Cohance Lifesciences Limited analyst Q&A

The first question is from the line of Foram Parekh from BOB Capital Markets. Please go ahead.

Yes. Thank you for the opportunity. My first question is since we have lowered the revenue guidance for FY '26 to mid -- to early-to-mid double digit, so my first question is are we retaining our USD1 billion sales target for FY '30? And what would be the drivers since , you know, FY '26 has seen such decline?

Hi Foram. Thanks for the questions . So yes, we are committed to a USD1 billion guideline. Timing might shift slightly because of the challenges we have seen this year, but overall management is fully committed to the long-term guideline that we have.

Okay. And my sub- question would be since FY '26 is going to see a decline, so do we -- can we anticipate growth in FY '27, or it is still far away?

No, yes, we are fully working for growth in FY '27.

Okay. My second question is on the API side; I see in the presentation that we have written order book visibility -- I mean recovery looks gradual in the order book for FY '27. And since API contributes almost 50% of our total sales, so how should we look at it? Can we anticipate growth in FY '27 and therefore, it can be looked at a blended level?

Foram, I think if you look at the commentary that was shared as well as subsequently by the business heads, I think we are seeing a lot of traction in our business. I think all the business partners have talked about how they are seeing the business growth, right? And therefore , API as well is looking at growth in the business. The growth that we are reflecting in FY '27 or indicating in FY '27 is a function of what offshoots we are seeing as of now, which is what we have transparently shared with the larger community. So yes, to answer your question, both FY '27 as well as API , we would be looking at growth.

Okay. And would you like to quantify what is the growth we are looking at for FY '27 on a blended level?

So Foram, I perfectly understand the question and the need of the question at this junction . But given that we are in February, we are still in the midst of iron tightening our budget assumptions and very carefully looking at the risk profile. We do understand -- and you do understand as well that we have not reached to our expectations in FY '26 and therefore , we are very, very careful with the guidance that we give out hereafter. I would request you and the community to be patient with us and give us some more time for us to validate, test and give you more color to FY '27 in one or two quarters.

Are we calling out on the niche technology contribution for the quarter, like contribution from ADC and oligo for this quarter?

Yes, I think I think two important aspects. One, we started calling out the niche technology percentage and the contribution which we have indeed called out for this quarter. But as I mentioned at the start of my communication on financials, we are a lumpy business and we are determined by the customer inventory management and the forecasting. So therefore, quarter-on-quarter it is little difficult for any analyst to attribute the percentages. Though we have called out the third quarter, for nine months it has been around 15% and that is what I would urge the community to look at.

Sure. That is helpful. Thank you and all the best.

Thank you. Next question is from the line of Amlan Das from JPMorgan. Please go ahead.

Hi sir. Sir, my first question is regarding the Nacharam facility. Since it has been under OAI since the past few months and recently it also received a warning letter and as you had pointed out that it had an impact of around INR 55 crore. So is this a peak of the negative impact that we see from this facility or should we bake in some more impact due to this ongoing warning letter? That is my first question.

Gunjan, can I request you to address this?

So sure. Thanks, Himanshu. So as you rightly said, you know we received the , first the 483s and then the OAI which subsequently got converted to a WL. We are putting in all the efforts from our side. We have got some really exceptional talent recruited in the team recently. At the same time, we are taking external consultants' help into it who are experts and have done the similar remediation exercises in the past. And we are not shying away from anything which is required to regain the confidence of the authorities and our customers there. There will be some slowdown for sure because there will be some delays while we implement the remediation activities. Our revenues or our production or dispatches and production for the non-US markets would continue, while the US will take a gradual resumption. Additionally, I would also add our overall exposure to the site was quite limited. Only 2% of the total revenues were to the US market from this site.

Okay, 2% of the US revenues you said. S ir -- so following on that, since it i s a 2% of US revenues you said, right? If I did, I hear that correctly? Hello?

No, so what we have mentioned is that it is 2% of our total revenue. So the plant contributes 2% of the US sales. Yes, but it is on the total revenue for the business.

It is less than 2% of the consolidated sales.

Okay, understood. Thanks. Next, my next question is regarding the RFQs. Since you have been saying that you have been gaining a good traction on RFQs since the past few quarters. So I ju st wanted to understand what i s the conversion rate on these RFQs? As suppose you have 100 RFQs from different customers, how much -- how much of those actually converts to a commercial molecule and what is the typical timeline for that?

Yann can we request you to take this please?

Yes, I can take this - this part, right. So first of all, the good news is that we are receiving much more RFQs, that are Phase 3 and commercial. The nature of commercial RFQs is that it takes much longer for conversion, right, because very often clients here have already one supplier and they are looking at the second supplier most likely to der isk their supply chain. So that i s good news and it takes more time to get conversion. So since the effort, right, has yielded at least double the value, even more right, in our funnel in the last quarter, which is good news. This funnel will essentially release orders, right, in the next two to three quarters. That is what it takes, okay. In terms of percentage, right, of win on RFQ, normally the percentage win is around 20%. That i s what you can expect and it depends on the on the Phase, right, very often. So what I can tell is that the funnel that we have today is significantly better than what we had one quarter ago and that will continue to increase with our business development team strategically located, right.

