Thanks Suruchi and good afternoon to everybody. Thank you for joining us on today’s call to review our second quarter and first half performance of the financial year. I will start my remarks with a quick overview of the key financials for the qua rter before getting into some of the operational and strategic highlights. I will then share some thoughts on the first half of the year before handing over to Sibaji to give you more of t he financial details and then of course we will be happy to open up for questions as usual. Overall, the shape of the quarter was pretty much in line with expectations positive and strong performances across the divisions led by development and manufacturing services. Revenue from operations came in at 910 Crores that is up 18.5% reported that is 15% on constant currency basis. Opera ting EBITDA was up 17.4%, 254 Cro res. Profit after tax before exceptional items was up 20% over the corresponding quar ter last year to 122 Crores. You can see some operati ng leverage through the P&L the re. In line with our strategy and the focus on building up the development of manufa cturing parts of the business we continue to add capabilities in our development ser vices division. We commissioned a non GMP facility which added the capability to d o early phase development projects and in what I think is an agile and cost-e ffective manner. In manufacturing services, we made good progress in the quarter wi th our biologics manufacturing partnership was the latest and we also commission ed the state-of-the-art digitally enabled quality control lab that will support our gro wing biologics operations. Looking at the research divisions which covers discovery servic es and dedicated centers, they showed together sustained growth, in discovery services wh ile the global demand has remained generally healthy, we did experience some softening in demand in the US based biotech segment as it adjusts to a new funding environment. How ever, if you look at new capital raising in the sector over the last two or three months , it has really started to come back to pre-pandemic levels and we expect that to normalize in due course. Overall sector fundamentals remain strong and we expect continued demand growt h, but at a slightly reduced level in the second half of the year. Most of this will come in the next quarter so there is our guidance for thinking about your modeling with a s trong return to growth in the f o u r t h q u a r t e r a g a i n t h a t i s t e e d u p a s w e h a v e s e e n i n p r e v i o us years for a very strong fourth quarter for us and quite a strong exit to the year. The short-term slowing in demands reflected in the updated guidance that we gave for the full yea r on revenue. We have adjusted our annual revenue guidance to mid teens year on year growth in constant currency from high teens that was previously announced. I will leave Sib aji to give you a bit more color on that if needed. It is important to note that these nua nces really are limited to the smaller biotech companies in the US, the major pharma companies in Europe and the UK, and the large pharma companies in the US are well insulated from this funding dynamic and we continue to see positive demand from these clients. As you k now pharmaceutical research is a long-term business so our planning is based on ma rket growth that we see 3, 4, 5 years down the line and in that context none of our plans or our expectations have changed hence the purchase of the 17-acre land parcel in Genome Valley in Hyderabad that we announced last quarter. That i s really about giving us headr oom and space, literally space to grow for the next decade or so in Hyderabad. Although our roots lie in research services, in the last few years we have also focused on buildin g up our development and manufacturing division. The CDMO part of the business and the l ong-term manufacturing contract OHS provided the platfo rm to expand our biologics capa city and the proposed acquisition of a multi-modal facility from Stelis Biopharma wou ld be part of that strategy. Looking at the first half of the year as a whole, our financial results have been robust, revenue growth of 22% reported th at is about 17% on a constant currency basis and we have achieved some important milestones that I think are a key part of accelerating and delivering our strategy. As explained, we are expecting to see a little bit of a slower growth in research in the short term, but notwithstanding that the ord er book looks in pretty good shape and we remain cautiously positive as we head into the sec ond half of the year. With that, let me hand over to Sibaji.
