Thank you very much. We will now begin with the question-and-answer session. The first question is from the line of Vivek Agarwal from Citigroup.

Congrats on the set of numbers. First, on the CDMO segment, is it possible if you can highlight how to think overall growth in terms of volume and value this year as well as the next year? And second, if you can also give some color as far as the margins are concerned.

Sure. Hello, everyone. This is Sahil. So Vivek, look at the volumes for Q2, right? So the volumes also look healthy in high teens, at least for this quarter as well. As the momentum continues, we can update how the rest of the year also goes. But whatever visibility we have today, Q2 also looks extremely encouraging. API prices, they are volatile, right? But at this point in time, they are volatile, moving upwards. So practically, if you look at it, Q2 also looks steady, and we expect to end this year as well on a good note.

Understood. Any colour on the margin trajectory?

Margins are expected to remain at similar levels, right? So we have always guided for a 14% to 15% margin. And obviously, quarter -- as we've always discussed, it's difficult to rate the business quarterly. But overall, at an annual level, we expect that the margins should remain in the 14% to 15%. And given Q1 has been strong, we can incline towards the upper bracket of it.

Understood. Q1 margins are a bit higher side and this is kind of a variation, right?

So as I said, the prices of the API were also high. And if you remember, Q4, we also had built some inventory to protect ourselves, right? So these are strategic calls we took, which helped us secure our margins.

Understood. And lastly, if you can help us understand, Sahil, what are the initiatives that you are taking in the branded and really the domestic and international formulation and how to look at the growth trajectory in these markets as well?

Sure. So quickly, I'll tap both of these segments. So first is domestic branded Akumentis. As mentioned in the initial note, we have added almost 200 people in our field force to tap adjacent headquarters, which are important where we can tap some growth, right? So the focus here remains how do we expand our presence into prescription business? The focus remains on our key performing therapies, which are gynaecology, cardiology, as well as paediatrics. And we also have presence in orthopaedics and derma, which are follow-on, right? So that remains a focus within the Akumentis business, and we are very positive that over the next 2, 3 years, this will be a key segment for the company, both in terms of top line as well as profitability. On Unosource, again, while this quarter was muted, we see good growth orders in our coming quarters, right? So the strategy we are taking is twofold. One is while we say we are present in 60-plus geographies, which are our star focus, whatever you call them, these markets which we have to drill down, right? So there are a few set of markets which we have discussed that these are focused markets where most of our time and energy resources will go. And secondly, the product portfolio as well. So we are filing niche first to launch products in various markets, which will help us build sticky, high-margin businesses.

Understood. And what exactly has impacted growth of these segments in this quarter?

So Akumentis, if you look at top line growth was there, but bottom line was not there given most of it the additional EBITDA drain that we had in Q1 was largely on account of almost 200 field force, right? So that's almost 15% increase in our field force, right? So in the initial quarters, as you rightly understand, you don't generate PCPM out of, right? So that was a drain on our EBITDA. On Unosource, that was one quarter where we saw limited but Q2, Q3 onwards, we'll have the growth back on track.

Moderator? Next questions please.

So next question we have from Pooja.

Sir, I wanted to ask that with the IPM growth accelerating, what is your outlook on the volume growth for FY27?

So thanks for the question. So if you recollect quarter 3 of last year, quarter 4 of last year and quarter 1 of this year, we have seen almost high teens of volume growth, right? Q2 also looks strong at high teens, right? While the volume growth in the IPM has been in the range of 2%, 3% or something plus the new launches, right? So for us, this has always been the key driver for our business and particularly over the last 1 year, this has been the key lever for our growth. While this could be a period where we have sizable volume growth, but we remain confident that our volume growth will at least be double digits in the coming quarters.

The next question is from the line of Anchal Maheshwari from Naredi Investment.

I just had one question on your domestic growth side. Sir, can you give us a mix of how much was the volume growth and how much is the value growth mix? And also, are we planning any price increases for our domestic business this year?

So the growth has been driven by a mix of new product launches, price growth as well as volume, right? So given the growth is only 7-odd percent, right? So all 3 have contributed a bit to this top line growth. And as far as price growth is concerned, we have already taken price growth, and this will also be reflected as we move on this quarter.

