Granules India Limited analyst Q&A

Thank you, sir. Ladies and gentlemen, we will begin with the question and answer session. Our first question comes from the line of Krisha Kansara from Molecule Ventures. Please go ahead.

Am I audible?

Yes, ma'am, you are.

I joined the call a bit late. So pardon me if the answer to my question has already been answered in your opening remarks. But my question is on our Gagillapur facility. So in the last quarter, you informed that we were going to meet the FDA in January month. So could you please update your investors regarding the same? Have we met them already? And if yes, could you please outline the next steps that we as a com pany are required to follow before we clear this warning letter? This is my question.

Krisha, we had a meeting with the virtual meeting with the FDA early January, and they have requested us for some more documentation, which we'll be submitting shortly. The most important part is the agency has not raised any concerns regarding the adequac y or pace of corrective action. So once we submit our response and further information, we will see what the FDA comes back with, but we are -- that's it, yes.

Right. So would you be able to put a timeline to it, like when are we expecting the final reinspection from there end?

We cannot put a timeline to that, but we will be submitting the response quite early in the very near future. But we'll have to see how the agency and then what timelines are going to come out. But again, like I mentioned, we have also been de -risking. Some of the filings have been happening in our U.S. facility and also at our GLS facility. And some products are being site transferred to a GLS facility here, too. Slight amount of de-risking is happening. Even if it takes a little longer, it should not be a major problem.

Our next question comes from the line of Bino Pathiparampil from Elara Capital.

A couple of questions from my side. One, there is this INR25 crores of loss from the peptide franchise, which you have given in the investor presentation. How has this moved across quarters from 1Q to 3Q? And what is the outlook for the next few quarters?

I think it's a good idea Sanjay take this call. Sanjay? Sanjay is responsible for the peptides business and anything regarding peptides, he will be answering.

Yes. So Bino, so the numbers are comparable to the financial performance of the previous quarter. In terms of outlook, this is a typical of a CDMO business where the quarter -to-quarter variation happens. And as I covered as a part of my early commentary, w hile the financial performance was lower and as anticipated, the quarter itself was activity intense and our projects progressed through the execution, which typically take a couple of quarters. And the outcome of the last quarter will be reflected in the Q4, and we are expecting a very meaningful improvement in the Q4 performance. And we do have a visibility over the next set of quarters, and the numbers are significantly improved over the past 2 quarters on the revenue basis.

Understood. Just to follow up on that. When you say improvement in performance, are you referring to breakeven and a positive EBITDA sometime soon?

Yes. I exactly mean that, and that is something that we covered in the last con call as well that we expected Q4 to go above the neutrality on EBITDA that you asked. So we remain confident, and we are on track to get to that position.

Q4 as in next quarter, right, this coming quarter?

Okay. And what will drive that? Is it transfer of manufacturing to India or additional projects that you have taken up? What is leading to this sharp turnaround?

So I won't put it as actively as that. Like as you would assume the lead time to execute these projects go beyond a quarter. So we did have the visibility on the execution timeline for this, and we understood that those deliveries will happen in Q4. Again, the quarter -to-quarter variation is very unique to the CDMO business. So we did have the visibility. We were executing during the Q2, Q3, and we continue to execute through the Q4 and some of the key customer deliveries are happening in the Q4.

Understood. And can we also assume that it will remain in the positive EBITDA territory through the quarters in FY '27 as well?

So our target is always to turn positive from next financial year. But again, I keep on saying the quarter-to-quarter variation will remain a characteristic of this business. But on a year basis, we are turning towards neutrality and profitability for sure.

Got it. And second, is there any cost related to Gagillapur facility remediation still sitting in the P&L in Q3?

Yes, Mukesh. This side, Bino. The remediation cost has substantially come down. So it will be in these normal levels for a few quarters and then will be negligible. It has come down substantially.

Got it. And one last question on the U.S. If I look at your U.S. revenues in dollar terms, the last couple of years, we have added like $40 million to $50 million, somewhere between $40 million and $50 million every year to the US revenue. Is that something which we can kind of look forward to in the coming couple of years as well?

That's what we aspire for and we are confident of that.

Got it. Thank you. I will join back the queue.

Thank you. Our next question comes from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on the Ascelis Peptide, how much of the revenue would have been in this quarter or, let's say, 9 months?

