towards validations. So once the validations are done, we'll do the filings. So 2829. '28, '29, we should see meaningful revenues. Yeah. Thank you, ma'am. And secondly, you mentioned around one twenty five active CDMO project. What is the current number? That number is a very dated number, but that we don't want to say further. But, yeah, you could assume 125 even today. That's... But we don't want to expand further on that. Okay. Okay. No problem. Thank you, sir. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, Please limit your questions to two per participant.

51:22 The next question comes from the line of from. Please go ahead. Yeah. Thanks for taking my questions, and congratulations to the management for the good set of numbers. I have two questions. Firstly, on the pit side, is it possible for the management to quantify bolt on number that they have invested in solid phase, liquid phase, isolation, purification and amino acids, total investment in this? Unfortunately, we would not like to divulge that information due to strategic reasons. Understood. But any ballpark number or any quantification like a percentage of total investment that we have incurred so far without giving any proper number?

52:12 I'm sorry, but yes, we are not able to provide that color as Doctor. Jay mentioned and Ravi mentioned, even this peptide capacity that we've created, we've shared after a lot of deliberation and feedback from a lot of customer sorry, investor community. And but yes, even beyond that, we are not in a position to share at this point in time. We can share, we share to all investors, not the selective. So that yes, please bear with us. Yes. Okay. No problem. No problem. And again on peptide, so I know that you don't want to talk on any GLP on a project in the near term. But do you think that in next five years, there will be right for us to get any peptide GLP one related contract?

52:59 Yes. I think given the capabilities and the capacities that the company is investing in, I think we certainly expect to play a very useful role in that. Understood. Understood. And and the last question is now recently, now this is broader industry level question. So recently, China has banned the export of any technologies outside China. And The U. S. Has also banned some of the investments that will happen in Chinese biotech. Now what kind of opportunities or industry trends that will emerge because of this? From a geopolitical standpoint, I would not want to comment on this call at the moment. Yes.

53:55 The next question comes from the line of Krish Mehta from Enam Holdings. I have two questions. The first is on understanding the sustainability of this quarter's revenue and EBITDA margin run rate. So if I were to look out, say, to FY 'twenty eight, would it be a fair assumption to assume that what we've done this quarter can be repeatable in terms of looking at something like a broad 10,000 crore revenue at 35% EBITDA margin? Or is there should we kind of normalize this current quarter's run rate? That's my first question. The one we are always answering without giving any guidance. Two things we are committing. One is we will able to maintain 60 plus percentage of gross margin and 30 plus percentage of EBITDA.

54:44 We are comfortable to guide all our investors. Beyond that, it's very difficult to give any guidance at this point. Thank you. And my second question is on if you could provide the breakup of your ARV API and ARVFDF for this quarter? So ARV API for this quarter is 625, and FTS is 677. Okay. Thank you so much. Thank you. The next question comes from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead. Hi. Good evening, everyone. Sir, first question on peptides.

55:30 Within peptides, how important do you think will be purification as your programs move from clinical to commercial over the next two years? And this is particularly for the longer peptides. I think, yeah, purification is similar to synthesis, the downstream, which includes the isolation. Purification and isolation are equally important as complex. Yeah. Just to give you a break the complexity, synthesis, purification, isolation, all three will be equally important, maybe one third, one third, one third kind of situation. Yeah. From a complex Complexity finder. Yeah. Understood, sir. And where I'll be in that journey when it comes to scaling up both, say, downstream purification or isolation capacity in parallel to creating the the overall reactor capacity?

56:26 So like we've mentioned in our investor presentation, when we say we've created peptide capacity that includes the entire value chain of synthesis, purification and isolation. Got it. Just one follow-up there from, say, 2,000 liter currently. Are there any plans to move to 3,000 liter synthesizers? And if, yes, possible to give any timeline for that? I would not like to answer this question at this point in time. Yeah. Fair enough. Sorry. And, Rajesh? No problem. And just one final question. Given that you have been working on various modalities as doctor Satya mentioned, pretty much all capabilities except with the maps and cephalosporin penicillin.