Syngene International Limited analyst Q&A
Thank you Jonathan and a good afternoon to everyone. I am ple ased to share with you the strong financial performance of our company for the second quar ter and the first half of the year. Let me begin by discussing the second quarter performance and I will cover the first half and updated guidance before I close my commentary. In the secon d quarter we witnessed close to 18.5% growth in reported revenues from operation, which translates to around 15% of constant currency. This growth was predominantly driven by t he development and manufacturing parts of our business with commercial manufacturi ng of biologics being the key contributor. The Zoetis contr act has now reached the run ra te of around 50 million US dollar per annum as previously gui ded and small molecule develo pment services delivered steady growth driven by repeat orders from clients and strong g rowth in our clinical formulation business. Our researc h businesses continue to perfo rm well with the dedicated centers that we operate for BMS and Baxter maintaining steady g rowth. However, as Jonathan mentioned, discovery services experienced temporary so ftening of demand as companies adjust to the new biotech funding environment. I am sure that you will have seen this reported by others already. The industry fundamentals for the research business remains strong and there are already signs that the US biotech funding is getting back to more stable pre-pandemic levels, which should then bring back growth moment um in the research business over the next few quarters. The demand signals from th e large and the medium buyer from the companies are encouraging, so we remain optimist ic, although this arrangement generally takes a longer period to materialize. In the second half, we continue to invest in scientific capabilities and other enterprise proje cts and we expect our capex investments to run to plan. As usual we will pace this over the coming quarters with the pace of execution being determined by the demand environment. Internal cash flows remain strong and all investments are expected to be funded from inter nal accrual so we will have limited need to resort to external credit. Now moving to profitability metrics, EBITDA from operations grew at 17.4% surpassi ng the constant currency reven ue growth rate. Operating profit, which is EBIT also showed strong growth at 18.4% reflec ting the impact of operating leverage on the back o f improved capacity utilization in our development and manufacturing businesses. Let me now turn to some of the cost lines. I will explain the key changes and trends we saw in the quarter. The cost of raw materials increased by 34% year on year, primarily reflecting the shift of business mix towards development and manufacturing services, which by nature have a higher material cost com ponent. While the cost of raw ma terials was at 29% of revenues for the second quarter we expect this to stabilize around 27 to 28% of revenues for the full year. Staff cost rose by 10.4%, tracking the increased head counts as well as the impact of annual increment cycle. Although it is worth noting t hat it is a lower percentage of revenue at 26.5% compared to 28.4% in the previous year. Thi s is driven by the shift towards manufacturing, which is less people intensive business. Direct costs, primarily power and utility expenses showed a decline of 4% year on year. This favorable trend reflects reduced utility input c ost and an increase in captive green energy consumption compared to the previous year. At present, 81% of our total ene rgy consumption is from renewable sources, an increase from the 77% last year. Other op erating costs grew by 18% year on year, which is similar to the trend that we saw in the last quarter. As before, this increase primarily stemmed from increasing spend on the upkeep of our facilities which have expanded with new laborator y spaces and installation of ne w equipment and infrastructure. Furthermore, ot her operating investments, espec ially the recruitment of commercial and scientific teams l ocated outside India closer to our clients have contributed to higher costs compared to the previous year. The hedge loss f o r t h e q u a r t e r c a m e i n a t Rs.18 Crores compared to Rs.19 Crores in the same period last y ear. Spot rate averaged around Rs.82.7 per US dollar during the quarter against our hed ge rate of 81.3 for the quarter. Overall operating EBITDA margins remain at similar levels in the second quarter at 27.9% of revenue compared to 28.2% in the previous year. Deprec iation charges increased by 16% year on year, driven primarily by asset additions across business divisions and rent from new leases entered during the period. The new lease includ e are non GMP facility which adds such capability to deliver early phase development projects in an agile and cost- effective environment. Operating EBIT margins for the quarter r emain flat at 16.4% compared to the previous year. Finance costs increased from Rs. 11.7 Crores to 13 Crores mainly due to the increase in int erest component on lease renta ls. Other income increased by 40% year on year due to higher cash balances and improved interest