Sir, is it possible to quantify the numbers?

No.

The next question is from the line of Sangeeta from Cogito.

This is Sangeeta's partner, Andrey. First of all, congratulations for a great set of numbers. My first question was on API. This is a question I keep asking. Is there a time frame within which we will evaluate whether we want to continue with this business? That's my first question.

So the management is fully confident, right? So this is a business we have been investing for over 3, 4 years now. The fruits of which are very visible as we speak, right? So the quarterly losses have been gradually coming down. So as far as we speak as of now, we are fully into this business. Our cepha business, we have been able to come out of the low-margin products and as well as increase our basket of non-cepha products, including linezolid, montelukast and so on, which are helping us improve our margins, right? So I think at this point in time, it's not a question of whether we make a U-turn from here or not. It is how do we improve the profitability and then scale this business into a profitable venture.

Okay. And just I'd like to give some feedback as a minority shareholder that as a minority shareholder, we would be delighted if you actually got rid of this business. You have an absolutely outstanding CDMO business and you have a lot of traction in the exports business as well. If you were to focus on that, it would delight us. Just a comment that I wanted to...

For -- I think we work in the best interest of the shareholders in the company, right? Being a minority or a majority, we take decisions which are best -- for the company in terms of capital allocation as well as management bandwidth.

Right. As far as the Europe and Zambia business is concerned, I think you had given a guidance of 15% to 17% EBITDA margins on Zambia. Now do you have any actual numbers to share with us in terms of the EBITDA margins? And is there any updated margin guidance that you can give us on the European business?

So rightly on both the Zambia as well as Europe, so these will be margins which are similar, maybe that higher than -- in the higher teens compared to our current CDMO business, right? So that's what we can speak as of now. Zambia is something we expect in the H2 that we deliver for this fiscal, the $25 million, which will roughly translate to almost INR240-odd crores in our revenue. And similar in the next financial year as well. And within the next financial year, we will kickstart our European business as well, which will -- so both of these businesses will uplift the corporate margins.

Okay. And as far as the capacity utilization strategy is concerned, you've always invested in a lot of capacity and you believe in having a lot of spare capacity. Having said that, your utilization has gone up in the previous quarter. So going forward, what is your strategy going to be like? Can we look forward to better capacity utilization? Or are you going to continue with your strategy of having a lot of spare capacity because that gives you a competitive edge over others?

So our style has always remained to be prepared for market opportunities, right? If you really look at Q2 was a weak volume quarter last year. And then Q3, we suddenly had almost a high teens, 20% odd volume growth, which was again seen in quarter 4, again seen in quarter 1, right? So our spare capacity was of a real help, right? And as we've always said, we could move up to 55%, 58%, 60-odd percent as our total peak utilization. We have already -- we are already at 50-odd percent, right? So the strategy remains given there's a continued focus on better quality drugs in the market. There are increasing opportunities of volume growth. We are in process of further expanding our capacities.

Right. And last time we spoke about the need to recruit certain amount of senior talent. So where are we on that front either in terms of actually having people come on board or work in progress in terms of senior talent being onboarded?

So senior talent, I don't know which conversation last time, but senior talent, the company today is very well run by professionals across all domains, right, from quality, R&D, business development and so on, right? So there is always a need in an organization to bring in fresh blood. But as of now, given you could see in our financials as well, there is ample leadership and talent which is there. And rightly so, we stem a lot into our homegrown leadership as well.

So we are fully ready. You've seen orders across Zambia, across Europe, across domestic volume growth, right? So across all fronts, we have great industry talent, which is still with us.

Last time we spoke about the fact that a lot of your people are about 12th class pass, right? And that there is perhaps a need to attract a more educated and more experienced and more senior talent. So that is the context in which I was making this...

I don't think that kind of conversation had ever happened. We do have all M.Pharms, PhDs, doctorates and you will find that we are having best percentage of pharmaceutical graduates and postgraduates if we compare it with the rest of the industry. I don't think where the conversation...

This is also a feedback that we've been -- this is shared I think on a one-on-one with someone. And this is some feedback that has also been given to us by some of the ex employees. So that's why I'm taking the liberty of sharing this with you.

