Granules India Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please proceed.

Yes. Thanks for the opportunity. Sir, just wanted to know with respect to these Senn Chemicals, what further investment would be required for next two years to further sort of either integrate with Granules and further scale up the capability or capacity?

Tushar, we are analyzing the whole situation. There is going to be a lot of CAPEX that has to come up in Switzerland. And also, we are putting up a peptide R&D facility in Hyderabad, and which will be followed by a peptide manufacturing also. Some of the developments will happen in Switzerland, and commercialization of large volume products will happen here. We are analyzing what we have to do and maybe in the next quarter we will hav e a clear idea on this. But definitely there is going to be a CAPEX on peptides.

Currently, sir, any like sales or profits from this entity, if you could share that number?

It's sort of breakeven or slight loss as of today, yes. And we think in the next one or two quarters or three quarters it will continue to be around that level, but going forward with the new strategy, it should improve.

Got it. And just secondly, as far as the Gagillapur facility is concerned, you said the production is disruption for couple of quarter s. Kindly if you could share FY '26 revenue, EBITDA guidance?

Got it. And just lastly, this professional and consultancy fees which you would have paid for Gagillapur in FY '25, if you could quantify that?

So, I will just quantify not only professional expenses, all kinds of expenses, including air freight and US FDA consultancy expenses, all have been close to Rs. 60 crores for FY '25.

And this will not recur in FY '26, or there will be some more spending in FY '26?

It will continue for Q1 and Q2, but slowly declining. But definitely till Q2 we see that it should be continuing. We have taken up a complete remediation plan, not a mandatory part exercise. So we have a lot of consultants working on the site. So we think that this will continue for some time.

One more clarification, air freight may not be as high as what we have incurred in Q3, particularly in FY '25, there we are seeing an improvement with a better planning.

Okay. Thank you, sir. Thank you.

Thank you. The next question is from the line of Rashmi Shetty from Dolat Capital Market Private Limited. Please proceed.

Yes. Thanks for the opportunity. Just on the Senn Chemicals, you said that you will also be exploring the GLP-1 opportunity. So which part of the value chain you would be targeting, only intermediates or the entire formulation part? And you will be targeting generic companies, I mean, in the CDMO space, or will you be supplying to the innovators?

On the CDMO, it will be some of the innovators we are targeting already. And on the GLP -1 separation, basically let me explain a little bit in detail for everybody's benefit. Our relationship with Senn Chemicals started with us wanting them to develop GLP -1 products for us. It gives them a contract manufacturing opportunity. And when we saw that, they had some very good capabilities, we thought we should get hold of that company so that we can also have a kickstart with technologies ready-made. And we are working on APIs for GLP-1, and we expect to plan to do formulation. And formulations we will be developing in India and getting it contract manufactured for the time being.

And it will be for various markets, like because India and the other emerging markets are already opening up from March '25 end?

India markets also, but we are a little late for India market starting now, because our API will be available after a while. But definitely for the US market, the US is the biggest target we have. We have to wait for a while. But then other GLPs going forward, we have a lot of time, and we will be targeting all markets at one time.

Okay. And you mentioned that EBITDA or the PAT currently is at the breakeven level or slightly loss, but what is the current sales from Senn Chemicals? And what kind of products are being manufactured over here?

So currently, they are doing roughly CHF20 million a year and with the breakeven EBITDA. And they are largely into CDMO related to peptides, pharma, cosmetics and theragnostics. And they also have amino acid derivatives, largely for peptides CDMOs.

Okay. So with the CAPEX planned forward for Senn Chemicals, and plus, we also have an ongoing CAPEX for Granules. So put together, what will be the CAPEX guidance for FY '26 and FY '27?

So currently, we have done estimate for FY '26, FY '27 we are still working on. So FY '26, overall CAPEX estimate is about Rs. 600 crores. This includes further CAPEX, which we have to incur for Granules Life Science and also oncology and peptide investment.

This includes the Senn Chemicals' CAPEX also, that will be additional in case it is planned?

Yes, this includes that as well.

Understood. And on the GLS Phase-II, that is 7.5 billion dosage, the entire CAPEX is over, or that extra amount is going to come in FY '26 also?

It will come in FY '26 also.

