Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.

Sir, my first question is on the conclusion of FD , we have achieved now 76% of the FD contribution to the overall total sales, how could this for the entire year and are we not focused on increasing the pace of API and PFI during the year? What I want to understand that whether the contribution would fluctuate quarter-on-quarter or more or less it would remain stable during the year?

Regarding your question, right, you are talking about the contribution of finished dosage as a part of our overall sales. With the number of launches we have going forward; we think there is a very strong possibility that it will remain this or grow a little bit further.

And what is your target contribution of FD to total sales and what are you aiming to achieve this in next 2-3 years?

Rashmi, if you have seen our strategy is always to keep on increasing FD and that is why we have been talking about all these years and we are on the path. Most of the API ’s we make go into our FDs and PFIs and PFIs go into FDs today. So, even if we sell all the APIs elsewhere and buy the APIs required for FD, our revenues would have been at a different level, but most of the APIs are made for in-house consumption. So, we see that this ratio will continue at the same level or possibly grow.

So, then, in that case, we expect that there should be declin e in both API and PFI segment for this particular year because your FD contribution would be pretty high due to the increase in launches?

Yes, that is the strategy, Rashmi.

And, sir, then what about the gross margins , if the FD contribution also sustained, then do you think that the gross margin of this 58%-59% of the sustainable during the year?

Sir, on EBITDA margin, any particular guidance you are giving, I understand that your R&D and other expenses is being increasing, but your gross margins are improving as well, so are we still at the level of around 22 % or you feel for FY25 with the increased launches and all we would be able to do higher EBITDA margin?

Rashmi, again, we always maintain that we will definitely be above 20% and we will keep improving year-on-year. So, now the 22% margin has to improve a little bit. How much it will improve, we will see.

And then last question on your OTC business , as the percentage of your formulatio n business, how much is your OTC contribution?

Rashmi that is about 15% of our overall business.

15% of overall sales or our formulation business?

Overall sales.

Thank you very much. The next question is from the line of Tarang from Old Bridge. Please go ahead.

So, just a couple of questions, specifically on geographies, North America, are there any industry tailwinds or would you describe most of the performance idiosyncratic to your business? Second, if you could just comment on what is happening in Europe? And third Chairman, I heard you made some reference to large molecules in your opening comments , if you could just elaborate a bit on that?

I think Priyanka will take this question , but before that let me clarify. I didn ’t say large molecules, I said large volume molecules.

So, I think the US has always been a very strategic market for us as you always know, and we are built for regulated markets. So, on that front, it was obvious that the US would be the biggest and continue to be the biggest. And that is primarily because of one, our strategy, like I said, our service levels, our quality and compliance, that I am sure you have seen in the news that we have had absolutely no issues. So, I think the combination of all these three and of course having the right products at the right time, all of them contributed towards growing US sales, which will continue to grow as we go. Number of launches also led to this increase in the US numbers. Just a clarification on Europe, what exactly did you mean by, can you provide some commentary on Europe?

Yes, European sales were led by Paracetamol all these years and only recently we made the shift to FD and FDs are picking up. Paracetamol, like I have mentioned in the last quarter and most of you may know is in a very bad shape today. There is a lot of inventory which the customers have built up across Europe and US and some of them have inventory sufficient for another 6 months. So, literally there is no big market. And also, there is a lot of capacity that was built up anticipating a huge demand . So, Paracetamol has not contributed, and we do not expect it to contribute for at least another 2 quarters. I think it is only possibly next year Paracetamol will come back and add to our revenue and profitability.

Just to follow up on US, roughly the run rates moved from about Rs. 700-Rs. 710 crores in March 23 quarter to about Rs. 870 crores and in that time span, we have seen additional approvals of about 10 products. So, if you could just give us a sense on how much of the incremental 25%, the dollar hasn’t moved as much would be on account of really the traction on the new products and how much, just a ballpark would be on account of you getting more volumes in your base business?

