Rubicon Research Limited (RUBICON) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Rubicon Research Q1 FY27 Earnings Conference Call hosted by Motila Loswal Financial Services Limited. As a reminder, all participant clients will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thanks, Sagar. On behalf of Motilal Oswal Financial Services, I welcome you all for Q1 FY27 results earnings call of Rubicon Research Limited. From the management side, we have Mr. Parag Sancheti, Chief Executive Officer, Mr. Nitin Jajodhya, Chief Financial Officer, and Mr. Sagar Oak, Senior VP, Corporate Development and Strategy. Over to you, sir, for opening comments.

Thanks, Susha, for hosting us for this earnings call. And also, thank you, everyone, for joining the quarter one FY27 earnings call. So, I'll, you know, take you through the highlights of the financials. So, we've again had a very strong quarter. This is the first quarter we are reporting since Arena acquisition. The Arena acquisition got closed in the month of April, and the revenue impact is roughly around 12 crores. There's no material impact on EBITDA. So, if you look at our Q1 numbers, our revenue for operations came up to 534 crores. EBITDA came out at 131 crores. PAT came out at around 86 crores. So, if you just, from a percentage growth, year-on-year revenue has grown by 51%. EBITDA has grown by 65%, and PAT has grown by more than 100%. I'll request Nitin to take us through the detailed income statement and balance sheet.

Thanks, Parag, and good evening, everyone, for joining this call. I'm going to slide number 6. So, all the numbers are in INR. So, our revenue from operation for the quarter was 5,343 million, a growth of 52% versus the same quarter last year. Gross profit was 3,543 million versus 2,430 million in the quarter one previous year, again a strong growth of 46%. Our pre-R&D EBITDA was at 1,871 million, translating into 35% pre-R&D Our operating EBITDA margin versus 32.5% for the quarter one previous year. Our R&D expense for the quarter was 580 million, translating into a 10.9% R&D as a percentage of revenue versus 355 million in the quarter one previous year. Our operating EBITDA for the quarter was This is 1291 million versus 791 million in the quarter one previous year. Again, a strong growth of 63.2%. And operating EBITDA margin was at 24.2% for the quarter one this year During the quarter, we had a one-off item in other income that was in the form of insurance claim against goods lost in transit. So after that, one-time other income, the PAT was at At 848 million versus 433 million in the previous year, a strong growth of 96%. So overall a strong performance and EPS was at 5 rupees. Moving on to the next slide, the slide number 7 on balance sheet. So as Parag mentioned, this balance sheet reflects ARENA's consolidation effect as on 30th June 26th. As on that day, our capital employed was 14,778 million, and it was after excluding cash and The net working capital for the quarter or as on 30th June 26th was 114 days versus 126 days as on 31st March 26th. While there is an improvement in net working capital days, I think you should not read too much into it because it's also a function of And we see working capital in the range of 125-130 days as we have guided earlier as well. Our ROC for the quarter was strong 36% and I would like to highlight one point that this ROC of 36% was Despite close to one-fourth of our capital employed being there in investments which are either pre-revenue or which are yet to materially contribute to the revenue. So, again, the point is a strong RRT. Now moving on to the next slide on cash flow statement. Our operating cash flow before working capital change for the quarter was 1,390 million. Our cash flow from, net cash flow from operating activity was 285 million rupees. In this quarter, the cash flow was impacted because of some delay in GST refunds, and these refunds are getting normalized, and we should see the impact of this in quarter two in terms of healthy cash flow for the quarter. In this quarter, the cash flow in investing activities was primarily driven by our acquisition of Arena Life Sciences and some capex. So that's broadly on the cash flow statement and with this, I'll hand over to Parag and he'll take Thanks, Nitin.

