Shilpa Medicare Limited (SHILPAMED) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Shilpa Medicare Ltd's Q1-FI27 earnings conference call. As a reminder, all participant lines 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 this conference call, please signal an operator by pressing star and zero on your touch-tone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Monisha from Shilpa Medicare. Thank you and over to you, Mr. Monisha.

Thank you, Agirat, and a very warm welcome to everyone on our first quarter FI27 results call. Today, from the management, we have with us Mr. Keshav Butada, Executive Director and CEO of Shilpa Farmer Life Science, and Mr. Alpej Dalala, CFO. The financial results and the presentations are uploaded on the stock exchange, and the transcript along with the audio will be available on our website and also on the stock exchanges. Please note, today's discussion might include certain forward-looking statements based on current expectations and assumptions. These statements are subject to risk and uncertainties that could cause actual results to differ materially. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, I would like to hand the call over to Mr. Keshav for his opening remarks. Thank you and over to you.

Thank you, Monish. Good evening, everyone. I want to start not with this quarter's numbers. We will get to those and they are the best in our history. But with simple question, what kind of company is Shilpa Medicare becoming? Three years ago, the honest answer was a solid, hardworking API business carrying a lot of debt. Our net debt to EBITDA was 6.7 times and our ROC was in single digit. Today, we have net debt to EBIT of 1.3 times, a ROC of double digit, a credit rating just upgraded to AA-, and portfolio that no longer makes ingredients. It develops first-in-class drugs, partners with global innovators, and manufactures some of the most complex molecules. As I have mentioned previously, I would like to reiterate on operational leverage. Still, our big bets in biologics, CDMO, novel drug delivery, NB, are under monetization. As those plans fill up, we are confident of incremental revenue and better margins. In simple terms, the reinvesting is largely behind us, the harvesting is ahead of us. Let me walk you through our quarter one performance division-wise. My overall commentary will be divided into three segments, API Division, Formulation Division, and Biologics Division. In API Division, we remain largely focused on CDMO, Peptides, and Oncology as a portfolio, and we continue to invest our resources in it. On CAPEX site, we are doing large capital investment in peptide manufacturing capacity in India, which will have capability of manufacturing from start to end in solid phase synthesis, and BLOCK will complete commissioning by end of FY27. In CDMO site, we have totally three NCE advanced programs, which will get commercialized in FY28. We remain on track to complete 15 new Oncology product validations on the generic side in FI27. In total, we are working on 25 plus NCE programs in our API division, in which many of the programs are in early stage, phase 1, phase 2, and 3 programs in late stage. Overall, API business is likely to have a steady growth in FI27. Now I'll start briefing about formulation division. Our first NCE molecule, Nor-Urso-Deoxy-Colic Acid, which was approved last year in India, is performing as expected. And we are seeing some very good early clinical outcomes in patients in the end market. And we have strong visibility of orders for FY27. Nor UDC as a product, we are also taking this globally, and in global market, we have successfully completed European and U.S. scientific advisors, and we will be starting global phase 2 clinical studies in FY27. Three commercial 55B2s, which were approved in last year, are performing well as expected, and the sales remain growing quarter on quarter. Three important near-term filings which... Abraxen, Enzalutamide, and Abritron formulation are on track to be launched in Fi28. Rotigotin transdermal patch which is one of the complex transdermal patches And for the product, since we already have received approval in Europe, the same product has been successfully filed in U.S. and we have already partnered with one of a very strong U.S. partners in U.S. and we remain on track for launch in FY28. This is the opportunity with Unisysive Therapeutics, where we are their CDMO partner for API and formulation. The partner is working very closely with USFDA on the recent CRL received, and we are working closely with our partner for next steps. Apart from above, we have very good strong complex pipeline for which product-wise status is already given in investor presentation, and I request all the investors to go through it. Overall, existing and new pipeline launches, there is likely strong growth possibility in formulation. Now, I'll start briefing about biologics division. Our second biosimilar product, which is Aflibercept, the product clinical studies have been successfully completed, and we remain on track for launch in India market in Fi27. For the said product, already we have partnered with one of the best Indian companies, we have partnered with three companies who have decent market share in the ophthalmic industry in India. Our first European partnering of Nivolumab with Orion Corporation gives us further assurance on commercialization of our biosimilar pipeline globally. For Nivolumab product, India clinical study has already started and we remain confident for launching this product in FY28 in India. On the other biosimilar pipeline, we have more than five biosimilars for which details and status are already given in the investor presentation. On CDMO side of business, Shilpa Biologics has very unique capabilities of manufacturing any product from clone development to fill finish. And with this capability, we today have more than six active NCE programs already working with various partners, in which one of the programs will be entering into human clinical studies in FY27 by our partner. Two NBE programs where we have done strategic investments. The program with Maptree and Alveolus Bio are on track to enter human studies in FI27. Our first ADC biosimilar is also on track for entering human studies in FI27. Today, Shilpa Biologics is one of the very few integrated ADC manufacturing company in India. On new biological entity, which is recombinant human albumin, as mentioned previously, we are confident of starting human clinical studies in current year, and we remain on track for filing in next year in India. So let me bring back to where I started. The transformation is already on scorecard. In the delivering, in re-reaching, upgrade, in returns, in a record quarter driven by every part of business returns. We as a company have done the hard patient building work and are now positioned to convert into higher growth and margins. We have built it to last, we have built it to compound. And we would thank to all our investors in trusting us and staying alongside us always. Thank you, and I now hand over the call to Alpes Dalal for talking on financials.

