So we can move the open the floor for questions.

Yes.

Thank you very much. We will now begin with the question-and -answer session. The first question comes from the line of Akshay with AK Investment. Please go ahead.

Hello. Hi sir, am I audible?

I think your voice is not very clear to me at least.

Can you hear me clearly now?

Yes, this is better.

Okay, okay. Thank you for the opportunity and congratulations on the great set of number. So my first question is about the product contribution. So currently top 10 products contribute around 55% of the revenue. So, if you can give some color in terms of therapeutic area from which therapies these products contribute and also in the which stage are these products like there are like are they maturing or still growing and also going ahead, how many products we can expect such products to commercialize with relatively large total addressable market? Thank you.

Nitin, you want to take that?

Yes, so I think if I have to talk about the growth maturity, just to tell you, we continue to see growth across. There are products which we launched a couple of years back continues to grow. If you look at the slide 22 which Sagar talked about, these are the product which we had launched 8-10 years back, even in those products we continue to see strong growth, strong demand. So as we mentioned earlier that our portfolio is pretty broad- based. If you look at the concentration of top 5, top 10 products over the years have continued to come down even if you look at last few quarters, it's range-bound. Okay. So that's the point, i t's a fairly broad-based portfolio, continues to grow.

Okay, sir. And sir, my second question is about the artificial intelligence use. So due to artificial intelligence, does our efficiency increase in terms of product development cycle and R&D? And in Rubicon's perspective, are we currently leveraging AI and how AI does improve our efficiency and all business processes especially in terms of CDMO and pharmaceutical companies?

Yes, so I would put AI, automation, other process as technology, I would say. And we adopt technology wherever and we are very actively adopting technology wherever we see that technology can value add in the work we are doing in terms of increasing efficiency, increasing compliance, reducing errors. So that's one of our guiding principles which are there and we continue to invest and find use cases of doing it in the appropriate way. I do not want to specifically just comment on AI because AI is a very evolving area. We are definitely looking at it but in pharmaceutical setting, we have to regulatory is a very important aspect. So whenever we adopt technology, the important aspect we also need to think through is we have to give regulator the confidence that whatever we are using has enough checks and balances which allow that technology is giving consistent, predictable, and rob ust results. So we are definitely adopting it in the right processes but again, it's a very, very large field and we don't want to specifically comment on just AI part of it.

Okay, sir. And lastly on the product pipeline, how many are in the phase 1, phase 2 and phase 3 in the development cycle and how many molecules are commercial as of now?

So I think we do not comment specifically on phase 1, phase 2, phase 3 but in terms of I think there is a slide which is there, I think Sagar you can point it with number of products which are approved and then we've also mentioned our commercialization rate is strong at around 88%. And if you looked at the DRHP at that point of time -- when we had filed the DRHP, we had mentioned 60 plus products were at the advanced stages of development which were qualified by the appropriate consultants after looking at the data.

So Parag, that number was 63 at the time of filing RHP. Yes. So just to add to that Akshay, we usually do not comment on product-level developments and pipeline is something that that we prefer not to go into too much detail on because it's commercially sensitive. But if you look at Slide 28 of the current quarter's earnings presentation, it provides an overview of how the portfolio has evolved with time and in terms of how we expect portfolio to impact business and that's what we spoke about as we went through slide number 12 on R&D productivity, but at this point , we would not be commenting further on that.

Okay, sir. Fair enough. Thank you so much and all the best.

Thank you.

Thank you. The next question comes from the line of Sidharth Negandhi with CWC. Please go ahead.

Hi Parag, Sagar, Nitin and the team, congratulations again on a great set of numbers and on the consistency of delivery. Few questions from my end. One, the rate of approvals seems to be marginally slowing down while revenue growth obviously continues at a very healthy pace. Is this a pure bigger strategy now or how should one think your pipeline in terms of the molecules you will pursue and the molecules that will get approved? That was question one. Question two is in light of the acquisition in New Jersey, how should one look at the manufacturing footprint playing out between US and India? And in that context, how should one think of gross margins and the third one was on the churn in your specialty portfolio where you classify products only being specialty if they have zero or one competitors. So what's the churn there and if you could give us some idea on how many products do you have currently in the that you would classify as specialty products? And just one other clarification on the capacity slide, you mentioned that there is headroom for e xpansion. So if you could clarify on what the capacity utilization is and what do you mean by headroom for expansion? Is there more land available? How should one think of your expansion on the existing facility? Yes , those were my questions.