57:21 In terms of talent availability, how would you assess the current situation? There are multiple companies working on multiple modalities, adding capacities. So just from an industry standpoint and your own talent hiring standpoint, do you assess any challenges? And, yeah, where are we in that journey? See, as you have seen in quarter earnings presentation. So we invested in assigned a different agreement invest in oligonucleotide company because we believe a talent is there. Whereas we can manufacture because oligonucleotide manufacturing purification isolation are similar to peptides. So we have that expertise, but synthesis wise we don't have R and D wise, we invested there. And like that too, we invested in solid support resins company, because we don't have talent right now. So we are trying to build the gaps in our technology development by investment in these companies like we invested in a large bio to get expertise in enzymes and fermentation.

58:29 So our investments are to build the capabilities where we don't have right now. Although we are not investing in capacities, if you have seen for the last several years. We build capacities, we build, we bridge the gaps by acquiring technology based companies. Understood, sir. That's very helpful. That's it from my side. Thank you, and all the best. Thank you. Thank you. The next question comes from the line of Yaseer Lakarawala from MT. Please go ahead. Hi. Good evening, team. And before that, wish you all a happy Diwali in advance. My question was on the CDMO side. Is there any color you could give in terms of for H1, our mix between animal health, crop science, and human pharma?

59:20 While... First firstly, happy Diwali advanced... Advanced team as well. Coming to the the breakup, while we've not given a split between our human health and animal health side of things, what I can say is crop science, we continue to discuss with several partners and hope to have meaningful contribution from that, but that's still minuscule compared to our human health and animal health initiatives. And just as you said, we've got more than 100,120 odd customers. Would you say that... You know, or could you probably give us some sort of color on... Is there any customer concentration, say, other, like, five or 10 customers who are responsible for a larger pool of the CDM revenue? And, you know, the reason I just asked that is in case, you know, there is some destocking event or there is, you know, a competitive program that replaces the, you know, dominant customer, would that have sort of a material impact on our revenues going forward? Just to understand the concentration of the CDMO business, I think.

1:00:34 That'd be helpful. Currently, we don't have a significant concentration of customers or programs. We are managing... Actually, we're not managing. We were lucky that the projects are coming like that. I'll put it that way. And my second, we don't foresee any segment supplies for launch and then destocking events. So we don't have that problem because of visibility for next to eighteen to twenty four months. Addition, fortunately in the space that we've been in, we're not necessarily looking at any patent cliff for any of the programs that we support.

1:01:25 So there's a fair bit of good visibility for some of these programs that we've successfully commercialized. That's that's very helpful. Thanks for that. I think, lastly, you know, as we look at some of these newer modalities, be it peptide, the ADCs, you know, in terms of, you know, when we sort of look to announce these capacity additions, how do you sort of weigh that? Because a lot of these new modalities don't tend to be very high volume products, right, if I if I have further understanding. Right? So how how are you sort of, you know, balancing on one side capability addition and on the other side capacity addition? If you would sort of help us understand that, that would be great. Let's say from UDC perspective, like, you rightly said, these might not be large volume. Like, it will not be in multi metric and scales.

1:02:23 But from a value point of view, it will be quite significant from a general value point of view in the commercial side of things. Absolutely. And also from an investment point of view, it can also be sizable given the type of modality and how complex it can get. Fair enough. Thanks for it. Appreciate it. Thank you. The next question comes from the line of, an individual investor. Please go ahead. Good evening. Am I audible? Yes. Good evening. Congratulations on the fabulous set of numbers. My first question is actual operating cash flow fell 26% on strategic inventories and free cash flow after 864 crores of CapEx was slightly negative, and the net debt rose a bit. What are those inventories?

1:03:28 When do they convert to cash? And is f y twenty seven free cash flow positive after CapEx and the investments you have announced? The inventory is a regular inventory. We are not saying the expand inventory. So there is a... Some additional absolute number inventory as of September 30. That will be, what you call, utilized in the current quarter and the coming quarter. And coming to the free cash flow, yes, last year only we have a free cash flow. When you are making that kind of an CapEx investment, we have taken a call between the free cash flow versus the growth capital, and then we are investing growth CapEx.

1:04:19 So I think we may not be worried on the free cash flow front because if you look at our net debt by EBITDA is still at a very healthy level of one... Around one. So I think we will manage. We will see how it can move. Got it. Thank you for the clarification. I just have one more question. Laurus Bio did 64 crores in h one, and it's down 16% against the roughly 200 crore base you cited in July. With l b four commissioning this quarter and customers reserving capacity, what are the reservation terms, stake or pay all advances? And what does h two look like? If you can throw some color on that.