Okay. So the plant is not ready for 7.5 billion dosage?

We do have some CAPEX creditors and also we are incurring additional CAPEX expansion in terms of packing facility and some press-fits, all of that will be spent in FY '26.

But commercialization has already started in the new Phase-II, Rashmi.

Okay, but the total installed capacity currently is not 7.5 billion, I mean it is ongoing, right?

No, we have already 2.5 billion in Phase-I and this will be 7.5 billion --

Yes, that is first phase. That is your first phase.

That's right. 7.5 billion is, I think, you can say 7.5 billion capacity by next month onwards, okay. So, 7.5 billion from next month, but it will take us time to get into full utilization, because we must need to get approval from the FDA and the European authorities, which we expect to have in Q2. Once we get this approval, we will start full production and then I think by possibly this year, we may do about 40%, 50% capacity utilization and close to 90% by next fiscal end.

Got it. So 7.5 billion dosage will get over by, we can expect by Q2 of FY '26.

No, no, it will be FY '27.

Okay, sir. Okay.

Close to 100%, 90% or so.

Got it. And just on the gross margin, so we had a strong formulation phase during the year and that is why with the help of a good business mix, our gross margin was 61.5% during the year. But what are we expecting for the API and PFI segment from the last two consecutive years due to external factors, we have seen a decline. But were there any small growth or anything we can expect in these two segments? And if the sales increase of these two segments, FY '26, the gross margin would decline, or it would be at the similar level?

Rashmi, first of all, all the APIs and PFIs we make are slowly getting consumed in -house. So it's a vertical integration that's giving us the benefit. Except paracetamol API, where we have a large capacity, other APIs are all being used in-house. So paracetamol, we had quite a substantial API sale, which has been impacted by extra capacity created in the world. And so instead of trying to push more API into the market at negligible margins, we are concentrating on converting most of i t into PFIs and FDs. So we will see the FD share at this level or possibly increase a little bit more. Definitely, I can tell you, API percentage will not increase.

API percentage will not increase. So year -on-year, we will see a small decline or maybe a flattish.

Yes, because all that is where the capacity is going into consumption for --

It's getting converted to the FDs.

Yes.

Got it. So then this kind of gross margin is sustainable.

We hope to, and we are confident as of today definitely.

Okay. Got it, sir. And one last question just on the Europe business. We have seen for Q4 and for the full year decline, whereas even in the rest of the world, we have seen a decline. Your other markets like India and US have done well. So is it mainly because of the paracetamol and the API segment impact, which is actually reflecting in the geographies like Europe and all.

Yes, you are perfectly right. Europe was mostly driven by paracetamol API with some of the big brands. And there was a slowdown there, it's only picking up, but I don't think it will go back to where it was. The price erosion continues to stay, I don't think we will get back to the old levels, which actually was helped during COVID. And except for very valued customers, we do not plan to sell paracetamol. And European sales will be mostly driven by formulations, where we had lot of filings, there was a little delay in launching this product. And once these products are launched, European sales will increase, but as a percentage, it may remain the same.

Okay. Got it, sir. Thank you. That's it from my side.

Yes.

Thank you. The next question is from the line of Tarang Agarwal from Old Bridge. Please proceed.

Thanks, sir. Good evening, and congrats for a reasonable set of numbers given the background of Gagillapur. So three questions, sir. Firstly, on Senn Chem acquisition. Sir, what's the --

Tarang, you are breaking up, Tarang, I cannot hear you properly.

Okay. Sir, this is basically with respect to the Senn Chem acquisition, what are the medium-term milestones and say, slightly longer -term milestones that you are looking at? And a subsequent question, given the strategic nature of this acquisition, how should we calibrate the eventual success or failure of this acquisition?

On the Senn acquisition, the medium -term, I think we will be focusing on A, improving the CDMO segment. So as already mentioned in the speeches that there are four areas where there is already enough customer base. And also there is a lot of potential, and we will be exploiting this potential on both the science technology as well as the infrastructure to enable Senn to be competitive diversified and lead to a kind of a good CDMO play in the medium to long -term. That is one segment. Second segment, the GLP-1s, as already mentioned by Chairman, we actually started our journey with them on GLP-1s and we have gone quite a bit of distance in development of the product. So this will become an important journey in terms of looking at GLP -1s, and therefore, using this knowledge, experience, and technology to look into various fragments of GLP -1 both for CDMO business and also for the Granules consumption. I think that will be the long -term approach to sell.