Thanks, thanks, Keshav, and good evening, everyone. You know, welcome to our Q1 F527 results call. Thank you, sir, performance for the quarter.

I'm really pleased to, you know,

announce that we have delivered our highest ever quarterly revenue and EBITDA for the fourth successive quarter. And with our quarterly revenues at 469 crores, reflecting a growth of 43% prior on year, backed by a healthy gross margin of 71% for the quarter. And EBITDA for the quarter was 139 crores, again growing at 42%, with an EBITDA margin of 30%. During the quarter, our operating PBT, which is before share of profit from JVs and Associates, and before exceptional items was 92 crores, against 50 crores in the same quarter last year, whereas our reported PBT stood at 98 crores, growing at 98% year on year. During the quarter, we had a negative tax rate on account of reversal of deferred tax liability for Shilpa Medicare, where the company is planning to switch to new regime on account of lower Text influence under the new regime. Reported pack for the quarter was 101 crore, growing at 115% year on year. Going forward, we expect the tax rate to normalize at around 25% for the coming quarters. On the capex front, we have spent about 114 crores in the first quarter, and the capex is primarily funded through our internal accruals and deployed accruals for our different businesses. The improved performance and positive operating leverage that we have witnessed has helped us in improving our return ratios during the past two years, with ROC improving to 12.5% from 8.8% in FY25. And on adjusted for biologics and MBA businesses, the ROC actually stood at 18.3% because these businesses are, you know, as Keisha was mentioning, they are still at early stages and, you know, have a lot of revenue generation opportunities still left there. With all the three articles showing strong revenue momentum coupled with pipeline of niche launches, we remain confident of improving our operating leverage driven by improved business mix resulting into higher ROC in the coming years. And before moving to the segment of the highlights, I would like to reiterate what Keshav has just mentioned that, you know, our company has received a credit rating, a category upgrade it has been from A-plus to AA-minus. This reflects significant improvement in our operations and financial performance over the past few years. Besides this, I am also happy to announce that the company has been certified as a great place to work, a recognition that reflects the culture, trust, and commitment towards healthy work environment. Now, let me walk you through the segmental performance. Our API business clocked a revenue of 260 crores for the quarter, growing at 15% year-on-year, and our non-captive third-party API sales also witnessed around 16% growth year-on-year. The growth was on account of improved offtake of key products from newly expanded capacities, coupled with strong captive demand coming from our finished formulation vertical. Even the specialty CDMO within the API division witnessed a strong traction given by new client acquisition in developed markets. The formulation revenue for the quarter were at 198 crores, growing over 100% year-on-year, and ex-licensing income, the base business reported robust revenue growth of approximately 112% during the quarter, largely driven by complex FDF portfolio in U.S. regions, supported by EU and ROW regions. Moving to the biologics segment, our biologics segment reported revenue of 52 crores growing at 42% year-on-year. This strong growth was driven by continued deal momentum towards licensing and partnership and CDMO businesses. With that, I would like to request the moderator to open the line for Q&A.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sajal Kapoor from Anti-Fragile Thinking. Please go ahead.