It is definitely a mix between both. The new launches to be very honest, we just touched a launch in Q1. So, you will see those making a bigger dent going forward. But primarily it was increased market share from the existing products.

Thank you very much. The next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead.

So, just wanted to get an idea on currently how sales are panning out , so maybe, correct me if I’m wrong, but I think since the last 7 -8 quarters we were in the range of around Rs. 1,100 to Rs. 1,200 crores. And I understand that US have grown that much. But I think because of our European business that eating up all our ga ins, so now just wanted to understand like in terms of our trajectory, we could see the similar growth in US, but will the European business stabilize or how would we see our growth going forward because I think March ‘23 and ‘24 have identical numbers on the face of it, I understand in depth, there are a lot of differences, so just wante d to get a color on your perspective?

US will always be our primary driver Mr. Jhaveri. And so, it will always continue to grow, and we see no reason why it should not grow at the same pace. The only thing that will happen is Europe has degrown and we expect formulation growth to come up in the next few quarters. And in addition, when API sales also come up possibly in next year, there will be a better growth there. And we are also addressing lot of other geographies like many times I mentioned South Africa and Asian countries, so these are also will be contributing to growth in future.

So, any kind of revenue guidance, could we have for FY25, sir?

So, I am just leaving, my last question in terms of overall in ex of North America, like in LATAM and India, what kind of market are we seeing? How is it performing currently and any surprises from there or something on the positive side you can expect from there?

Definitely no surprises. Paracetamol, LATAM was mainly led by PF I in the past, Paracetamol and other PFI. So, Paracetamol being in what state it is today there was a dip in Paracetamol sales in the LATAM. However, we managed to make it up with other PFIs and today the focus in LATAM is to shift away from PFI into FDs. Lot of efforts are being put into that and also new countries in LATAM also are being addressed right now. So, we see that LATAM will keep growing not at the pace like US will, but it will keep growing.

Thank you very much. The next question is from the line of Sajal Kapoor, who is a Retail Investor. Please go ahead.

First, I would like to point our attention to slide 13, where we have listed our historic asset turn. So, historically, 2x is what we got to Fiscal ‘22 as well as Fiscal ‘23, now moving up the value chain and introducing better and more complex products , increasing gross margins. Logically thinking, we should try and improve our historic asset turns much better than 2x at full capacity, of course. I just wanted to understand what your thought process is, and I am not looking for any sort of guidance for this year or next, but on a directional basis?

Now, what has happened is US is performing to decent capacities rather close to full capacity and Unit V in Vizag is going to be utilized and MUPS block is almost fully utilized, so the asset turn as we go by will definitely improve. And you are also right, some of the products being made in the US are high value , s o the asset turns will improve because of that too , the denominator being same , I think denominator will keep increasing. So, you are right, it will definitely improve.

Mr. Chairman, I just want to add a clarification. So, as you rightly said, API is going into FD, so its captive consumptions are increasing. That is also in the overall asset turn instead of sales, we are getting better margin s. So, return on capital employed is improving , but asset turn is reducing because of captive consumption of API and PFI . Secondly, we are also investing in new projects in Granules Life Science, those asset turn will happen starting from next year.

But directionally, we are all set to breach our historic high at some point, right?

We should, definitely that is the whole idea and strategy.

And I think Mr. Surana mentioned that about the backward integration as the reason for the reduced or the reduction in the asset turn. So, Colchicine, on this molecule, are we backward integrated? If yes, are we backward integrated at the intermediate level or just the API?

Colchicine is a very small molecule, Mr. Kapoor. The volumes of Colchicine are not very high. It is a very low dosage product, maybe 25 mg. So, there even if you are integrated, it doesn ’t really make any difference. And such very low molecules we prefer to buy from elsewhere if they are available. If they are not, we will make it ourselves.