So I think the first question let me take that Sagar on the portfolio approvals or approvals slowing down. Siddharth, it's more again, this is as per the plan we have or what we were expecting in our -- as we were expecting approval and more importantly, we are very, very conservative Siddharth when we look at building revenue forecast from that further. So I think right now I wouldn't comment that the approvals have slowed down. Also I think you alluded that we're going to take fewer approvals but I think you were referring to that less approvals and bigger numbers. I don't think that's a right way of put ting it. I think we still follow a very clear portfolio strategy. So I think numbers of how many are coming, what are coming, I think it's just indicative but I think I can assure you that we are on track to the approvals which we have which on which our forecast and the plan is built on. Nitin, you want to take the question on gross margin and...

So Siddharth, if I understood correct, your question around gross margin – can you please repeat once?

Sure. In context of the US acquisition of the manufacturing facility, how do you see the manufacturing footprint playing out between US and India and how should one think of gross margins in context of the manufacturing split between India and US?

Okay. So if you look at the acquisition of US facility, okay, that is a fairly strategic move for us because it gives us lots of avenues, it gives us ability to enter into government/VA business, it gives us ability to be closer to our customer, it gives us flexibility to manufacture certain strategic product in United States. So -- and also, we mentioned that it also gives us advantage in terms of being a next-door facility to our warehouse or the -- warehouse in United States. So from that perspective, this is a valued addition and we don't see margin I would say getting dilut ed because of this, okay. We definitely see that it will be in the overall scheme of thing should be margin accretive only.

And Siddharth, just to add to Nitin, I would just say, so Siddharth, I think what Nitin is was just summarizing in a simple way is it's a very strategic move than I think and when we look at financials obviously from a strategic perspective an extremely important move we've done. We obviously don't see impact on gross margins or again our forecasting we build some of these things into it. And what we have said also that we are going to focus on value-added differentiated products which will create and business for the government. Also with this will create risk diversification for us in terms of our customers getting some of these very impo rtant products from two sites, one in India, one from the US, and mitigating any risks in terms of supply chain. So I think though no financial impact but it has very high strategic impact which customers can view very positively and could give us some I would say some premium in the market when you do something like that.

And Siddharth, I think the other question you had was around composition of specialty pipeline. So I think it's obviously sensitive from a competitive standpoint. So we've tried to strike a balance of providing thoughtful disclosures to help investors trac k in the long run without jeopardizing sort of the business itself. So we share on an ongoing basis what is the share of gross profit of the specialty portfolio. Once a year, we also talk about number of specialty products that we have. And but I think we want to be consistent with our disclosures in that sense. So I think at this time, we wouldn't be expanding set of disclosures around specialty.

Sure. And the last one was on the clarification on the headroom for expansion on the slide for the manufacturing facilities, if you could share that.

So headroom for expansion you are referring to at Pithampur, Sidharth?

Give me a second, I will tell you the slide number I'm referring to. This is the slide where all your manufacturing facilities -- all the four manufacturing facilities. It is slide number 30.

Yes, absolutely. So if you look at the site in Pithampur, which is a pretty large nearly 30-acre area site of which today we are using barely 5- 6 acres. So we have significant room that we can expand at that site. And just for sort of order of magnitude, I mean that amount of space is, Nitin correct me if I'm wrong, greater than the footprint of all of our sites put together.

Yes.

And in addition, I think Nitin in the slide has mentioned we have a facility in CSN which is for niche dosage forms which is kind of modularly ready which is there. So again, headwind to grow this business from a manufacturing standpoint, we have different areas we are having ability to grow the facilities.

Very clear and very helpful. Thank you so much. I'll join the line queue again for more questions. And Nitin, congratulations on your new role.

Thanks, thanks Siddharth.

Thank you. The next question comes from the line of Nishant Maheshwari with G rodel. Please go ahead.