Yeah, thank you for taking my questions. Amazing execution team. Congratulations for that. Just two questions. First is, as our existing investments start monetizing, and we can see that in the numbers, what would make you say we have enough capability for now and prioritize certain existing assets over building the new one?

Yes, Ejul, thanks for your question. See, I think most important point here, if you see our historical capex run rate, right, we have invested heavily in biologics, we have invested heavily in formulations, and those investments for us could translate into sizable revenue because there the capacity utilization what we have currently in some of the specialty divisions where we invested is very less today. So we have room for decent capacity utilization there. Coming to API where we have high capacity utilization, that is where we are already doing additional capital, capex investment, where we feel that there is a lot of room for additional capital investment and additional growth. That is, the mix of these two is something which makes us more confident to tell that we have enough capital already deployed for upcoming growth.

Yeah, that's helpful. And given that we have a diverse set of capabilities, including biologics, including peptides, and including CDMO, what is becoming cheaper or faster to develop? All these capabilities now exist in the ecosystem, and we can leverage them in combination. So what I'm trying to understand here is, are we getting a sense that 1 plus 1 is greater than 2 now?

No, Sejal, I think to answer in simple words, right, Shilpa as a company, the way we are built is integration. If you see our API is integrated with formulation, our biologics is integrated from clone to fill finish. Same way our Albumin, we do from starting from clone development to film finish. I think today what industry needs is the plant, the capabilities of one-stop solution. That is what we have.

No, that's very helpful. Thank you so much, and wish you all the very best.

Yeah, thank you.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Kaurav Bhatwaj from TechSec Funda Investment Managers. Please go ahead.

Hello, sir. Am I audible?

Yes.

Sir, first congratulations for your stellar results for consecutive quarters. Sir, I have two questions. First question is, how do you see the company down the line in 2-3 years in terms of profitability and through ROC? And, sir, my second question is, shall I continue with second or later?

Yeah, go ahead, go ahead.

And so my second question is... As we have many developments are going on in our company, what barriers can come in to slow down our path?

Yeah, okay. So I'll take the first question and second will be taken up by Keshav. So as far as, you know, the growth momentum is concerned, as we have been regularly saying that we may not be able to provide guidance for the future, but as a general, you know, rule or the way we have been working at various aspects and the way we are developing our pipeline, we can visualize a very healthy and steady growth. As Keshav had mentioned in his speech also, that we are looking at, you know, monetizing more and more of our investments that we have done in biologics and, you know, niche kind of formulation business as well. So those are high margin, better property yielding businesses. So they obviously are expected to generate significantly better returns as well. So, whilst we may not be able to provide you a specific number, but what we can see from here on is that the growth trajectory looks very robust, and with a faster growing trajectory on the profitability, resulting into better ROCs across the board.

Okay, sir, that's very helpful.

Yeah, and what could be the, you know, challenges that we could face, or what could slow down our growth? Probably, see, the thing is, the regulatory pathway in pharmaceutical industry is a very critical aspect. Whilst we are working towards being very robust and compliant with our practices, once in a while, the way regulatory authorities look at us. Could be a bit different. And if some of those challenges come up, unexpected challenges come up, it might slow down the growth trajectory that we have. But general, you know, general trend towards moving further on the growth trajectory will continue. It might slow down if some such regulatory challenge comes up.

Okay, sir. Okay. Thank you so much.

Thank you. The next question is from the line of Grisha Kansara from Molecule Ventures. Please go ahead.

Yeah. Am I audible? Firstly, many congratulations to the entire team on a very good set of numbers. Firstly, on Nord UDCA, I have three questions. First, post our launch in Q3 of FY26, we have seen two quarters of commercial revenue, and our domestic formulation segment has contributed 59 crores in these two quarters. So how much of this 59 crores came from Nord UDCA? Second, we have now completed the disease curability duration of six months, as you rightly mentioned in the previous call. And you also highlighted in your opening remarks that the clinical data is positive. So could you please elaborate on this? And third, in the last month, M-Cure Pharma, which is the marketing partner for Novo Nordisk, Semaglutide, they received CDSO approval for an additional indication for treatment of fatty liver. So, what is the management's thought on this? Thank you.