And finally, to a previous participant ’s question, D r. Prasad, you mentioned that Paracetamol uptake is still about 2 quarters possibly 3 quarters away because of this inventory and issue across Western world. So, does that mean that in the immediate next couple of quarters, we may not be reporting a decent topline growth because we need Paracetamol contribution to get back to a better topline, albeit with slight dilution in our gross margins, how do you look at the sales trajectory in the near term because Paracetamol is still off as well as gross margins impact because at some point in time Paracetamol will start hitting our P&L?

In the next few quarters, this is the next two quarters where I can definitely have some visibility, there will be very marginal growth in topline, but we do expect the bottomline will not be proportionate, it will be a little higher than disproportionately higher than the topline, but maybe next year the Paracetamol will contribute, and revenues will grow along with bottomline next year. But definitely this year the bottomline will not be stagnant. That will be a little dynamic and move forward.

Thank you very much. The next question is from the line of Hari th Ahamed from Aven dus Spark. Please go ahead.

Couple of questions on Granules CZRO, so last quarter towards the end we had commissioned a pilot plant for DCDA. So, any takeaways from that pilot plant so far and any updated thoughts on our Rs. 2,000 crore CAPEX in this project? And finally, any timelines around the PAP plant that we were planning to commission?

Interesting question, something close to my heart. CZRO, we did commission the pilot plant. We had some teething issues like I ha ve always been saying this is a new technology. It was demonstrated in lab scale and at pilot we had some issues. These are huge equipment s, so we are making some changes and I think with the changes we will again restart next month modification of equipment, and hopefully it will go well. And once this is demonstrated for a few months, consistent yields and consistent quality, then we will start working on the main plant, which is to come up in Kakinada. The main plant equipments have been ordered already and we are waiting for some modifications that will be needed before they will be delivered to us. And regarding the Rs. 2,000 crores investment, we have mentioned that we are very cautious in going forward, at every place we have a stage gate and once we cross that only , we will be investing more. So, we are cautious and right now there has been a little issue or infrastructure creation in Kakinada. Power has to be brought in from adjacent, so a lot of discussions are happening with NTPC. Our partner already is working on that and also discussing with state governments and all on taxes for wheeling and the power. And also, for electrolyzer building and all that happening. Electrolyzers, they are making their own electrolyzers which will take some time. So, in view of infrastructure creation getting delayed, we are in no rush to get there. And we also understand we seem to be far ahead of anybody else and being too early also may not be the wisest thing. We will take it a little easy, become stronger and then go ahead.

So, one related question, so we had announced these expansions of the backward integration projects when the prices of DCDA and PAP were much higher than where they are now. Now that PAP and DCDA prices have corrected. Is the case for backward integration as strong as it was at that point, and is that also factored into our capital allocation into this project?

Financially, not as effective as it would have been in the past Mr. Harith, but again, when you look at the where the world is going , these prices where the overseas manufacturers are giving today may not last and our experience in the past years, these type of products hit a very low and again slowly start flipping up to abnormally high prices. So, we think we are on the right strategy wanting to do these APIs ourselves, intermediates , even though it may not give us any great attraction in the short term. The carbon footprint is going to be much lower than what we get from overseas. And as you know, with CBAM coming in Europe and other places and incentives in other places, this is going to make a tremendous difference and it is definitely the right way to go.

The last one on the formulations business. So, in FY24, we had received quite a few interesting approvals like Metoprolol, Esomeprazole, P antoprazole, all modified lead versions. And then we had we were preparing for launching these in FY25, so are there any timelines that you can share or any updates on specifically these products? And if I may add one second part to the same question, Priyanka mentioned that 15% of our formulation sales is from OTC. I was hoping if you could give some more color regarding the share from the controls of sensors, the ADHD products and our legacy molecules. Some ballpark break up would be very helpful?