So, just touching on some of the key highlights for the quarterly performance. So, we'll start with the revenue growth. As I mentioned, we had a strong, again, revenue growth. And as we go ahead, also, we do see a strong traction for revenue. If you look at the growth has been broad-based, again, as our portfolio design is. Top five products contributed 39% of the revenue in the quarter month, and top 10 products contributed 55% of the revenue in the quarter month. Again, this is broadly in line with our last four quarters in terms of concentration. For us, the pricing continues to remain stable because of our portfolio, which is focused on speciality and differentiated products. As mentioned, again, we continue to see very strong visibility for revenue in coming quarters. USD revenues for Q1 was $55 million, which was up 32% year-on-year from $42 million. There is a slight sequential drop owing to the tactical measures we have taken, which we had spoken in the earlier quarters, with respect to gross margins. And I'll explain that in detail when we go to gross margins. FI27 is tracking strong for sequential USD revenue growth. Coming to cash flow, the cash flow from operations was $285 million. This, just along with that, if you would just go to the footnote, this was impacted by, you know, certain GST reports which were stuck, but in this quarter, that should normalize. Coming to the approvals for the products, we received two approvals in this quarter. The commercialization rate remains strong at 88%. Some of these products need to be commercialized in the coming two quarters. And also would like to highlight speciality portfolio contribution to gross profit for the quarter is 36%. Speciality focus underpinned by a very, very robust pipeline is expected to keep on growing, as we mentioned in our earlier analyst calls. We move to the next slide. Moving to the next slide on gross margins and EBITDA. I wanted to highlight a few things. Again, this is in line with our commentary, what we have given earlier. Our gross margin increased sequentially by around 140 BIPs to 67.7%. This is despite we have had sequential increase in key input cost, freight cost due to the geopolitical conditions. In Q3, FY26 update, we had flagged off that stronger than anticipated revenue traction, coupled with our own constraint in manufacturing, was leading to a larger reliance on contract manufacturing, which was pressurizing our GM. And the company was looking to do certain tactical measures to ensure that, you know, we are able to meet the demand. But at the same time, we are also focused on the cross-margin piece of it. So, post that, I think the company over the last few quarters has taken those tactical measures. And what we have done is we have given up relatively lower margin businesses, which has led to a marginal sequential drop in the U.S. revenues. But it has led to increase in the gross margin. This tactical measures allows us to prepare better with mix of our own versus outsourced manufacturing reliance. It, in light of the strong demands and return or revenue traction expected over the next coming quarters. Coming to EBITDA, the operating EBITDA rose to 24.2% compared to 23.1% in a sequential quarter, Which is, again, despite sharp increase in our input and freight costs due to the prevailing geopolitical conditions, plus employee appraisals which have been concluded in quarter one. For the remaining three quarters, I also want to point out in FY27, we would have some specific costs which could impact EBITDA margins, such as ESOP costs, which is arising from the new ESOP scheme. Arena costs, which are related to, you know, kick-starting the growth for Arena, and the pre-revenue cost for the new facility, which we've acquired in New Jersey and Petampur. But despite all these cost impact, we are slightly up guiding for around now 20. Earlier, our guidance was 22 to 23% on EBITDA. But now we are comfortable to revise this upwards for the whole of FI27 to 23%. We can move to the next slide. Sagar, if you want to just take over or take through the acquisitions we've done.

Thank you. Thank you, Parag. Good evening, everyone. So I'm on slide 11 of our presentation, and I will take you through the updates with respect to our manufacturing facilities. Starting off with Pitampur. So, in early July, we had informed that the FDA conducted an unannounced inspection, a 483 was issued with two observations, which we had said we were confident of concluding the evaluation in a timely way. The observations were procedural. We are happy to report that we filed an appropriate response and also received FD approval on a regulatory filing after the inspection was concluded. So, we have pretty much delivered in line with what we had said in early July. So we are on track to ramp up commercial operations at this facility from first quarter of calendar year 2027 as we had previously guided. The second update is relating to our recent announcement of the acquisition of a manufacturing site in New Jersey, USA. So we acquired this This facility which is in East Brunswick via court-supervised bankruptcy process, the total purchase price was 2.9 million dollars. Now, the site has in terms of size and in terms of footprint, it's similar to our manufacturing site at Satara in Maharashtra, but we believe it adds a completely different dimension to our supply chain, With on-site or on-shore manufacturing presence in the U.S. This facility has over a decade-long track record with U.S. FDA, and in a way, I think the timing was quite good that FDA carried out an inspection in May of 2026, roughly a month before we closed our acquisition. So, it gives us a good and I guess an authentic and official assessment or evaluation or a due diligence almost if you will. I can also tell you that as of today, the updated status on the FBA's website for the May 2026 inspection is a VAI or voluntary action classification. So, this is again in line with our commentary when we announced the acquisition. You may recall that at that point in time, the FDA had issued a 483 with 6 observations which we believe were largely procedural. We also announced that they had been responded to within the prescribed time, and I think now the current outcome sort of bears testimony to the fact that the inspection has been successful. This facility offers us a number of benefits. It is located adjacent to our distribution operations that sit within our subsidiary AMRX 3PL. If you actually see at a slide later on in the deck, shows that they actually share a wall. It's also not very far away from our U.S. headquarters, which is also in New Jersey. So, we believe the facility from an operational efficiency standpoint brings in a fair amount of synergy for us. Our intent is to focus on specialty and high value products from this site as well as demand from certain customers such as U.S. government departments where having an on-site or on-shore manufacturing presence is an enabler. We expect commercialization to start in calendar year 2027. Once we have done, once we are done with implementing our quality management systems at this site.