No. Sure, sure, sure. You can ask anything, but we do have lot of PhDs and M.Pharms and MScs. All doctorates are there. And all the heads are from top industries like Dr. Reddy's and like that.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Congrats to the management team for a strong growth numbers. Sir, the Zambia sales were supposed to start from Q2 onwards. So has that started?

So I think we always maintained, which is there, right? So it will likely be in Q3 and maybe some parts in Q4. As we speak, we are already in advanced stages where we have agreed upon the volumes and the prices with the government over there of almost 100-plus products that we would be supplying in Zambia. So that is completely on track. And this fiscal, we'll recognize the revenue.

Okay. And on the overall net cash number you mentioned on the call was around INR1,600 crores or that was the cash...?

Yes. Right.

That was net of debt, right, INR1,600 crores?

Yes.

Yes. That is net of debt.

The next question is from the line of Praveen Jayaraman from Avendus Spark Institutional Equities.

Am I audible?

Yes.

Congratulations on the good set of numbers. Sir, can you explain on the acquisition which we have done recently, whether it's a capability acquisition or a capacity acquisition? What we are seeing there and how it's going to add to us?

Sure. So the overall -- if you look at the overall style of our acquisition has always been to enter into novel niche formulations, right? So cosmetics, we have already been doing for over a decade now. Our plant 5 is devoted and dedicated to cosmeceuticals, which has good profitability as well as we were almost at peak utilization, right? So the acquisition rationale behind this is to expand our capacities into the skin care cosmetics as well as this will enable us to venture out into the color cosmetics as well, which is a fast-growing space. So the strength and the moat that Akums today has is formulation -- R&D, right? So we'll build on to this to tap to additional niche market within the cosmeceuticals. And this will help us expand our presence in that area as well. This whole -- while this whole BPC market is growing rapidly, our aim remains how can we serve markets, which add meaning to our top line and bottom line.

Okay. Sir, on the last participant, you said the capacity utilization was already around 50%, and we can maximum go up to 55%. With this European and Zambian orders coming in, so we would -- we can see some increase in capacity utilization going forward. So would we be resorting this low-margin profile orders to subcontracting? Or how are we planning to optimize the orders going forward, sir, with us already reaching 50% utilization?

So there is no concept of subcontracting, honestly. We are in the business of delivering manufacturing volume to the clients, obviously. While there would be some chunk of portfolio which would be low margin, but there is no rationalization as such, right? If you really look at today, the gross margins are well above 40%, and you don't really wish to lose any of them. And the business you do with a lot of customers is through a basket approach as well, right? So we are in the process of setting up one more facility in Baddi, which will go live in the -- almost at the end of this financial year itself, which will significantly boost our oral manufacturing capabilities, right?

Right. What could be the capex...?

So we are still discussing. As we go live, we'll update you with it.

Okay. So we are adding one more facility in oral and we are not resorting to the subcontracting and all. Okay.

The next question is from the line of Akshay Shah from VVD Asset Managers LLP.

So very limited would be of inventory gains per se. Most of it is largely through high-value products being getting added.

Okay. So this kind of gross margin is sustainable going forward plus or minus 0.5%.

Yes, that's the expectation. Also within the overall corporate gross margins, there have also been a positive from the API gross margins. So API, we used to operate last year at almost 90% plus cogs. But in this quarter, we are almost at 75% cogs, right? So this has also been a positive. And obviously, CDMO is the one which is inching forward.

Okay. And sir, we have done good work in API where our EBITDA is reducing month-on-month basis. So is it expected going forward? Or there is any seasonality in there?

There is no -- we really look at it two quarters, we have been able to do it this quarter as well. We are completely in control of it. So this is expected to gradually come down, and we should achieve breakeven.

The next question is from the line of Divya Daga from VGSPL.

I just have one question. I want to know what can be the volume growth next year? What are we expecting?

So, Divya, very difficult as of now to quantify the volume growth. We have always been significantly better than the market. So we expect the volume growth in the industry to sustain and continue. This is what we have received the feedback. So as of now, the expectation is we'll at least be double digits in our volume growth for this year, the next of the year. As I also just mentioned previously, we are also adding capacities in oral tablets, which should go live by the end of this year. So the volume growth should continue in the foreseeable future.