Harith, I will take your second question first, the share from the controlled substances versus legacy products is not something we can really share, but I will say that both are equally contributing. There is no significant change in the percentage of contribution necessarily and on your other questions yes, we did receive a lot of launches last year. We launched about 3 products at the very end of Q4, which essentially we launched in Q1 and also another two products in Q1. So, that is about total of 5 launches that we did. But we just started the business. So, the actual value from those businesses, you will see over the next couple of quarters.

Thank you. The next question is from the line of Sahil Vora from M&S Associate. Please go ahead.

I just had a couple of questions. The employee costs and other expenses have increased by approximately 16% to 18% year over year. So, when can we expect the operating costs to grow at a slower rate than revenues?

So, employee expenses have gone up, you are right. Other expenses are coming down. The increase in percentage for other expenses will be lesser in FY25, but we see employee expenses will still be at double digit rate of increase in the F Y25, which will come down in F Y26 where we can see a better operating leverage of employee cost.

My second question was the Paracetamol API sales have been declining and is witnessing the price erosion somewhat. So, where do you see these stabilizing?

Mr. Vora, it has already sort of stabilized at the very lowest uneconomical levels. Now, it is only the way up. Like I said, only end of this fiscal year or early next year, we will see that things will look up. It is going to take some time. These are cycles that happen once in about 7 -8 years. These type of cycles happen, and this is one of the worst cycles I have seen in about 40 years of existence in Granules.

Thank you very much. The next question is from the line of Tarang from Old Bridge. Please go ahead.

Just wanted to check on the OTC business about 15% of formulations revenue in Q1, there was a comment in Q4 FY24 that the OTC business grew by about 25% in FY24, but if you would give us a sense on how big the business was for full year 24 and full year 23?

So, in the current quarter it is about USD 20 million. So, it is increasing in strong double-digit quarter-on-quarter as well as year-on-year.

And how much was this for FY24 and FY23?

Full year financial numbers, you are asking?

Yes.

FY23 was roughly about USD 40 million, FY24 about USD 60 million.

Just a last comment, sir, if you could just give us a comment on your top five products one? And second, given the performance that we have seen i n FY 24, considering the cycle that Paracetamol has been going through, would it therefore be safe to presume that year on even though Paracetamol and the top five products are significant contributors, but in a large sense you have been able to hedge your business or your dependency on these products or is there still time for us to reach that conclusion?

I think as mentioned in the strategy both by Chairman and me in the last couple of communications, while these core products like Para, Metformin continue to be very important products, but we started looking at the increase in the FD shares and also we are looking at the addition to different product portfolios in different baskets. So, you clearly see that in quarter 4 and quarter 1, although Paracetamol decline is seen in the API, we are still able to maintain a very healthy and the sustainable bottomline. I think as I told before, this itself is a good example of our derisking and also making sure that we have a very positive way forward in terms of looking at FD growth in US and other geographies and this should enable us to continue to act. And when the Para comes back as told by Chairman as well, I think we will only add more to the bottomline.

Most of the capacity creation that has happened in Para has been mostly in India, right?

It is only in India.

Thank you very much. The next question is from the line of For am Parekh from Sh areKhan. Please go ahead.

My first question is , I see North America sales growing by almost 45% and I understand it is because of the lower base. So, may I just understand like what would be the normalized growth rate going forward? How do we see North America region? Do we see any price erosion pressure there or how do we think about it?

Yes, you are right. Last year Q1 was lesser because of cyber incident as well. But we are seeing North America region to grow in excess of 20% and largely driven by formulations.

Sir, my second question is now that we expect formulation sales to increase even from here on and European region also to contribute from next year as Paracetamol sales kicks in. So, do we expect EBITDA margins to go north of 22% and settle somewhere around 25% in a year’s time or so?

Yes. So, that is the aspiration, but we are currently s taying around this range and also inch up quarter-on-quarter as we see with the increased revenue of formulations.

And my last question, if I may squeeze in, may I just understand that on a sequential basis, do our sales have gone up and RM costs have come down, then what has impacted gross margin by 100 bps almost on a sequential basis?