So, Krisha, to give you simple answers, I think product level, we don't give sales numbers, so sorry that we cannot hear. But as I mentioned, we have very strong order trajectory. I think that should give confidence to everyone on the product. Coming to the third question, I think, which is very important, the products like semaglutide or other products which people are doing for indications like non-alcoholic fatty liver disease. See, the mechanism of action of NOR-UDCA and any other product which today many studies are going on is completely different. NOR-UDCA directly attacks the liver enzyme. That is the major advantage what is there in the product against products like semaglutide which has a different mechanism of action for liver fibrosis.

Okay, and what about the data, the six-month curability data that you mentioned?

Yes, see, on the clinical data, if you read online, all the data of our product is already published, and we are already doing the phase four clinical study. Once that data is available, that also we will be publishing. I think that should suffice the requirement.

Okay, okay. And can I just pitch in one more question?

Yeah?

Yeah. So, this is on the biologics team. So, firstly, congratulations to Dr. Uday Harle on joining Shilpa Biologics. I would like the management to spend some time in highlighting their strategy of building a dedicated team in biologics division. Last year, We were able to clock around 150 crores of revenue, and now for us to scale this business from 150 to, let's say, 300, 400, I assume we would need the right kind of talent to work with Dr. Rudray and Mr. Madhav. So, what is the team-building strategy specifically on the biologic side?

So Krish, I think it's something which is more operational question, which we can connect later. But to give you an idea, we have a very strong team of different experience and wide experience. And not only internal team, we are also engaging some very good consultants who have very good understanding of US and EU regulations. So, I think mix of that is something which will surely help us in our overall strategy, the plan, execution. And I think further details on this, if required, you can connect to Monisha further. Okay?

Sure, sure. And just on Roti Goten, are we on track to introduce this before September this year in the European market?

So, Krisha, I think there are many people waiting in the line. Sorry for that. So, maybe you can come back on cue. Okay.

Yeah, thank you. Thank you.

Thank you.

The next question is from the line of Yash Doshi from Unify Capital. Please go ahead.

Yeah. Hi, Manajan. Congratulations for a good set of numbers. Yeah, regarding non-UDCA, if you see quarter on quarter in Q1, FI27, basically your domestic revenue, it has dipped a bit. So, what's the exact reason for it? Because I think we launched six months ago, so ideally the product would scale up, but that's a small blip.

No, yes, it's not the small gap. If you see, I have again mentioned everyone that this is not a product level detail. So you are just seeing the total domestic sales, right? Nor UDC as a product, if you see historically, and quarter on quarter is something, some quarter, someone will do more stocking, sometimes we will manufacture more, some quarter will manufacture less, based on the demand, based on the delivery schedule. I think that's not the right way of seeing the product. Overall, the product is doing good, that's what I can tell you.

And that's it. And another question was regarding the API division, which we grew at 16%, and it was led by your specialty CDMO. So, just wanted to check in that, was it more contributed by a normal innovative CDMO portfolio or a polymer division?

Innovative CDMO.

Innovative CDMO. Yeah, and just last question. This quarter, we onboarded two Japanese customers, right? I think it was late-paced projects. So, can you talk about the background of the clients, whether it's a big pharma or biotech, and what can be the opportunity size?

Yeah, I think I'll tell you more details on this in the upcoming call, because we have some confidentiality on the program.

Okay, understood. I'll join back the crew. Yeah, thank you.

Thank you. The next question is from the line of Nikhil Upathe from Simple. Please go ahead.

Yeah, hi. Good afternoon. I hope I'm audible. Yes. Yeah, congrats on a good set of numbers. Two questions. See, if I look at our, and one thing I should appreciate the kind of details you put in your presentation, it's phenomenal. It gives a very good understanding of where we are going. One question on slide 12, if we look at it, on the API side, now, we see that, and if we track over the last four quarters, the number of programs on the speciality CDMO have increased significantly. Would it be right to say that the next level of growth on the API side would be more driven by the CDMO part of the business scaling up from where we are today? Like, should there be a right way to think about it? And how many projects do you think will start getting commercial sales in 27-28?