So this quarter is INR33 crores, Tushar.

Okay.

And quarter-on-quarter, last quarter, it was INR28 crores and the previous quarter also around INR28 crores, INR29 crores. This quarter, INR33 crores. And the loss has gone up, which Sanjay also has clarified, I also clarified. Primarily, we have taken higher execution activities, both on the -- some of the active projects where the revenue will further come in Q4. And also, we have taken up regular and preventive maintenance cost in December.

So effectively, that maintenance cost will reduce and then there will be scale up in the revenue, which is why the EBITDA breakeven for Ascelis Peptides...

You are right, Tushar, yes.

Even if I leave aside or even if I -- so if I exclude, let's say, Ascelis revenue and the EBITDA loss with respect to the Ascelis, the ex of that business has also scaled up both in terms of revenue as well as profitability. So how that piece of the business will improve subsequently, maybe like fourth quarter onwards or in FY '27, given that the regulatory issue-related expenses are actually at least largely behind, we might wait for inspection – re-inspection for Gagillapur site. But ex of that, how to th ink about the growth in the business in FY '27, if you can shed some light on that?

Tushar, we are looking at sequential improvement, both on the sales and margin side.

And that would be driven by?

That will be driven by one expenses, operational leverage, for sure, and more than that, in fact, revenue as well.

But this is to do with our, let's say, core products or the new approvals and which geograph ies, if you can give more color?

Tushar -- Priyanka, go ahead, you can answer that.

Yes. Tushar, I'll answer that. A few things, well, the last couple of quarters like we mentioned in our past con calls also, we -- while we were producing, we weren't producing to the full of our capability. So right now, we are going to be increasing capa cities and catering to all the awards that we have in the U.S. and to the other markets. So just the operational efficiencies will increase, productivity will increase, and that will certainly increase the numbers going forward. In addition, if all goes well with Gagillapur, we have our launches in place. That will also facilitate the growth. We have a few CBE30 approvals and some PAS approvals from the GLS side, which we plan on launching, that will also facilitate growth.

Our next question comes from the line of Yashika Gogia from Nirzar ENT.

I just had one question. I wanted to gain some clarification on lisdexamfetamine. What's the product status? As we heard previously that GPI received FDA approval for the same chewable tablets in December '24 and then in January '25, the capsules. Is there any revenue recognition also, I just wanted to gain some insight for lisdexamfetamine?

Yes, sure. Yes. It's been four quarters since we've launched lisdexa caps and tabs and it provides a meaningful revenue addition to our U.S. business.

All right. So could you clarify some numbers or the revenue for the same?

No, we don't get into product specifics, unfortunately. But I will tell you that we have -- we were a late entrant to the market, but because of our quota history and our compliance history with the DEA, we were able to get meaningful share, and we plan on increasing it as we keep going further.

All right. So will it be feasible for you to tell how much incremental demand this will signal since you mentioned that the quota for U.S. -- the quota for lisdexa has been improved. And in '24, it was around 26,000 per kg, whereas in '25, it was increased to 32,000 per kg. And in September '19 also, it was raised. So can we see any numbers from our and what benefit we can see?

I'm sorry, can you please repeat your question?

I mean to say that since lisdexamfetamine quota was increased around September, it was announced by US DEA that the quota has been increased from '24 to '25 annual approximately 40,000 per kg. So what incremental demand does this signal? And does the indus try have sufficient end market demand to absorb this?

First of all, I'd like to clarify that without end market demand, the DEA will not increase the quota overall for any product. So yes, there is market. And based on compliance history of each company and the continuous outflow of products quarter -on-quarter based on legitimate demand. And again, I want to say, based on the compliance aspect of that, the DEA awards quotas to the suppliers.

Next question comes from the line of Ritwik Sheth from One Up Fin.

Sir, a couple of questions. Firstly, sir, we've got an approval -- in principle approval for amphetamine product in December across two dosage forms. And you mentioned the market size is $220 million to $230 million per annum, and we are one of the few players to get approval for this. So when can we expect the launch of this product in U.S.? And over a period of time, what kind of market share can we garner?