Thanks, sir. And -- and if I could squeeze one more. Of these four molecules which are going commercial next year, what could be the end market size that we could guess from -- that we could understand for these molecules?

Very good question. It really depends on the application, right . So I can give you an example. O ne application is ADHD. I mean, the volume could be -- could be almost triple -digit metric tons, right, for this particular application. For oncology, it is different. It i s normally the demand is much lower. So those molecules differ per nature given the application in the market.

So could you please quantify it in value terms in dollar terms per se if -- if it is possible?

So our clients might not know themselves, right. So very difficult to quantify.

All right sir. Those are my questions. Thank you.

Thank you. Next question is from the line of Kunal Damesha from Macquarie. Please go ahead.

Hi, thank you for the opportunity. The first one on the Nacharam plant, so we are seeing that the impact is around INR55 crore, right?

I am sorry to interrupt you. Can you speak a little louder please?

Can you hear me now? Is it better?

Hello. Yes. So Nacharam impact of 55 crore which represents around 2% of the full -year 25 sales, which means that if that is the impact, the sale of from that plant has gone to zero now in the 9 -month FY26?

So Kunal, I think the plant produces material that we supply to US and it also produces material that we supply to non-US market. Yes , I mean -- if you would recollect we had taken a voluntary shutdown of the plant so that we could proactively remediate and ensure that all CAPAs are adhered to, yes. We have opened the plant for non-US markets and we continue to service the non -US market. What you are seeing Rs 55cr is an effect of both the loss of supplies to US market as well as to non -US market during the period of the shutdown. So it i s a mix of both. Again to repeat, we have opened the plant for non-US market.

But then we are saying that the plant contributes less than 2% of total sales, right? So then last year full full-year revenue was INR2,600 crore, so then 2% is like INR52 crore?

Let me -- let me clarify. The plant -- total plant does not contribute to 2% revenue. The total plant US revenues is less than 2% of our consolidated revenue, which you said in FY25 was INR 55 crore. That is correct. But qualification is that it is US revenue.

So US revenue from the plant is less than 2% of total revenue?

That is correct. Thank you for that expression.

Okay, perfect. Secondly, the way you are talking about the destocking impact of INR 260 crore from the two commercial product, the correct way to understand this is the 9 -month FY26 – or 9-month FY25 numbers for those two product minus 9 -month FY26 number for those two product is INR260 crore, that is the impact, that is the decline?

Yes, that is broadly correct.

Okay. And let us say when you would have -- have you analyzed these two product as to how the innovator sales moved versus how the -- our supply how our supply moved historically and was there a way or a pattern for you to figure out, that your supplies are running higher than the innovator sales growth? Have you done such an exercise and if yes have you done extended such an exercise for the remaining seven molecules which we supply currently on a commercial basis?

I would lean onto Yann to reply to you. I believe he has done lot of work on this. Yann, please.

Yes. So I mean good question and the answer is yes, right. So we are, of course, based on client interaction as well as market intelligence we develop our model for our forecast, right. That is clear. One thing to keep in mind as information, right: normall y between the production of the key starting material where we are active, right, and the consumption of the drug in the market, you have about two years, right, two plus years. As such, when drugs are getting closer to patent expiry, which is the case for one here, what is happening is that the originator will reset their supply chain and we have a new base, right, happening for the for the need of the key starting material based on the market that they expect to retain, right. So that is essentially what we have and of course we are trying to forecast properly with marketing intelligence and customer interaction.

So Yann, for the remaining seven molecules that we supply, barring these two, would we be kind of, you know, comfortable with our forecast plan for the next couple of years that we wo uld not see such a hiccup in in majority of those molecules? Yann D’Herve: Yes, yes, that that is correct. In fact, what I mean what we have, right, we have a binodal distribution of our commercial pipeline, right. And what you see is essentially a reduction in the more mature part of the customer pipeline. Where we can influence and where we are influencing, right, is the acquisition of new projects that are freshly commercial, right, or Phase 3. And also, what we have is when commercial drugs have been approved, which is the case for many others that have been approved last year, right, have been approved in calendar year 2025, right, you can project that for the next 10 years you will have a constant growth for these early stage, I mean for these first node right of the binodal distribution. So that is why I mean what we are seeing today is a reduction in our more mature part of the portfolio, right, and what we have is actually a pretty good pipeline on the early stage that will essentially render value for the next 10 years, right.