Yeah, and I would just like to add also, you know, since we're talking about facilities, quality culture, inspections, you know, we just, I just want to emphasize the way we have built business over the last few years with inorganic acquisitions of capabilities, let it be the facility of Satara from Sipla or, you know, this facility which we bought from Alchem in Beethampur. I think I'm very happy the way the team has executed to build the right culture before these sites have been offered to FDA in record time. And within the first inspection, we've been able to, you know, resolve the issues or the points which the auditors have highlighted. So, you know, we continue as we build even the facility in the US. I think the important part we really focus on is building the right culture, the and the right systems, which allow us us to, you know, once we commercialize these sites, we know that, you know, we are going in the right direction from a quality and compliance perspective.

Absolutely, but I fully agree. I'll move now to the next slide, which is slide number 12, relating to R&D spends and their impact on revenue growth. For the quarter, expenses were 10.9% of our consolidated operating revenue. As we have, you know, said in our previous calls, R&D spend is sort of the lifeline or the lifeblood of our business, the lead indicator of future revenue. And we measure R&D productivity by comparing the incremental revenue to lagging total R&D spent, which you can see on that slide. Now, just to quickly recap what is there on the slide, if you consider a typical development timeline, an FTA approval timeline, a product that you begin working on today will come to market about two years hence. When you consider that, along with our measured approach of building market share, a product that we began development in fiscal year 20 would typically register meaningfully in revenue by fiscal year 2024. So, we look at incremental revenue over a three-year timeframe and we compare it to the nine quarters total R&D spend on a lag basis. So, in this case, comparing 21 with 24, we are taking two full years of R&D spend, which is fiscal 20 and 21, and adding in Q1 of fiscal 22 to account for cases where development may have been largely completed, but filing would have been done in the first quarter of the next year. So, by comparing, you know, that 165 crores of R&D spend with roughly 539, 540 crores of incremental revenue is the 3.3x multiple R&D productivity that we've pointed out. We've shown this analysis on a rolling three years basis, 22 versus 25 versus 22, 26 versus 23, 27 versus 24. Just want to call out here that the 24 and 27 analysis is based on an arithmetic annualization of the quarter 1 revenue. Simplistically, for the purposes of this analysis, we multiplied Q1 revenue by 4. And as you can see, our current R&D productivity based on this Q1 and 527 is Now, this is on revenue that that does not include arena life sciences. We expect that the multiple will will expand during the course of the year as the revenue runs up. And we already spoke about how Q1 revenue compares year on year with Q1 of last year. Coming then to our guidance, we had guided for INR 5 billion or 500 crores of R&D spend over 9 quarters of Fiscal 26, 27 and Q1 of Fiscal Year 28. We have completed spend of about 251 crores out of 500 in 5 quarters. The current rate of spending is about 60 crores, 600 million rupees per quarter. So, we believe we are on track to comfortably meet the 500 crore spend guidance by Q1 of next year. And also just want to call out, in our unlisted phase, we invested significantly in R&D. So, fiscal year 22 relative to revenue was just under 40%, 39.5% R&D spent. And since that has normalized to what is still an industry-leading 10% to 11%, which, as we have previously stated, we will continue to hold. FY27 is the last year of what you see on screen as on a cumulative three-year, nine-quarter basis, reducing R&D spend. And from FY28, you should see the impact of the increasing absolute spend as well. And I'll just clarify what I mean by that. So if you look at nine quarters R&D spend, fiscal year 24 plus 25 and quarter one of 26, these are all of course actual numbers. That is a total of 278 crores. Moving forward one year, 25 plus 26 and Q1 of 27, again, actuals, 380 crores. And then there is the period for which we have guided 500 crores, which is fiscal year 26, 27, and Q1 of fiscal year 28, which is our current guidance. I think at this point, it's also useful to highlight our track record of market execution, because along with R&D, the second part to this slide is revenue. And if you look at how we have executed in the past on revenue generation, I'll ask you to see slide number 22 later on in this deck. And this actually shows for the six products that we had showcased as part of the IPO process, we updated the data and added on fiscal year 26. And I think what you can see here is the rank number in all of these products, despite the competitive scenario not having changed much. So, in fact, there is one product where market share is a tad down, but the ranking has gone up. Another where market share is marginally down, but the ranking has been maintained. And the remaining four products where ranking as well as market share have both gone up. So, market execution for us is a moat, and I think it should be seen hand-in-hand along with product selection as well as R&D execution.