yield. Turning now to tax, our effectiv e tax rate remains stable at a pproximately 23%. Our profit after tax growth before exceptional items was around 20%. However, during the quarter, we had an exceptional item of Rs.5.3 Crores net of tax and this is attributable to the transaction costs relating to the acquisiti on of the bio-pharma manufacturi ng facility from Stelis. PAT after exceptional items grew at 14.4%. Turning now to the performance in the first half, reported rev enue from operations grew at 22%, 17% at constant currency pr imarily driven by development a nd manufacturing services. Operating EBITDA grew at 20% while operating profit in other words EBIT grew at 22%. The trend in expenses in the first half broadly mirrors that of the second quarter. The cost of raw materials increased 36% due to shift in mix tow ards development and manufacturing services. As mentioned earlier, the raw material cost will stabilize around 27-28% for the full year. Operating EBIT margins are maintained at 15% almost in line with the first half of the previous year. Other income increase d by 46% attributing to higher cash balance and improved interest yields. On the other side of the equation increased finance costs also reflect higher interest rates. Overall, we h ad a very good first half of the year with profit after tax before exceptional items growing at 23% year on year and profit after tax after exceptional items growing at 19% year on year. We have invested around $30 million in capex in the first half of the year. Around 60% of t hat directed towards adding new capabilities and capacities in the research business. Capex in discovery services was mainly in Hyderabad while we opened an automated compound manag ement facility and a DMPK biology lab for integrated small molecule study. Hyderabad now houses close to 40% of the scientists in discove r y s e r v i c e s m a k i n g i t a s i z a b l e operating footprint with further plans for capacity expansion. The rest of the capex was largely invested in development and manufacturing ser vices, which includes support infrastructure such as quality control and testing laboratory for the biologics manufa cturing business and additional capabilities for the small molecule business. Now mo ving on to the revised guidance for the year. As you hav e seen the first half revenue performance was in line with the guidance, the sector fundamen tal remains strong, we expect continued demand growth but at a reduced level in the second half of the year and most of this will be reflected in the next quarter with a relatively strong recovery expected in the fourth quarter. The biologics manufacturing for Zoetis is on track and will continue to deliv er strong revenues. However, please note that we started to build up revenue from the contra ct from the second half of the last year. So the year-on-year growth will be modest compared t o what we have experienced in the first half of t h e y e a r . T h i s i s b u i l t i n t o th e r e v i s e d g u i d e . I n t h e s m a l l molecules business, several ongoing projects are scheduled to complete in the fourth quarter so we expect lower growth in the third quarter and a strong fou rth quarter, which typically is our highest in a year. Putting these factors together will result in mid teen revenue growth for the full year at constant currency, which equates to high teens growth for the full year on a reported basis. Overall, we see the current demand growth sit uation from US biotech as short-term and expect it to stabilize as the biotech funding environment normalizes, signs of which are already visible. The demand situation from other clie nt segments continue to be normal so we remain cautiously positive in the second half of t he year. Moving on to the capex guidance against the revised capex guidance of 85 million that we indicated in the first quarter call, we now believe we will execute close to US dollar 80 million of capex this year and the balance will be carried over to the next year. $3 0 million has been executed in the first half another 20 million has already been committed fo r execution. Out of the total 80 million more than 50% will be invested in research business, around 5 million towards upgrading the multimodal facility being acquired from Stelis an d the remaining capex will go for small molecule developmen t and manufacturing service bus inesses and other enterprise initiatives. The acquisition of the Stelis facility is in progress and both parties are working towards fulfilling all closing conditions. We will upda te you on this once we close the date. To summarize , we had a productive half year making pr ogress in implementing strategic initiatives while delivering operating efficiencies. We believe we are well positioned to navigate through the temporary US biotech funding challenges and we will continue to invest in building capabilities and capacity for gr owth in the future. With this, I conclude my remarks and will now take your questions. Thank you.
Thank you very much. We will now begin the question-and-answe r session. We have our first question from the line of Tarang Agrawal from Old Bridge Asset Management. Please ahead.