Thank you for the opportunity and congratulations to the management for the fantastic set of numbers. My question to the management is related with the year-on-year additional cost of material consumed as I see that it is roughly INR19.83 crores and addit ional purchases is roughly INR19 crores. So while our additional sale is INR181.9 crores, so does it reflects the substantial value addition on account of transfer pricing mechanism that is transferred to the US entity and from there we are selling because what I can see is that on standalone bas is, there is the decrease in the closing stock of roughly INR10 crores while on consolidated basis, we have a incremental closing stock of INR7 crores. And further, how we will manage if in the worst case scenario US tariffs get imposed and how we will because we are certainly 97% exporting to US.

Okay. So I think the math which you explained, I've not been able to follow that number. Your underlying question seems two things. One is you mentioned that how are we prepared to take care of or face if there is any tariff in future, okay, and the other point you alluded on with respect to the transfer price. Is that correct?

Yes, sir, because what I can see is that with the additional expenditure of INR38 crores in terms of purchases and cost of material consumed on standalone basis, our incremental sale is roughly INR181 crores. And that seems to be very I mean in terms of volum e number, I don't see that there is a substantial growth unless and until we have increased the prices of the product substantially. So that's what I was seeing but clarity from the part of management which I feel that you must address.

So I think if I look at so from a gross margin perspective, I think as we have mentioned earlier if you are comparing let's say on a year -on-year basis, we explained in the last few quarter that how our reliance on the outsourced manufacturing has gone up in the last three-four quarter and that has had some impact on the on the gross margin of the business if you compare versus the last year quarter one, okay. And the other thing as far as gross margin is concerned, as an organization we are very conscious of our margin profile of the business as Parag alluded that we have sort of taken tactical measures to let go of relatively lower margin business. Okay. So that's what I can say in terms of our focus on gross margin. In terms of your math, I think maybe we can connect offline and understand what you are trying to convey.

No, I'm just trying to convey that with the additional increase of INR38 crores, our revenue has jumped up by INR181 crores Y-on-Y sale I mean. So if I see as a layman, there must be a substantial increase in the price of the product through transfer pricing and the stock has decreased in standalone basis it has decreased by INR10 crores while on consolidated basis, I'm seeing that there is a increase in the stock by INR6 crores if you see the changes in the inventory. So I'm unable to understand how this has been in terms of volume jump or a price jump. I don't know.

So again, it's a combination of various things but let me first tell you that as far as the transfer pricing is concerned, in line with our very high standard of governance, okay, with respect to the transfer pricing etcetera. we are fully compliant and no sharp movement in transfer pricing mechanism. And the other thing, it's all of these number is also a function of various things in terms of own manufacturing, outsourced manufacturing, sale of traded goods, own manufactured, okay. So and again as I suggest, I think we can take this offline to understand your math and then clarify.

Sure, sir, sure. So sir, further one more question, last question, that if we start the facility that is which we have acquired from Alkem in calendar year January to March, so what can be the incremental margin as against the outsourcing, I mean how much we will save more in terms of percentage?

So we'll refrain from quoting any specific margin percentage but what I can assure you that our own manufacturing is both from a gross margin as well as overall margin profile perspective is far more efficient.

Okay. Thank you. Thank you so much.

Thank you. The next question comes from the line of Harsh Kundnani with Aionios Alpha. Please go ahead.

Yes, hi Parag and team, congrats on good set of numbers. Couple of very small questions from my end. One is that I think in the opening remarks you mentioned that Arinna's contribution to top line and EBITDA for the quarter, so the top line contribution was INR12 crores and I think EBITDA you said was flattish. Just wanted to clarify, did I hear that correctly?

Yes, so you're right, the revenue contribution was close to INR12 crores and the EBITDA contribution on that INR12 crores revenue was not material.

Understood. So does that mean that our base business margins were in fact higher than the reported margins because of if I just adjust it for this acquisition?

Yes, if you if you do that math, you're right, slightly on that INR12 crores there'll be some slight impact on the overall margin profile. But I think overall considering order of magnitude, Harsh, it's probably not going to have too much of an impact.