1:05:08 We expect large value will be on good track from quarter one next financial year. Although facility will be qualified this quarter, but we will only do trials in the Q4 of this financial year. Actually commercial supplies may start in Q1 of twenty twenty. So although there is a reduction in the revenues, but that's as part of our some customer allocations are projects to scale up from the customer side from outside. So the prospect looks good. Hello,?

1:05:55 Hello. Yeah. Yeah. I think there was some connection issue. I might just... One more follow-up. By the way, minority minority losses suggest that Laurus Labs' net loss is around 50 crores for h one. Is that about right? And what is the EBITDA breakeven? I think we will provide offline. Please write to Vivek, our Investor Relations. We'll get back to you on that. Sure. Thank you. Thanks a lot. Thank you. The next question comes from the line of from Motila Losa Financial Services Limited. Please go ahead. Yeah. Thanks for the opportunity again. So just to understand how the asset term would improve from, say, 1.1 to 1.4. What are the, let's say, key factors that would drive this scale up?

1:06:52 I think it's a that is the one year we achieved 1.4. That's actually based on the large large purchase order. I think in future, I think the lot of unlocked assets are there. Like, you know, we are not generating to the full extent. Once every every asset is being generated, I think there is a possibility. I'm not saying that we will reach a 1.4, but we will inch towards it. So... But given the ongoing CapEx, we will continue to have certain effects or let's say certain investments in the gross block, which will then sort of suppress this asset term, which is why I was trying to ask that how or let's say or what period we think that even if the incremental investment that happens, still we'll be able to do the asset on a 1.4.

1:07:45 You you are right, but the... We also have an greenfield and brownfield CapEx. Like now, we are investing a lot of investment in our unit four that is a brownfield CapEx and then our unit two investments are a brownfield CapEx, which are going to do better. But we will see. But as I said, like, no, our first target is 1.1, which is our average of last six years. Got it. And just lastly, while many questions on, just one last from my side. Unlike in other set of products, is the validation batch also similar to that of a commercial size batch in what we are manufacturing in the peptide block? That is generally the case, Tushar. But again, but generally, you could say that, yes.

1:08:40 All right. So that's all. You. Thank you. The next question comes from the line of Dhaval Kot from Jefferies. Please go ahead. Hi. Thanks for the opportunity. Last quarter, you guys had mentioned about a small molecule project about to go commercial. So what's the status on it? And do you think it will be a meaningful growth driver given generally in first year, there's a significant supply that happens. So is that a growth lever in the CDMO business given now we have a really large base? Or is it more like a typical smaller projects and that we work on? I think that that several programs had NDA filing stage NDA filing stage even now. So we we feel comfortable with the projects at various scales we have right now.

1:09:42 We're not able to give you more granular than this. Sure. No problem. Second question, maybe it could be a bit technical, but just want to understand the concept behind it. So you guys emphasized quite a lot that you are doing API, not just fragment, and you have full API capability. So let's say there's an API, whatever is the change length, let's say 10 is the change length. So, how does the realization vary, know, versus API versus a fragment, which is half the size? Let's say, a five amino acid fragment versus a full 10 length API, just ballpark range, just to understand the significance of having full API capability?

1:10:42 It can be small or it can be quite drastic. I don't want to while I know the answer, I don't want to go into too much detail as to in our past model and all of that. But I don't know if the reason is if five fragments uses all unnatural M and A assets, cost could be very significant. If the 15 M and A assets are natural then cost is very significant lower. So it gives a wrong signal. Any answer is a project specific. As you mentioned, your question was very technical. We don't want to give you a very generalized answer for such a complex question. Okay. Sure. Sure. Thank you.

1:11:28 Thank you. Thank you. Ladies and gentlemen, we will take this as the last question for today. I now hand over to the management for closing comments. Over to you, sir. Thank you, ma'am, all the stakeholders for your active participation in the call. And thanks for asking very interesting detailed questions. And in advance, we wish you happy Diwali for all the stakeholders. Thank you. Thank you. You. On behalf of Laurus Labs, that concludes this conference. Thank you for joining us. You may now disconnect your lines.