With that, I'll hand it back to Parag, and we would go to slide number 13. Parag? Parag, sir, this is the operator. Can you hear me?

Just a minute. Parag is joining this call from U.S., so there may be some lag or issue.

Ladies and gentlemen, please stay connected while we reconnect the line for Paraksar. Ladies and gentlemen, thank you for patiently holding. We have the line for Paraksar reconnected. Yes, sir, please go ahead.

Sorry for this. I think there was some technical glitch. So coming to the slide number 13, and I think this is a very important slide and a very important organizational update. You know, as Rubicon vision to, you know, grow and become a global pharmaceutical company, we've been, as you've seen that we've been working in various areas. And with that also, with the growing organization, it was important also to create management bandwidth, succession planning, and everything what is required to ensure that for the next phase of growth, we are completely ready in terms of people. And I'm very, very happy to state that Nitin, who is currently the CFO, is moving on to a chief commercial officer role. And Rohit, who will be right now as a CFO designate, but as Nitin transitions his CFO responsibilities to Rohit, Rohit would move into the CFO role. And why I wanted to lie, this is an important update, is because as the company is getting into newer areas, it's important the management bandwidth also keeps it up in the same. We are focusing on building that management bandwidth within our company, also growing our own folks via leadership, also looking at the right talent from outside to ensure that we have the right people as we look at expanding our business. Nitin joined us in 2021. He's beyond the CFO role. He's immensely contributed in building the business, let it be supply chain, IT, business transformation, organizational development. Nitin has played an extremely critical role in building all these functions from the scale we have grown. At least, when Nitin joined, we were roughly around at 400 crores revenue. Today, last year, we closed at 1,700 crores revenue. So he's been an integral part of the journey and a pillar of the management team. So this is, after five years, I think it was an opportune time that, you know, we used Nitin's focus on business functions where we are seeing tremendous amount of opportunities to grow our business. So, I completely appreciate Nitin's efforts at the CAFO, but also a welcome, Rohit, to the Rubicon family.

Thank you.

Sir, we can open the floor for questions. Yes. Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchstone phone. If you wish to remove yourself from the question queue, you may please press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question assembles. Participants, you may press star and then I want to ask a question. Your first question comes from the line of Akshay with AK Investment. Please go ahead.

Hello. Hi, sir. Am I really good? I think your voice is not Thank you for the opportunity and congratulations on the great set of numbers. 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 which stage are these products like there are like are they maturing or still While growing and also going ahead, how many products we can expect such products to commercialize with a relatively large total addressable market? Thank you.

Nathan, you want to take that?

Yeah, so I think if I have to talk about the growth, maturity, just to tell you, we continue 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 products 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 year have continued to come down, even if you look at last few quarters, it is range bound. So, that is the point. It is a fairly broad based portfolio. It 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?

Yeah, so I would put AI, automation, other processes as technology, I would say, and we adopt technology wherever, you know, 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, 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 go regularly is a very important aspect. So whenever we adopt technology, the important aspect we also need to think through is we have to give regulators the confidence that whatever we are using has enough checks and balances which allow that technology is giving consistent, predictable, and robust results. So, we are definitely adopting it in the right processes, but again, it's a very, very large field, and we don't 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?

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

That number was 63 at the time of filing the RHP.

So, just to add to that, Akshay, we usually do not comment on product-level developments, and pipeline is something 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, then that's what we're talking 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, Osir. Thank you. Your next question comes from the line of Siddharth Negandhi with CWC. Please go ahead.