Okay. I just have one last question. For our new acquisition, what can it number be in coming years? How big do we see?

Can you please elaborate more?

Inorganic, how much are we proposing to spend? How big could it get?

So if you really look at it -- this Oriflame acquisition or in general?

Overall, what is our appetite.

As Sumeet-ji mentioned in his opening remarks, we have almost INR1,600 crores of cash with us and then the whole balance sheet is not leveraged, right? So we'll look at from the angle of is it value accretive and making business rational to the group. I think that's how we'll look at it. And obviously, we'll be cautious in making very large bids, but it should make business sense, and we have all the ammunition and gunpowder to latch on to such opportunities.

Congratulations on a good set of numbers. Sir, my first question is with regards to your CDMO business. So sir, in terms of this entire API prices going up, how are we seeing the reactions of our customers in terms of what is the kind of inventory they are now having? And how well are we able to pass this on completely to them?

Sure. So two parts to it. I'll address the B part first. So the model has always remained a cost plus, right? So it is at every purchase order or whatever is the prevailing price of the input materials that gets passed through. On the inventory, this honestly differs even by the similar set of companies and across. Some see it as a rising API environment and try to hold on to inventory while some wait and pause to see if they can defer the inventory decisions, right? So this inflated environment, we feel even starts from February, March, we have been almost 5, 6 months into it and the volume growth still continues, right? So whatever inventory someone would have thought to build in one quarter would now have liquidated, right? So this volume growth, I think, is a phenomenon where the secondary in the market continues to pick up and people are used to putting a normal inventory of 45-, 60-odd days, whatever is the company policy for them, right? So that's there.

Sure. Quite understood. And second question is with regards to the API business. So I understand we are trying to inch up our profitability. And earlier, I think we have been guiding about that by end of FY27, we should turn that segment profitable. So are we still holding on to that guidance? And in terms of growth, then by FY28, should we see that business starting at least reporting a single-digit kind of a growth?

Absolutely right, Abdul. So the whole target is on a monthly level, at least by the end of February, March, we should be monthly EBITDA positive in this business. And then next year, we should start positively contributing to the profit from this segment.

Sure. And last one question from my end. The INR1,600 crores of cash what you have on your balance sheet, so where is that currently? And if you could also help us chart a map that how do you spend -- plan to spend this maybe on giving some dividend or some M&A, if you can highlight, please?

So Abdul, I'll answer the first part of the question. Most of the money, in fact, 98% of the money is parked in fixed deposits with nationalized banks, right? And the money is safely with these banks. There was another question on inorganic. So our net worth sits at more than INR3,400 crores and there is no debt on the company. So I think what Sahil was mentioning was if we look at -- we get the right acquisition and there are synergies, I think the company has the appetite and DNA to look at an acquisition. So I think largely, Abdul, the money is well secured and it would be put to good use for business synergies. We continuously explore. And once we have it, we will let everyone know about it.

Sir, as per my limited knowledge of the business, our sales force productivity in our domestic formulation business is lower than the industry for MRs. And now we are increasing the MR. So what is the rationale behind that strategy?

So as you rightly said, we are lower than the industry average benchmarks, right? So the strategy has always been to have a strong clinical presence across our focused power products, right? The expansion was in line where we wanted to tap additional geographies, headquarters, cities through our Akumentis, right? So while PCPM is one metric to look at businesses, I think this is more of an outcome of a mature marketing business. We are still in a business -- in the phase we are building this business, right? So we are cautious of how do we do our investments into field and products, right? So gradually, as the business will scale up, we'll certainly inch up to the industry averages and hopefully surpass them. But at this point in time, we'll have to appreciate that this is a phase where we are building the business.

As there are no further questions from the participants, I now hand over the conference to Mr. Ankit Jain for closing remarks. Over to you.

Thank you, everyone, for attending the Q1 FY27 earnings call for Akums. If you have any remaining questions, you can reach out to the Investor Relations team. Thank you, and have a good day.

Thank you. Thank you, everyone.

On behalf of Akums Drugs and Pharmaceuticals, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

This does not purport to be a verbatim account of the earnings call. It has been edited for readability and statements made in Hindi if any have been translated to English.