And the strategic importance, Tarang, is that we will have access to good capabilities rather than starting from scratch. So it's just going to be transfer from there to India for increased volumes of GLP-1s to start with and then there are various other p eptides we want to concentrate on as we go by.

So R&D spend productivity is seen through one, the number of quality filings that we are doing both in US and Europe in ADHD and oncology segments. I think that is the first measurement that we see. The second measurement is on the value of the filings. So the NCE-1s and the first to files are the differentiated filings. So I think, we have been very consistently maintaining that our portfolio is going to be focused on ADHD and oncology segments and the measurement of filings. And you already see that we have a lisdexamfetamine chewables and oral tablets approval as a beginning of our journey to the ADHD segment. So we are very clear on the number of filings globally and also in specific geographies as one big productivity measure, and I think we are pretty satisfied with the ki nd of progress we are making on our R&D spend and its productivity.

Tarang, we also have a benchmark for return on investment of one particular ANDA. How many times of that in what period and these are different numbers for regular products, P3 products and for going forward with first to files and all is going to be another aspect. So we are fairly happy with the progress and the returns we are getting.

Sure. Just last question, sir, with whatever uncertainty that's sort of been created over the last two, three months with the impending tariffs, given your significant exposure to the US, how are people looking at it? I mean, are you positioned? I mean, what are the conversations that are happening internally to address the eventuality if at all it, would be possible to do it?

Yes amore than internally, I think external communication is important. We are talking to all our customers in the US about the possible impact. And we have been mentioning that if duties, tariffs come in, we will have to increase prices, there is no way we can absorb it. And we don't see too much resistance as of today, but let's see when it actually happens what the im pact will be. And my feeling is this is going to impact everybody just not us and it's a level playing field and there may not be too much of an effect, because everybody is going to get hit with this tariff and there is so much anybody can absorb on margins especially products genericized long ago.

Correct. And last I mean, Mukesh, on CAPEX, what's the CAPEX number for FY '26?

Rs. 600 crores, Tarang, that is what we guided.

Okay. And Senn Chem is on top of that, so about Rs. 1,100 crores of outlay, correct?

Yes, you are right, Senn Chemical investment is on top of that. That is equity plus debt put together, Rs. 450 crores Enterprise Value and we did that recently.

Okay. Thank you. All the best.

Thank you.

Hello, sir. Thank you for the opportunity. Sir, I have a couple of questions. Firstly regarding the new formulation facility at Genome Valley, which commenced commercial dispatches. Sir, could you discuss the impact of it? Sir, could you discuss its impact on the overall capacity and revenue?

Only Phase-I has been commercialized, Sahil, and Phase-II is under commercialization right now, which will happen within a quarter or two. So there has been, like we said, a slowdown in Gagillapur till the FDA remediation is completed, there will be a slowdown because of various activities that are being undertaken there. So all that from this quarter, both to some extent, and Q2 in a better way will be made up by GLS and also from our US sites with new product launches. So going forward, Genome Valley site is going to play a very important role in our revenue because even when Gagillapur returns to full normalcy, the demand for our products we foresee will be increasing and we definitely see that this cycle contributes quite a bit.

Understood, sir. Sir, secondly, how is the company addressing the decline in European sales? And what are the plans to regain market share in that region if you can shed some light on that?

I just mentioned a little while ago that Europe was mainly dominated by Paracetamol API sales. And now, API sales demand has come down and we are moving the APIs more into PFI's and formulations that have been happening in US and other places and paracetamol sales API will improve a little bit, but we do not see it going back to the old times. And we will make up for European sales with formulations where the margins also will be high and we had a delay in launches of some pro ducts an d we expect that to be back on track and sales will definitely improve. But as a percentage I said a little while ago, the US will continue to be the biggest growth driver.

Okay, sir. Thank you. That's it from my end. Thanks.

Thank you.

Thank you. The next question is from the line of Varun Mishra from SK Investments. Please proceed.