Yeah, your point is well taken, and your specialty CDMO will be a growth driver for us. Not only that, we have other oncology pipeline and peptides also, but yeah, specialty CDMO will be one of the leading drivers for us in the API division. Number of programs and the details around that we don't disclose, so sorry for that, but to give you a fair idea, we have almost three late-stage programs which will enter into commercialization next year.

Okay. And the second question is a little longer. See, if you look at our company, from 2018 to 2023-24, we were in investment phase in different, different segments on biosimilar, on albumin, on API. And the proofs of which we are now seeing over the last two years and should continue. Now, when you are thinking about investments today and looking at next three to five years, How are you thinking about the future investment and which would be the segments where you are putting most of your energy?

Yeah, Nikhil, I think already the investments what we have done, if you say in last five years, right? We have still not even finished the utilization of that and we still feel that at least for next three years. We don't need any significant capex in some new investments like in Biologics or in Albumin, where we have already done a lot of investment. So, I think that will take care of our growth in these divisions for the next years to come. And as I mentioned already, like in the divisions where we feel capital is still required, like API and in some formulation, new molecules, they're the investment we are continuing. But we don't want to, we don't foresee any significant capex today. That is what we want. We want to inform all our investors.

Yeah, that is one part on the KPEX, but on the R&D side, where are you putting most of your energy? And because one side we have our own specialty 505B2 molecules and specialty molecules where we are doing the clinical trials. And there is another part which is equally interesting is the biologic CDMO and API CDMO, which is again a strong growth engine for the whole industry. So between these two, how are you thinking about it? Like on the R&D investment, not on the CAPEX investment.

In the R&D investment, each division has their own R&D budget, which we will continue to do every year. How much in each division, etc., that's a lot of detail which we don't inform. But to give you a fair idea, our investments in R&D continue on pipeline, and we will continue to add several new products and also advance existing products.

Sir, I'll come back in the queue.

Yeah, thank you.

Thank you. The next question is from the line of Rakesh Mehta from Elite Bridge Capital. Please go ahead.

Hi, good evening. Thank you for the opportunity. First of all, congratulations, team, for the fabulous set of numbers. I have two queries. One is... Biological business contributes just 11%, that is close to 52 crores. What would be the growth trajectory going forward? This is one. Should I go for the next question?

As we mentioned, right, biologics business from a growth trajectory perspective should witness A significantly higher growth, purely because it's on a smaller base, and also a lot of future lies in the biologic side. Again, I would reiterate that we would not be in a position to provide exact numbers, the kind of growth and all, because we don't provide that kind of a guidance, but the growth potential of biologics is significantly higher, especially because it's a new area and it's on a lower base, And also the industry is moving more towards biology, so it provides that additional growth opportunity.

Okay, and what would be the contribution in India and the outside India business in case, if you have planned anything about biologics?

In biologics? See, biologics are, you know, large portion of our CDMO and other work that we are getting is, you know, from outside of India. In India, we have, we do have our own pipeline and that will also take shape, but a larger portion is expected to come from international markets.

Okay, thanks. Second query is current EBITDA is around 29%. First of all, whether it is how it is sustainable and what would be the trajectory going forward?

So, see, this EBITDA margin, in fact, I had only, you know, a couple of, two, three quarters back, I had mentioned that, you know, this is obviously on a slightly better side, and we might see some change happening there, but we have been consistently able to maintain that around 30% levels. So, you know, there is constant performance showing that we are in that particular range and region. At this stage, I wouldn't want to, you know, get hopes very high. We would like to be conservative and over-deliver. So, we would, you know, put margins to remain in similar range.

Okay. Thanks. Thanks, Rishish.

Thank you. The next question is from the line of Deepak Sharma, an individual investor. Please go.

Yeah, hi. Congratulations to the management for the excellent performance. My question is, CDMO has been one of the major growth factors for the company.

So how do the management see CDMO journey in the next three years? And second question is from Unificive Drug. What is the next step and what are the timelines for the drug?