On a sequential basis, it is not because of raw material cost. Raw material cost s were more or less flat. It is primarily the product mix within the formulations.

So, is it the API sales which has not kicked in or what in the product sales?

In the Formulation also there is a product mix, so largely sequentially the formulation mix has changed. It is more of product mix, nothing major, but this 100 basis point plus minus we will see every quarter plus minus . It depends on the products we sell and the customer mix and product mix.

Yes, plus, minus around that level.

Thank you. The next question is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.

Priyanka, question to you in the US business, what is the price erosion now?

Price erosion has stabilized to a very large level. I would say it is an average of mid to a little bit of a higher single digits, but it is more of mid-single digit.

So, you said that earlier that you have increased the share in the existing products and with this mid-single digit growth, you are not seeing any sort of value erosion in the US business. Is this right to understand?

Yes. I wouldn’t say no value erosion. I woul say no significant value erosion.

And on the launches part, how much are you targeting for the new launches this year?

In terms of number of products like I think I mentioned to somebody earlier, we did about end of Q4 in early Q1, we did about 5 launches. So, in addition to increasing share on those launches and starting to see value on those launches, we will be doing about 3-4 launches in the US and roughly about 8 launches in the rest of the world for the rest of this year.

So, for the full year in the North America that is in the US, we will be doing around 6-7 launches?

Yes, it would be about 3-4 more launches and we have already launched about 2, if you consider Q1, but I would say about 9 launches roughly if you consider the last part of Q4.

And on the cash conversion cycle, you all mentioned that Red Sea issue had impacted the working capital days. So, are we expecting to get normalized during the year and it should be similar to what we have seen in FY24, or it would remain at the elevated level?

We are looking at similar to FY24 level during the year. So, it will be normalized as the Red Sea issue impact comes down.

And one last question, on the FD site, what is the current capacity utilization?

Gagillapur facility, we are almost 100% and we just started validations in our new GLS site. The first stage has 2 billion capacity, I think by the end of this year, we should be doing at least 1.2 billion, 1.3 billion. And early next year, the new capacity of another 8 billion will start up. So, we expect to take up another 2 billion or 3 billion of that capacity too in the next year.

Second half, you are right.

Second half will be stronger?

Yes.

Thank you very much. The next question is from the line of Ashish Soni from Family Office. Please go ahead.

Sir, this future portfolio onco product and other product when do you think can be launched?

So, as I told before that we expect from FY26 the launch of oncology products should happen and they won’t happen in all the geographies. I think it kicks off with a chosen geography where there is a possibility of early launch or early approval, and it keeps going and we expect this to go on from FY26 onwards.

And this innovative product for diabetes, what exactly are you trying to do here? Can you just throw some color on that?

So, we are trying to look at because we are very strong on Metformin, so we are trying to look at several derivatives of Metformin as a part of our diabetic segment. So, we are trying to look at the gliflozins, the Gliptins and also other important areas of diabetes just because we want to be the serious player in this segment and you keep hearing a lot more as we move forward on how we are going to look at this segment and this platform in a larger way.

In this future portfolio, how much revenue can it contribute like in terms of percentage in your overall revenue in next 2-3 years?

I think we have been looking at this. We feel that it will contribute quite significantly to our entire portfolio and maybe because all the launches are going to be, most of them are going to be on day one and also we are looking at the dominance of this a s a part of our Metformin. We look to be a very significant player in the diabetic segment, and I think that is what the guidance we want to give.

And any CAPEX plan for this year and next year?

I have already told that we have been taking a lot of capacity expansion both in finished dose as well as in the API and also in our enzyme technology platforms. Yes, there are CAPEX plans, and we will be in line with all our estimates and the expectations on the capital expenditure.

Ladies and gentlemen, thank you very much for attending this call today and I wish you all great rest of the day and good night too. Thank you very much.

On behalf of Granules India limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.