Yes. Hi, sir. Thank you for the opportunity, sir. I had a couple of questions. So I wanted to know like from North America, like we have been accounting almost 79% of total revenues as per Q4 and FY '25. So sir, like what are our strategies in place to diversify geographical revenue mix.

Yes, we do have a strategy. Priyanka, would you like to take that?

Sure, I will take that question. So we have been working on the North America strategy for almost 10, 12 years now in terms of filings, etc. So that market has been and will continue to be our biggest growth driver. But if you look at the number of filings that we're doing in other regions, this year we have done about 11 filings for Europe and we continue to increase that momentum. In addition to that, we are framing up the strategies for the rest of the world for finished dosages and plan on increasing our existing current API and pay by business as well. So going forward, you'll see an absolute increase in numbers coming from ROW markets as well. But again, I just want to reiterate that the US, just the size of the market is so big that even for us that will continue to be a focus.

All right, ma'am. Thanks a lot for that. Sir my second question was around what is your outlook on the API and the PFI segments? Could you give the current contributions to the revenue? How are they contributing? Like could you throw some light on that?

Yes, currently it is less than 25% and this is how the trend also we see going forward, as Chairman clarified in the earlier conversation. So we are producing API more for in -house consumption. So we are focusing more on formulation. So this trend of aroun d close to 25% of API, PFI will be in that range.

All right, sir. My last question is, sir, can you please provide an update on the CAPEX spend on the GLS and the CZRO projects in FY '25? How do we see these projects like contributing on the topline in the coming years?

So in terms of CAPEX investment, I had clarified in my speech, we have spent about Rs. 313 crores in FY '25, and we have further amount left to be spent in FY '26 also in Granules Life Science. And in CZRO, we are going slow. We have not incurred much in FY '25. Largely whatever we have incurred is on the land, which was incurred a year before and some pilot facility, which we have incurred over the last two years. CZRO, we are cautious and going slow, at the right appropriate time we will do. In terms of priority, GLS expansion is our priority, and also the new oncology and peptide facilities are our priority. In terms of near-time revenue, we don't expect much from CZRO immediately in near-term and also similarly from peptides in the near-term in terms of revenue other than the acquired revenue. In terms of Granules Life Science, our Chairman has clarified that this year, it would be about 40% of capacity utilization, next year it will be closer to 90% plus.

All right, sir. Thank you. That's all from my side, sir. Thank you, and all the best.

Thank you.

Thank you. The next question is from the line of Mr. Doshi from an Individual Investor. Please proceed.

Hello, sir. So thanks for the opportunity. Sir, I just wanted to have some color on the oncology portfolio that we have. You just mentioned that we filed one US ANDA. I wanted to understand what are the total number of molecules that we have here in the pipeline? And where are we in the development of regulatory timeline, along with any market sizes for the same, if you can share?

On the oncology pipeline, as I mentioned in my speech, that we have already filed one molecule in the US and European segment, and we have a full double-digit pipeline of oncology products, which will be, as I told before, which will be NC E-1 segment some of them are first to launch, some of them are Para IV 181. And most of these products are for global development, and as mentioned by Priyanka that we are building our Europe and ROW business, and oncology will become a significant element of this building of the business in terms of PFI stroke, the formulation business. So overall, this is the portfolio, and we expect this portfolio to start yielding us revenues from FY '28 onwards.

Okay. All right. Got it, sir. So this was the first filing, and do we expect to see filing every quarter or every six months from now on?

I think every quarter, we make progress in terms of filing, but you know R&D and therefore, I would not like to say a quarter or this one, but we have a fairly good idea about the timeline of filing in US and in other geographies.

All right. Got it. And just an extension to that one, we would be here looking at making the API in-house with full integration and then going on to the formulations, or how are we thinking about it?

As Granules strategy and as you heard our Chairman just a few minutes ago, I think most of it will be vertically integrated. So the entire differentiation in the API comes completely from a vertical integration and that is one of the reasons and also one of the strategies for selecting our portfolio.

All right. Okay. Thank you so much, sir. That's all from my side. All the best.

Thank you.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you very much, ladies and gentlemen. It's been an interesting discussion. And I look forward to meeting you all once again in the next earnings call with possibly better results and till then, have a great day and a great time ahead.

On behalf of Granules India Limited Q4 FY '25 Earnings Conference Call, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.