Hi, good afternoon. Three questions from my side. One because of the IRA right, there is an implication that perhaps it woul d result in transitioning of in vestments from out of small molecule developments towards large molecule developments becau se of the stipulations laid out in the IRA. Are you seeing any signs of that happening in your interaction with the customers so that is one? Second in terms of your large molecul e outsourcing business, are there any developments that you are seeing other than Zoetis co ntract and third given that we have already received the approval for the Mangalore API fac ility, if you could comment on the ramp up of that business, say in FY2025 and 2026 and last fourth a small bookkeeping one, you said $80 million of capex guidance for FY2 024. I would believe this is organic capex, Stellis acquisition will be over and above if you could clarify on that? Thanks.
Yes the last one is a yes. Your supposition is correct on the last one. I will talk around some of the others, the IRA had to be inflation reduction that is qu ite an interesting question. The really easy answer to your question is no, we have seen no impa ct whatsoever, but I am not sure that is particularly informative. I would expect this to p lay out over the next 5, 10, 20 years to go to the other end of it. If it has implications for the research strategies of major bio-pharma companies, the decisi ons they make today would be ab out where they invest their front edge of their science. That is 3, 4 years in discov ery, 4, 5 years in development before you even get a product. So you are effectively asking qu estions that are predicated if there was a decision that you would make differently today at t he very front end of the R&D process. When would we see that play out and it is a 10-yea r discovery development cycle so no, there is nothing imm ediate happened in the last tw o to three quarters since the legislation became vis ible. The other bit is just around scient ific technological risk. The challenge of finding a molecule in a target that works, that pr oduces a drug I think dwarfs the selection of is it a small molecule or a large molecule. If you look at the success rates that we all understand in drug di scovery the choice is not alwa ys there between well let us have a large molecule version of that same thing. So I think it is almost a false narrative to think that will be the choice between them, that said what it w ill do or make people think around speed to market, how many things traditionally that they would have done in the discovery development phase seque ntially and will they want to do them in parallel so it might increase the amount of investment at any given decision stage for our clients and then I am going to pull it back into a net implication for us. We of fer world class science to FDA, EMEA, global standards. W e do it with speed that is equiva lent to our clients and in sometimes quicker and we do that with an operating cost arbitra ge low as the expense so if they were going to try and do more things in parallel and they wanted to do it quickly, I can see it being advantageous that scientific footprint continuing the trend we already see of moving to places like India and companies like Syngene, but on the immediate premise of your question, have I seen anything in the last 12 weeks, no I think it is way too early. It will play out over years. Let me just pause there and see if that answer helped.
Yes, it did.
Having been helpful on the first question, I am going to duck giving you specific product level guidance on either of the other two questions which are r eally the same one which is what is the outlook for our manufacturing businesses? Same thin g as I would have said last quarter and the quarter before that. We are out there. We are c onnecting with clients. We continue to see a step up actually in the number of meetings th at we have with clients. We are seeing a healthy environment around client inquiries, but I actually do not have anything to tell you because if I did I would have put it in the press r elease earlier today, but our enthusiasm for being a CDMO business as well as a CRO business has not changed at all. I still think the capital we are deploying for shareholders is the right thing to do to create long term value.
I was just thinking given the interest rate environment in th e West and while I understand that it emerges as a short term risk in terms of the funding dr ying up but purely from a medium to long term perspective given that capital is going to be more expensive does it therefore not increase the requirement of businesses like ours because creating an infrastructure or for that matter of fact getting the drug fast er to market will be even more important than what it was before and in that sense from a medium to long from perspective it works for us.
I mean if you just reverse the economics in your question if capital is harder to get, more expensive you may well only get a smaller amount of investment in which case you have to work hard to make it go further and one of the ways you can mak e any given dollar go further is to spend it wisely and if you can get equivalent sci ence, equivalent service, world class regulatory compliance for a lower dollar amount, which is essentially what companies like Syngene offer their clients in comparison to doing the wor k themselves in the West or using Western service providers and it sharpens the value propo sition we have and that would not be lost on our customers nor would it be lost on our sales people. Those are the sort of conversations we are having every day.
Thank you. All the best.
Thank you. We have our next que stion from the line of Harith Ahamed from Avendus Spark. Please go ahead.