I'll take that question. If you're referring to the approval of generic Adzenys, it was a tentative approval. It's not an approval yet because it is an IP -based product. The overall value of the product right now, including the brand, is about 170 million units, but there's only one other generic player in the market. So -- but the timing of launch, I cannot confirm right now because it is a tentative approval, which is in litigation stage right now.

Okay. And when do we get the final approval, if at all, we get it?

Okay. It will take a year. Okay. Got it. And second question is on controlled substance. What kind of growth did we clock in Q3 and 9 months FY '26 in this segment?

I think we should start referring to this entire basket instead of just looking at controlled substances. I would urge you to just look at our investor presentation where we are segregating our divisions into integrated pharma, complex generics and others. And within that, the definitions, et cetera, have been mentioned in the presentation. But within the complex generics range itself, just from Y -o-Y growth, Q3 to -- Q3 FY '25 to '26, we grew from 27% as a total contribution to 49%. A nd Q-on-Q, we grew from 40% to 49% within the complex generics range.

Right. So controlled substance would be a significant part of the complex generics?

Yes.

Okay. Got it. This is helpful. And just 1 last question on bookkeeping. Sir, what was the remediation expense in Q3 FY '26?

So Ritwik, it has been substantially lower, almost half of what we incurred in Q2.

The next question comes from the line of Sucrit D. Patil from Eyesight Fintrade Private Limited. Please go ahead.

I have two forward-looking questions. My first question is, as Granules continues to grow -- sorry, as Granules continues to grow its formulations and CRAMS business, how do you see capacity use and overall production levels changing over the next 1 to 2 years? And particularly, how will steps like making more of your own APIs using automation in manufacturing and strengthening regulatory compliance be put into practice to improve efficiency, reduce production time and keep the company comp etitive in the global market? That's my first question. I'll ask my second question after this?

Priyanka, go ahead.

In terms of capacity utilization, if I understood your question right, at Gagillapur, we will have some capacities over the next couple of quarters. But GLS, we will have significant capacities. And more importantly, both the sites will have a lot of produ cts in common. So if there is a lot of demand that we see going forward, we can cater to it from both the sites. And on the operational efficiencies, could you please repeat your question?

No, I just want to understand who -- like what steps you taking -- making more of your own APIs using automation in manufacturing and strengthening regulatory compliance to reduce production time and keep the company competitive in the global market?

I think to answer your question, if it's specifically about APIs, almost all the APIs that we make, we are already very cost competitive. So when we talk about automation and digitization, digitalization, it's more to increase quality compliance to make su re that we are one of the strongest companies in quality going forward, and quality has always been a strong pillar for us. So that's where we'll be spending a lot of our resources with automation and digitalization.

Let me clarify, Sucrit. The existing plant, there is a level of automation already. But any new plants that are coming up, including one API plant with a different type of differentiated technology in Vizag, this is going to be totally DCS driven and very few people on the site. So even that will happen in addition to paperless documentation.

Good to hear. My second question is specifically to Mr. Mukesh. With strong cash flows and ongoing expansion into CRMS and specialty formulations, how do you plan to keep EBITDA margins steady while also funding new investments? From a financial process po int of view, how will you handle the working capital more efficiently, manage currency risk on -- export revenues and use digital tools to control costs so that ROE and balance sheets remain strong in the near medium term?

Thank you, Sucrit. It's a multi -loaded question. EBITDA improvement, of course, with a good mix of formulation, getting into larger complex generics share, the EBITDA margin, of course, gross margin to EBITDA margin will continue to improve. And thereby, of course, cash flow from operations will be positive quarter-on-quarter. At the same time, with the increased sales, there will be investment in working capital. At the same time, we are seeing that how we steady state at the CCC days, even with the new launches and increase in inventory requirement, how we efficiently manage the CCC days so that working capital blockage is lesser with the growth as well. That is a continuous process which we do. And we do have -- on the forex side, which you have asked, we have a good risk management governance, and we balance hedging also accordingly. And if you see all of these processes are effectively managed. That's how you see ROCE is improving and return on equity is also improving quarter-on-quarter with a business improvement.

Thank you for the guidance and I wish the entire team best of luck for the next quarter.

We don't give guidance, Sucrit. It's all going to be positive. That's all we can say. We have no guidance.

I said thank you and best of luck for the next quarter.