Understood, understood. And how do you look at Arinna's margins going forward in the next few quarters?

Yes, so as we had mentioned earlier and I'll just reiterate that we are looking at this Arinna business in various phases. And as we had mentioned that in the first phase, our focus is to put the growth identify and fix the growth levers. Okay. That will be t he focus for this financial year. And in the next phase, we'll be focusing on beating IPM growth, how do we drive growth in that business. And after that, we will look at profitability. So that's how we look at various phases in Arinna journey.

And Harsh, if you look at the EBITDA guidance that we have given, that is obviously at a consolidated level taking into account what Nitin just mentioned in terms of growth investments in Arinna. So I think what we are guiding towards is after taking into account sort of the growth and the build-out that we've mentioned previously.

Understood, sir. Thanks Parag, Sagar and Nitin. That's it from my end. Congrats and all the best.

Thanks, thanks Harsh.

Thank you. The next question comes from the line of Tushar Manudhane. Please go ahead.

Yes, first of all, congratulations on multiple fronts, may it be financial performance, may it be getting successful compliance at Pithampur site and starting or let's say establishing the US manufacturing footprint. In fact, connecting to US manufacturing fo otprint, would like to sort of understand that how you sort of got this facility in a way at just couple of million dollars if you can just sort of explain that part.

Sure, Tushar, thank you. So if you look at our approach to M&A and M&A strategy, I think we have focused on sort of looking at deals where we can create long-term value. We are prepared to be patient because we believe M&A by design is not relating to next few quarters but more sort of long- term in nature. And whether you look at our past acquisitions, whether it was the center in Canada which was Impopharma, whether it was the manufacturing site in Satara which was five years ago and by all accounts has been reasonably successful. In this case, I think this acquisition process was ran fairly long, I think well over a year and a half. It was a court-supervised bankruptcy and I think we were able to stay the distance. The fact that we were -- we already have an adjacent site over there, I would say gave us a little bit of an advantage in the process because we are well connected in that in that ecosystem. But Yes, I think this is it also boils down to I guess culture, right? I think our approach in terms of how we scout deals, how we pursue deals and get them over the finish line.

And also Tushar, just to add to it, I would say is also the ability to assess, right, what -- how we can build on these acquisitions, right? So these come at a certain value but I think more important work we do is how do we see that value and build on tha t to create a significant revenue and profit multipliers on all our acquisitions we've done till now. So from the start to now, if you take any acquisition, we've been able to build multiple revenues and profitability on those capabilities.

Got it, got it. Got it. Secondly, while the quantum of R&D sort of increases and as guided like INR500 crores and subsequently it remains as 10% to 11% of sales, just would like to understand is this going to be while not sort of getting into product spec ifics and rightly so, but is this going to be certain product-specific R&D or is this going to be spread across the portfolio?

So Tushar, I think it will be again a portfolio approach and when I say portfolio, we look at various parameters including risk, probability, execution ease, maturity of the organization in doing those products. So all put together, I think will always have a portfolio approach. It will I can it's never going to be that -- we're going to concentrate only on few big bets which are there but it's going to be a combination of various threshold where we are looking at long-term high innovation products, then we're looking at some other products which are in -- could be in the range where we are able to execute and have a competitive advantage. So it will always be a portfolio-based approach.

Got it. And lastly, while there was discussion as far as manufacturing facilities is concerned, but just if you can sort of elaborate like why so many facilities across so many sites?