I was checking if there is an update on your margin guidanc e for the year you had previously guided for 30% EBITDA margin for FY2024.
I still think it will be around 30% so there is no change in the guidance. The only thing we commented on earlier today in sort of the press release and var ious media interactions and in Sibaji’s remarks is high teen s, constant currency revenue gr owth becoming mid teens by the way I still think that a gain share outgrowing our market s ector, outgrowing most of our competitors type performance. So looks pretty good. On the EBIT DA margin I think we said around 30% was the phrase we used at the beginning of the year. I continue to think that everything indicates around 30% is the right guidance for the full year.
Our hedge is around 81 to 81.5 in that range and I would like to remind everybody the 30% or around 30% guidance was given for the revenue translated at the hedge rate so you can work out your arithmetic or the guidance for margins still hold s and the hedge rate as I said is between 81 to 81.5.
Actually, if you triangulate in to it I am sure for the analys t on the call that calculators will be running through this already. If we expect around 30% of the full year and our average EBITDA margin rate for the first half, Sibaji I am looking at you was how many.
First half was around 28%.
Okay so if the first half was around 28% then we are going to do around 30% for the full year, one of the implications you can triangulate into is that second-half EBITDA margins will be higher than first half.
Actually we are running a very focused program on working cap ital improvement and that is on receivables, inventory, payables so all are improving. Of course you must have also noticed a marked improvement in the receivables as well and typ ically that is the arithmetic because Q4 is the highest quarter for us and the receivables is calculated as number of days right of billing so compared to that there is also some benefit which is coming, on the receivable line. But if you take that out overall, you will see improvement in all the lines of working capital and it is coming out of a structured program th at we are running. If you recall during the pandemic, we built up a lot of inventory to kind of de-risk our business and as we have settled that down pos t pandemic we are optimizing in ventory across the business, although in absolute terms inventory will still go up as our business move towards development and manufacturing, but in terms of proportion of th e billing we are continuously optimizing that and you will see that going forward as well.
Last one, with your permissi on. Stelis facility acquisition can you share the timeline for closing the transaction and the additional capex which is aroun d 100 Crores the timeline for spending that and once you close the acquisition will there be expenses sitting at P&L from the facility or will you be capitalizing the expenses that you are incurring there.
With the rate we are progressing, I would expect to close in this quarter, but it is not running to a timetable, it is running to a checklist if that ma kes sense. So there are a number of things that need to be completed closing items that need to be done and that is what will govern the closing of that deal. So it is not to a clock. It is to a checklist, but I would expect us to get through that in the quarter. On the accounting and the financials Sibaji.
As you might remember the cost of the acquisition was around 700 Crores, a little bit more than 700 Crores and we said we will spend close to 100 Crores m odifying that facility. 50% of that is actually built into the capex guidance we gave because we consider that as organic capex. So you can take anywhere between $5 to $7 million is built into the 80 million capex that we are giving and rest is for our own facilities that we will be incurring.
On the cost or the costs that are coming through or you are incurring or that be incurring at the facility, will it come through the P&L or will you be capit alizing it on the closer transaction.
Are you talking about the cost of transaction like due diligence in investment banking.
Okay the operational expenses from the date of acquisition ti ll the date of commissioning and starting operation will be capitalized.
Okay that is very helpful. T hanks for taking my questions.
Thank you. We have our next question from the line of Sudarsh an Padmanabhan from JM Financial Services. Please go ahead.
Thank you for taking my question. Sir my question is to under stand what is really driving the near-term slowdown in the biotech spending as you said. As I understand that there is cost of capital that has increased very sharply and broad outlo ok remains that interest rates would remain high for long. In this scenario smaller biotech companies I would assume will largely be affected more as compa red to well capitalized larger names. In this context, do we have the versatility to shift the business from say smaller companies in case the slow down prolonged to larger names and also you look at ramping up the manufacturing a little bit faster in case this related issues continue.