Our next question comes from the line of Abu Rafe from Wealth Catalyst. Please go ahead.

Thank you, sir. Thank you for giving me the opportunity. S ir, my question is, earlier management had indicated that paracetamol demand was weak due to elevated inventory. Could you update on the current inventory situation? Has the excess inventory largely been cleared, sir? And how does the management feel the demand outlook for paracetamol over the next few quarters?

Sure, I can take that. Paracetamol as an absolute -- if you talk about the inventory situation, in certain markets, they have eased down. And we are seeing an increase in demand from our key customers in both APIs, PFIs and finished dosages. While we are seeing good growth, and that's what facilitated the growth in some of our regions this quarter, we do see some amount of price erosion also in paracetamol. But in terms of inventory, the volumes are building back up.

Our next question comes from the line of Vivek Gupta from Star Investment s. Mr. Gupta, you may please proceed with the question.

Yes. Am I audible?

Yes, you are.

So sir, could you outline the expected timeline for meaningful product launches from the Genome Valley facility and like share your estimates on the incremental revenue contribution that is anticipated in FY '27?

Priyanka?

I'll take that question. Yes. We are going to be launching at least 1 product, if not two products, which are existing products from the G pp sites to cater to additional demand that we have. So these two products will be launched over the next couple of -- next two quarters, one to two quarters. We'll start this quarter, and we'll see an incremental revenue coming up. And we're also expecting -- once we have a European approval for that site, then we expect even more numbers to come in.

Okay. So with oncology and high -value segments positioned as key long -term growth levers, how do you plan to scale capacity, build partnerships and progress regulatory fillings to unlock their potential?

So if you look at the 3 baskets that we have mentioned in our investor presentation, sequentially, even if you look at the R&D filings in order of how they have changed over time, you'll see that the percentage of complex generics, which is where oncology, CNS and other products come into play, they have sequentially grown. So we plan on filing a certain number of products more inclined towards complex generics in the future, while integrated generics remain a core area of focus as well.

Okay. Thank you.

Thank you. Our next question comes from the line of Saniya from SSK Capital. Please go ahead.

Hello. Am I audible?

Yes, you are.

Hi, good evening. A ctually, I joined a little late. I had a question regarding that the controlled substances that are emerging as a key growth driver in the US market. Could you provide a greater visibility on the pipeline, like the outline, the expected launch timeline? And can you share how the management anticipate this product will contribute to your earnings for the next 2, 3 years?

I'll take that question also. When somebody -- sorry, I forget the name, but somebody spoke to me about it in the past couple of minutes. I mentioned that we should look at it as integrated generics, complex generics and others. So CNS, ADHD and controlled substances are a part of the complex generics range. We have about 8 to 9 products in the market, 5 to 6 of which are amongst the top 3, if not number 1 in the markets today. So going forward, as immediate launches -- well, immediate launches, meaning within the next year, 1.5 years, we have about 3 launches, and they will -- 3 to 4 launches, and they will contribute to a very meaningful percentage of our overall growth story.

Okay. Got it. And also regarding the tentative approval for amphetamine, could you please elaborate on the strategic importance of this molecule, particularly in the terms of potential revenue contribution and the market share?

See, I don't want to -- yes. Sorry, please finish your question.

No, it's okay.

It is a very important -- very, very important product for us from a strategic perspective because it reinforces our strategy of filing limited competition products to be able to get -- to be able to give patients with ADHD immediate access to products by launching generics that are early to the market. And from a manufacturing and development perspective, these are difficult products. These are products that -- some of the products have been in the market with this particular product, well, there has been one generic for a long time, but others have not been able to develop, file and get approval for this product because of the complexity involved. So overall, it is a very good product that fits exactly within the pipeline that we have envisaged for ourselves and it will contribute to a very meaningful amount going forward.

Okay. Got it. Thank you and best of luck.

Thank you. A s there are no further questions from the participant, I would like to hand the conference over to management for the closing comments. Thank you and over to you, management.

On behalf of the entire leadership team, I would like to thank all our shareholders, analysts and participants for taking the time to join us today. We value your insights and your continued trust. This brings our call to a close. Thank you and have a wonderful evening.

Thank you, sir. Ladies and gentlemen, on behalf of MUFG Investor Relations Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.