Hi, Paraj, Sagar, Nitin, and the team. Congratulations again on a great set of numbers, and on the consistency of delivery. A few questions from my end. One, the rate of approval seems to be marginally slowing down, while revenue growth obviously continues at a very, very healthy pace. Is this a fewer, bigger strategy now? Or how should one think of, you know, 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? Uh, and the third one was on the churn in your specialty portfolio where, you know, 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 this, that you would classify as specialty products. And just one other clarification, on the capacity slide, you mentioned that there is headroom for expansion. So, if you could clarify on, you know, what the capacity utilization is, and what do you mean by headroom for expansion? Is there more land available? You know, how should one think of your expansion on the existing facilities?

Yeah, 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, you know, building revenue forecast from that further. So, I think right now, you know, I wouldn't comment, you know, the approvals have slowed down. Also, I think you alluded that we are going to take fewer approvals, but I think you were referring to less approvals and bigger numbers. I don't think that's the right way of putting 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 is 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. Nathan, you want to take the question on gross margin?

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 the ability to enter into government stroke 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 diluted because of this, okay, we definitely see that it will be, in the overall scheme of things, should be margin accretive only.

Thank you, Siddharth. We will focus on value-added, differentiated products, which will create, and business for the government, also this will create risk diversification for us in terms of, you know, our customers getting some of these very important products from two sides, one in India, one from the US, and, you know, 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 Sirath, I think the other question you had was around composition of specialty pipeline. So I think, you know, it's obviously sensitive from a competitive standpoint. So we've tried to strike a balance of providing thoughtful disclosures to help investors track in the long run without jeopardizing sort of the business activities. 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. But I think we want to be consistent with our disclosures in that sense. So I think at this time, we wouldn't be sort of expanding a set of disclosures around specialty.

The last one was on the clarification on the headroom for expansion on the slide for the manufacturing facility, if you could share that.

So, Headroom for Expansion, you are referring to at Pitampur, Siddharth?

Give me a second, I will tell you the slide number I am referring to. This is the slide that comes from all your manufacturing facilities, all the four manufacturing facilities. Yes. This is slide number 30.

Yeah, absolutely. So, if you look at, you know, the site in Pitampur, which is a pretty large, you know, nearly 30-acre area site, of which today we are using, you know, 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.

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

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. Thank you.

Thank you. Your next question comes from the line of Nishan Maheshwari with Rodel. Please go ahead.

Thank you for the opportunity and congratulations to the management for the fantastic set-up number. My question to the management is related with the year-on-year additional cost of material consumed. As I see that it is roughly 19.83 crores and additional per table is roughly 19 crores. So while our additional sale is 181.9 crore, so does it reflect the substantial value addition on account of transfer pricing mechanism that is transferred to the U.S. entity and from there we are selling? Because what I can see is that on standalone basis, there is a decrease in the closing stock of the 10 crore rupees, while on a consolidated basis, we have an incremental closing stock of 7 crore rupees. And further, how we will manage if in the worst case scenario, U.S. tariffs gets imposed and how we will, because we are certainly 97% exporting to U.S.

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

Yeah, because what I can see is that with the additional expenditure of 38 crore rupees in terms of purchasing and cost of material consumed on standalone basis, our incremental sale is roughly 181 crore. And that seems to be very, I mean, in terms of volume 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 feeling. But clarity is 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 YOY basis, we explained in the last few quarters that how are relying on the outsource manufacturing, It has gone up in the last three, four quarters, and that has had some impact 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 taken tactical measures to let go of relatively lower margin business. Yes. 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.

I am just trying to convey that with an additional increase of 38 crores, our revenue has jumped up by 181 crores by-on-by, sales 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 on a standalone basis, it has decreased by 10 crores, while on a consolidated basis, I am seeing that there is an increase in the stock by 6 crores. If you see the changes in the inventory. So, I'm able 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 a very high standard of governance, okay, with respect to the transfer pricing, etc., we are fully compliant and no shop. And the other thing is that all of these numbers are also a function of various things in terms of our own manufacturing, outsource 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, sure. So, sir, further, one more question, last question, that if we start the facility, that is, which we have acquired from L-CAM, in calendar year, I mean, January to March, so what can be the incremental margin as against the outsourcing? I mean, how much will you 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.

Your next question comes from the line of Harsh Kundani with Ionis Alpha. Please go ahead.

Did I hear that correctly?

Yeah, so the revenue was close to 12 crore, and the contribution on that 12 crore revenue was not material.

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

Yeah, if you do that math, you are right, slightly, on the 12 crore, there will be some slight impact on the overall margin provided.