Super, your question is better than my answer. I think you de scribed all of the elements of it. That is sort of what we were trying to get to in some of the comments earlier and some of the media interviews. We are a broad-based business with a 450 plus active clients. They cover from I think the very largest pharmaceutical company in t he world to the smallest newest biotech startup. I have a ctually met one client where it was a single person entity. They were the chief executive and receptionist all-in-one so we span the whole range. It is not a case really of moving from one to another because we have always engage with both whether it is big pharma, big biotech, medium sized or startups that is one of the advantages. I think the productiv e capability and our strategy is we have got the ability to go with all size of clients fro m discovery through to development through to manufacturing but I think your implications are right. If I take bits out of your question, large pharma, large biotech those companies are not dependent on the VC envir onment for funding their super well capitalized, massively cash generative, some of the biggest corporate entities in the world, so for them it is not an issue in their decision mak ing. They are more likely to be looking at their long-term distri bution of where they do the re search, where can they tap into talent.
You were saying that smaller companies depend more on VC, the larger companies are well capitalized, but the versatility of the business would play in your favor?
Yes actually it is good. So that was one of my key points. Th e other bit I was just going to say is if you go back pre pandemic, I think that the US biotech sub segment was seen to be healthy, dynamic, well funded a nd a good thing for investors, b iotech companies and services businesses we then as w e went into the pandemic had a couple of factors. One was financial macroeconomics which was interest rates were soon bel ow almost to the point of being negative. So capital was in search of places to be deploy ed and we had a global existential threat to the whole world in a pandemic and we saw a lot of money possibly for me if I look at it certainly a generational high, maybe a lifet ime high of capital going into new funding of biotech around the world and particularly in the US. As we have come out of the pandemic, we had a very busy year in the first 12 months after the pandemic as the world tried to catch up. Some of the growth rates you saw in ou r business and in other businesses last year would indicate that, but simultaneously, we also saw the capital starting to move back into all of the other sectors of the economy. Thin k about it during the pandemic there were a whole industry groups that were not getti ng funded because they were on furlough or people were closed up. So as the capital wa s redeployed it of course meant relative to an all-time peak at much low base. There are a number of investment banks track this and report. I w ould point you to any number of them report on this but the data I have seen over the years and certainly over the last thr ee months suggests that US biotech funding is now stabilizing. It is starting to settle back and the level it is settling back looks very similar to the levels i t was pre pandemic. So a new normal but the normal looks very much like the pre-pandemic nor mal . S o w hat I may th ink w e have is a timing issue between raising new capital, hir ing people, restarting your pro grams and spending it in the market with people like us and it is going to take us one or tw o quarters to work through there. But we will have to watch it. We will have to watch it t hrough the quarter but we are not the first company to comment on this. I would say we are am ongst the last actually to have any impact on their business. If I read CRO's around the w orld, particularly those that are publicly listed because they are more likely to make a quar terly comment. We are a couple of quarters into people ma king exactly the comments I ha ve made today. Does that help so it gives you a beginning, a middle, and an end, and a s ense of the temporal nature of this.
Yes definitely. So it looks lik e it is probably one or two quarter phenomena and probably all your investments will pay dividends probably say once this issu es are reallocated and you are able to reallocate.
I mean, put it another way. When we deploy shareholders capit al into things like buying land in Hyderabad we are taking a 20, 30-year return and value creation view and a belief that we will create value beyond our cost of capital over decad es. We are not looking at it over weeks and months.
Sure Sir the next question from my side before I join the que ue is see if I take the last five years and even post you coming into Syngene there has been a lo t of investments not only in the capacity on the capability side. Now typically when you work with your clients on the research, I mean one is you get the quantity of orders. I m ean there will be a lot of low hanging fruits, which MNC company are innovative would like to give. The second is the quality of project where there are certain complexity involved probably projects with higher success rate which unless you demonstrate your capabilities you r clients would be hesitant to give, in your experience say over the last five years have y ou seen the quality of the projects moving up and with the current investment do you see t he quality of the projects moving up further and also help the return ratios on the profile margin preferable.