Yes, so Tushar, if you've seen we've grown facilities over period of time and always when you've grown the facility, the underlying theory has been or underlying basis has been our portfolio. So we've not done acquisition because this site was available or that site was available or it was available at a certain cost. We've always had a underlying thesis of our pipeline and that has guided us towards the next acquisition or what we have been looking at. So when we look at -- right now when we have facilities, Ambernath has been the core where we started with where we're doing oral solids and nasal sprays. Now when we acquired Satara, we had a liquid portfolio which we were doing with CMO, then we got those products in-house and then we have built we are building nasal capabilities there. So which could be a backup to our Ambernath facility. So again, risk diversification also is extremely important for protecting revenues and also creating capacity. Then we had Indore, Indore as we have said we've been seeing strong traction from a revenue perspective for our existing products and also we wanted to add additional capabilities like hormones, steroids, high potent products, so and plus one single site w hich gave us room to build so that it's very important that we build a big capacity from a perspective of at one facility we can have very, very large batch sizes or we can build in some modern technology to deal with continuous process manufacturing. So that's where came Alkem. And the CSN piece or what Nitin mentioned in his balance sheet has been is looking at or we are looking at some niche dosage forms in our pipeline and hence that facility has been prepared modularly to ensure that when we are lo oking at these niche dosage forms, we have a separate facility from a compliance and management perspective. So that's I think the way we have looked at in building a footprint and also the US one we've already discussed so I'm not again going back to the US one. But this is the way we've looked at each of these facilities. Also we have to look at manufacturing o utsourcing came into the whole play along with that was because our manufacturing is again driven by portfolio and capex will always lag sales. So we are doing capex based on these revenue visibility we have and we will keep that mix of where we are doing we have risk diversification also is important and also keeping for every important product having a couple of sites which ensure that we are of fering our customers a business continuity.

Yes, thanks, thanks a lot for that elaborate explanation. That's it from my side.

Thank you. The next question comes from the line of Prateek Shrivastava with Nivesh Wisdom. Please go ahead.

Thank you, sir, for giving me this opportunity. First of all, congratulations on great set of numbers and the progress you're making on all the multiple sites. Sir, my first question is on the US revenue. We saw dip in -- like the Indian revenue grew 9.7% but US grew only 4% and you mentioned you sort of there you -- because of some you walked away from some lower margin US businesses in that was in Q1. Now what is the latest status here, sir? Have we got some new higher margin business now for our US subsidiary?

Yes, so if I understood your question correctly, you said that when we have given away technically some lower margin business, then have we got the higher margin business in place of that?

Yes, what is the latest status? Because in Q1 we've walked away from lower margin.

Yes. So if you look at if you look at couple of things, if you look at our share of specialty in the overall gross profit, okay, that has gone up with increase in revenue. And we have technically given away relatively lower margin business. So in a way, Yes, that's correct. And again, also look at also look at that if we are letting go of a relatively lower margin business, okay, in that choice making, we will do that only if we are securing a higher margin business. So you're right.

Fair enough, fair enough, sir. My second question is now on the Pithampur side. So I see there are around like INR1,500 million capital sitting there pre -revenue. And the EIR is still awaited. Now what is our capacity utilization curve in sir like in near term like around six -nine months to a year versus let's say a long term two-three year out?

Yes, so I think first I think we don't want to jump the gun, we first -- we have mentioned that we'll we are looking at quarter one for commercialization or ramp up from there. And for that, we have enough capacity which is there. Plus as we mentioned, the si te is roughly around 30 acres, we have only utilized 6 acres. Even with the current building incrementally if we build the site, I think there is enough headroom for capacity expansion fairly quickly. So I think there the next two -three years, I think the capacity the facility is extremely there is a lot of land or f ootprint available to grow that business from Pithampur. So I think there is just in one line, I think there is enough capacity available at Pithampur in the long run and in the short run, we'll be scaling up the facility gradually in the next 9 to 12 months. So for that also, we have enough capacity.

Got it, got it, sir. And sir, my final question again is on Q4 con -call you gave the number that there were 24 products under FDA review but this time around, the number is not there in in terms of ANDAs, NDAs. So any specific reason what is the current status from some color on that?

Yes, so last time last time if you recollect, we had specifically mentioned that this number we will give once in a year. Okay. So we shared that in the last quarter and then we'll be sharing that number once in a year.

Okay, got it, sir. Okay. Thank you, thank you very much and all the very best.

Thank you, Pratik.

Thank you. Ladies and gentlemen, we take that as our last question for today. I now hand the conference back to the management for closing comments.

Hey, thank you Motilal Oswal, Tushar and Sagar for hosting this call. We thank all the participants who joined us in this call and we look forward to speaking you in the next earnings call for quarter two. Thank you.

Thank you, members of the management. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you everyone for joining us and you may now disconnect your lines.