But I think overall considering order of magnitude, Marsh, it is probably not going to have too much of an impact.

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

Yeah, so as we had mentioned earlier, and I'll just reiterate that, we are looking at this arena 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 the 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 Arina's journey.

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 Areena. So, I think what we are guiding towards is after taking into account sort of the growth and the build-out that we mentioned previously.

Understood, Sagar. Thanks, Parag, Sagar, and Nitin. That's it from my end. Thank you. Thanks, Sarish.

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

Yeah, first of all, congratulations on multiple fronts. May it be financial performance. May it be getting successful compliance at Ketanpur site and starting or establishing the U.S. manufacturing footprint. In fact, connecting to U.S. manufacturing footprint, I 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, you know, 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, you know, we believe M&A by design is not relating to next few quarters, but more sort of long-term in nature. And you know, whether you look at our past acquisitions, whether it was the center in Canada, which was Impost Farma, whether it was the manufacturing site in Satara, which It was five years ago, and, you know, my all accounts has been reasonably successful. In this case, I think, you know, this acquisition process 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, you know, 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 ecosystem. But yeah, 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 I would say it's also the ability to assess, right? What, you know, 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 that to create a significant revenue and profit multipliers on all our acquisitions we have 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 has guided like 500 crores and subsequently it remains as 10-11% of sales, I just would like to understand, is this going to be, while not sort of getting into product specifics, 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 we'll always have a portfolio approach. It's never going to be that we're going to concentrate only on a few big bets, but it's going to be a combination of various thresholds where we are looking at long-term, high-innovation products, and then we're looking at some other products which 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.

And lastly, while there was a 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?

Yeah, so, Tushar, if you've seen we've grown facilities over a 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 have not done acquisition because this site was available or that site was available or it was available at a certain cost. We have always had an underlying thesis of our pipeline, and that has guided us towards the next acquisition or what we have been looking at. So, when you look at, right now, when we have facilities, Amarnath has been the core where we started with, where we are 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 are building nasal capabilities there, so which could be a backup to our Ammanak facility. So, again, risk diversification also is extremely important for protecting revenues and also creating capacity. Then we had indoor. Indoor, as we have said, we have 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, and plus one single site which 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 Alkim. And the CSN piece, or what Nitin mentioned in his balance sheet, 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 looking 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 a building of footprint and also the U.S. one we already discussed, so I'm not, again, going back to the U.S. one. But this is the way we have looked at each of these facilities. Also, we have to look at that manufacturing outsourcing 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 capability and 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 offering our customers a business continuity.

Thanks. Thanks a lot for that elaborate explanation. That's it from me.

Thank you. Your next question comes from the line of Prateek Sivastava 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 are making on all the multiple sites. So my first question is on the U.S. revenue. We saw it based on, you know, like the Indian revenue grew 9.7, but U.S. grew only 4%, and you mentioned, yeah, You sort of, you know, because of some, we walked away from some lower margin U.S. businesses, and that was in Q1. Now, what is the latest status here, sir? Have we got some new higher margin business now for our U.S. subsidiaries?

You want to take that?

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

Yes, what is the latest status? Yes, so if you look at couple of things.

If you look at our share of speciality 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, yeah, that's correct. And again, 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 are right.

Well, fair enough, fair enough, sir. My second question is now on the Pitampur side. So, I see there are around close to 1,500 million capital setting in their free revenue, and, you know, the EIR still awaited. Now, what is our capacity utilization curve in sort of like a near term, like around, you know, six, nine months to a year versus, let's say, a long term, two, three year out?

Yeah, so I think first, I think we don't want to jump the gun. We first, you know, we have mentioned that 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 site is roughly around 30 acres. We have only utilized six acres. Even with the current building, incrementally, if you build a 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, Really, there's a lot of land or footprint available to grow that business from Pitampur. So, I think there is just in one line, I think there is enough capacity available at Pitampur in the long run. And in the short run, there is, again, we will be scaling up the facility gradually in the next 9 to 12 months. So, for that also, we have enough capacity.

Got it. The final question again is on Q4 you gave the number that there were 24 products under FDA review, but this time around the number is not there and in terms of, you know, ANDAs, NDAs, so any specific reason what the condition was in color?

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

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

Thank you, Prudhik.

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.

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

Thank you, members of the management. On behalf of... Thank you. 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.