Sure. And let us say for a product where the pate nt expiry is not a near term concern of the two products, is it just the inventory drawdown or innovator would have added some new source beyond us? Is there a clarity that you have? Yann D’Herve: So, I mean, in fact, in the market, right, you have two phases where you have uh less predictability, right? One phase is when it is getting closer to patent hiring, right? And the other phase is when the drugs have been freshly approved because then the marketer does not even have, I mean, very often does not know, I mean, or does not know, projects that the projections are never correct, right? Nobody can project properly on how a drug will deliver so well, right? So what is happening is that you have a little bit more unpredictability, right? When the drug is freshly approved and a little bit more unpredictability when the drug is mature. Our pipeline essentially is very much heavy on those two ends of the spectrum, right? So that explains a little bit the less predictability that we have right now in our portfolio.

Sure. And lastly on the four molecules that we expect to commercialize, right, and where two are already approved. So, would we have like the master services agreement in the place and waiting for purchase orders or we are yet to sign MSAs for those product? Yann D’Herve: So for those products we always have contracts, right. I mean those contracts may or may not include minimum orders, right, especially at the beginning, that is where you have because of the predictability, I mean our customers are also very cautious, right, how they approach the situation.

So my understanding is, you know, during at the time of commercialization, typically innovators are okay to enter into a long-term contract, right, so is that understanding correct or there are all sorts of contracts and that kind of go on. Yann D’Herve: I mean, we I mean, by nature, right, we have long -term contracts with customers. So those long -term contracts might or might not include minimum orders, right, okay. But by nature, the business, there are long-term contracts with obligations in it, yes.

Sure, thank you. And lastly for Himanshu, this Rs106 million reversal, what does it pertain to?

So Kunal, that is essentially the ESOPs, if you are looking at the employee line, right?

Yes, yes.

Yes, yes, so that is essentially on the ESOP. That is an ESOP adjustment.

Okay. Okay, yes. Thank you. I will move back in the queue.

Thank you. Next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Hi, thank you for taking my question. Just two quick questions. One on this qualitative comment around earlier than expected life cycle for some mature commercial products, just trying to double click here. Is that something that is industry-specific you think, something that you are seeing more because products do see end of life cycle all the time. So has something changed, now versus earlier?

Yann, can I request you to please take this? Yann D’Herve: I mean the question, right, what you are asking, I mean is it a standard in the industry to have this less predictability when products get to the end of the life, the patent life, right. The answer is yes. There is less predictability. That is for sure. Especially when you are key starting material supplier and the product that you make, right, are essentially made two years before the products are consumed in the market.

Yes, and what has changed now , that the predictability has increased? I think I am just trying to look for more qualitative evidence, and should we expect this in the next , whatever, three, five years that this unpredictable nature, this two-plus years, you are saying will probably continue? Yann D’Herve: Yes, so that is what I was trying to explain. You have more unpredictability when your customer products, right, are in close to patent expiry or have just been approved, right. That is where the unpredictability is the highest. When the products have been in the market for four or five years, the predictability is much better. In our case, we have a heavy load of products in those two buckets. I mean, that is where our sales were, right. As such, that increases the unpredictability for Cohance versus maybe other players , may have a more balanced portfolio with products that have been, for example, commercial since about five years. We have less o f those in our portfolio. So it i s a good news long-term because we have a strong early, I mean, early commercialized pipeline.

That is helpful. Just second question on Himanshu on the margins. I am not asking for a quantitative number, but nine -month I am again not using third quarter. Nine -month 24% for consol, 21% for stand-alone. Last year was like, you know, pro forma is 30%. So are we now moving to a slightly lower trajectory of margins? Again not looking at the quantitative level but from the mix of how we are: 50% API, right, 40% CDMO, the rest is spec. So just want to understand: is there a down guide? Maybe we come down and then start stabilizing there but just want to understand just the margin walk there. Thank you.

Yes, so Shyam, I think the important aspects to understand is there is multiple factors that that are in play here, okay. And I had alluded to some of them. Let me try explaining them. Typically, the commercial products come at higher margins, okay. And I think Yann has alluded to the interplay that we have experienced as a business, where we have a lower mix of lower contribution of commercial products. That is kind of had an impact on the margins, okay. You are right, the API business comes with relatively lower margin than the CDMO and the niche - tech business. The niche-tech business continues to do well , and I think if you look at the trajectory that is coming in, right. So we have got -- we have talked about two commercial products which will mature and two new commercial also. And then there is new payloads kind of coming in. I would say that, these are timing issues for us. We are not sensing that there is a change in the margin profile from a mid-term perspective. But yes, short -term is impacted. I would not disagree and that is what is reflected in the current performance. But we remain close to the guidance that we have set, that we will reach to the margins of 30-plus, which we had set, but in short-term we will you will have to allow us to get back to the right mix of the business.

Thank you and all the best here.

Thank you very much. Ladies and gentlemen, we wi ll take that as the last question. I now hand the conference over to Ms. Cyndrella Carvalho for closing comments.

Thank you everyone for joining. We will see you again in after the quarter four numbers. Thank you.

Thank you very much. On behalf of Cohance Lifesciences Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.