Yes, to the first one, definitely. I mean that is essentially our long-term strategy is to move from efficiently doing simple things really well to where we are today, where I think we are in many ways at an equivalent lev el of sophistication, scientific innovation, and complexity to any of our clients. We no longer sit around the sort of boar droom table or in the labs with our clients is anything other than scientific partners and equa ls and that is the intention, many of them and if you look at some of the smaller companies w ould look to Syngene and say eight and half days in people, six and half days in scienti sts coming on for 30 years of experience. They are actually looking to us for insight and adv ice based on our experience rather than to instruct us and hope that we can follow instruct ions. So it has changed dramatically in parenthesis th at is not unusual in services bus iness and I am India is world leader in IT services and there is a 30-year journey that looks very, very similar there of starting out, doing simple work, and following western clients instructions to now maybe setting the technological boundaries of what is possible. Hopefully, that makes sense.
Sure and some more qualitative commentary on the kind of capa bilities that you are building I mean through the capex.
In which aspect of the business, I mean there is so many. If you take for example this SynVent model that we have got. It is a particular type of serv ice offering where we will fully integrate all aspects of drug discovery and effectively t hat us becoming our client as it were indistinguishable from them in process approach. The abili ty to do not only the chemistry and the biology, but then to synthesize and integrate them and get that through to decision making point. It is a simple way of looking it. There is a difference between being on the bus and driving the bus and in something like the SynVen t model, we are actually driving the projects for the client.
I will join back the queue thanks a lot.
Thank you. We have our next qu estion from the line of Dheeresh from Whiteoak. Please go ahead.
Yes thank you for the opportunity. I have two questions. Firs t question is if you can share what percentage of our let us say, last year's full year revenu e we got from small biotech firms that will be question number one. It seems in the gross m argin there seems to be some one off this quarter. So is there a one off this quarter becaus e even assuming a certain mix of manufacturing versus discovery, the margins seem to be subdued?
Okay Sibaji I will get that o ne to you. The question is are w e subdued in our gross margins. While you are thinking about that, I will do the first one on s mall biotech. We do not normally disclose it, but to give you a sense of it, I would gu ess about 15% or so of our revenue would come from at a total firm level would come from US biotech segment.
Okay thank you 15 you said right.
On the gross margin, first let me clarify, There is no one of f it is a function of the mix and even within CDMO part of our business raw material as a percent age of revenue in small molecule and large molecules, which is biologics are different in a quarter while you have high biologic revenue in the overall revenues you will see a mo ve towards higher raw material cost. In a quarter where you have small molecule in CD MO you will have slightly lower raw material costs. So it is all in the mix. There is no one off I can communicate that. In fact I guess you are also taking utility and power in the di rect cost that has gone down and that has gone down quite sharply because of the multiple ag r e e m e n t s t h a t w e h a v e entered for green power which also comes at a better rate for u s so it is a mixture of all those things but no one of such.
Thank you, One last question in Mangalore API have you given any utilization guidelines for FY2025 of 2026 at least we guide path in terms of when do you plan to fully utilize it?
No, we have not but it is a gift so that I can preempt the ot her questions. It will be the same line of that. We role up all of our guidance into the annual re venue and margin guidance. We do not give breakups and plant level and machine level and l ine level operating and utilization guidance. It is progressing in line with our broad strategic direction. I am quite happy actually with the progress we are making in development a nd manufacturing. We said we would start to rebalance the shape of the business. We thought it was more evenly b a l a n c e d b e t w e e n t h e C R O s i d e and the development manufacturing and that is exactly what is happening.
Thank you for taking my questions.
Thank you. Ladies and gentlemen, that was the last question f or today. I now hand the conference over to Ms. Suruchi Daga from Syngene International for closing comments.
Thank you everyone for joining today's call. If you have any further queries, please do get in touch with our team and we will be happy to get back to you. Have a good day and thank you once again.
Thank you. On behalf of Syngene International Limited, that co ncludes this conference. Thank you for joining us and you may not disconnect your lines.