Yeah, Deepak, there are, like you rightly mentioned, CDMO remains a very focused business for us as a company. And if you see even in India today, if you count, right, there are not many companies who has the capability of doing small molecule, doing large molecule, doing API, doing payload, doing linker, doing conjugation, doing ADCs, doing maps, right? So the way our company is built is we have a very strong integrated capabilities. So usually we get customers who want one stop solutions. So we remain very confident and positive that CDMO as a business will continue to grow. And already many of the programs what we are working, many of them still are in early stage, some are in phase one, right? As and when the program will advance of, suppose more than 25 programs, even 10 programs go commercial. We can see a sizable CDMO business.

Okay?

And second question was... Yeah, on the unicisive part. See, on the unicisive part, because it's a partner program, it's already there in the public domain. They have mentioned that they have received the CRL letter from USFDA, and they plan to refile in Q3. I think that's the update which we also have in the public domain.

Okay, thank you.

Thank you.

Thank you. The next question is from the line of Prashar Bora from MK Ventures. Please go ahead.

Yes, thank you for the opportunity, and congratulations to the management for a good set of numbers. There have already been a lot of questions on CDMO, but just maybe a couple more on the same theme. Just looking at your presentation, the slide highlighting CDMO capabilities vis-a-vis peers. When we talk of Indian CDMOs, most of these are materially larger than Shilva's CDMO business today. Also have several years of both capacity and capability investments. So just want to understand, while we are benchmarking against these companies favorably today. Do you think that we have similar ambition and, you know, we have the wherewithal to get to, let's say, so typically most of these companies are upwards of 800 to 1000 crore revenue comfortably. So do we feel that that is the kind of scale up that is possible for Shilpa or we will need specific investments into either capacity or capability building to really achieve the full potential? And second, when we talk of CDMO, we are still talking API CDMO, but we have a separate biologics CDMO division as well. And we have CMO activity in formulation than, you know, specific niches like ADCs and peptides. So how is it that you're approaching the entire business development part on CDMO? Are you approaching it as one single division across range of capabilities or each division has its own funnel for building the business?

No, Tushar, I think we have never said as a company only API, we are also promoting and I have told in my talk also that we have already several CDMO programs in biologics also, okay? Coming to the size, yes, we feel it is sizable business. How much the value we don't want to disclose, but to just give you a fair idea, today in Shilpa, in the overall, Shilpa Group, we have only one product which is commercial on the CDMO side. We have more than 25 such NC programs in various stages of development. I think as and when these molecules advance, you will see the growth trajectory accordingly. And coming to business development side, we have in respective division respective people who promote and get the project for us. I think that will remain continuing and we have decent budget allocated for each of the divisions.

On the initiatives that you mentioned on the NCE programs, so what is the ramp-up possibilities you are expecting over the next three years? How many of these, you mentioned three late-stage programs, I think. How many of these over the next three years will mature, potentially?

See, it depends on our partner because these programs are not run by us, right? But I think today, as on today, what visibility we have for next year, we have three NCE programs which will enter commercial phase.

And just one last one, the same theme. We have, in a lot of these cases, on the CDMO contracts, struck very interesting contracts, right? We've invested in these smaller biotechs, smaller companies. So, possibly there is an angle of even a profit share or a, you know, component that is over and above the supply contract. So, is it fair to assume that the outcome for Shilpa in this case would be materially higher than what a normal CDMO would realize from these programs if some of them do work?

Yes, you are right.

Okay. Thank you so much. We'll join back in queue. Thank you.

Thank you. The next question is from the line of Sumit Gupta from Antiques Shock Broking. Please go ahead. Sorry to interrupt. Mr. Gupta, we are not able to hear you well. Please use the microphone while asking a question.

Hello, this is fine.

Please go ahead with the question.

Hi, one thing regarding the loss margin, two things, first is what is driving the loss margin, and secondly, with respect to the 1-2 last year, loss margin was around 75%. However, I think it was larger due to the branding. So, what would be the loss margin last year?

So, Sumit, I think we don't disclose product level margins, but I think to give you a fair idea on the gross margin, right, the kind of product sales what we will have in this year and the upcoming launches which I mentioned in my speech, all these are complex products like Rotigotin transgeneral patch is a very complex, very few Gendrik players are in the market. Tabraxane is again a very complex product. We have such complex products which will be launched every year and also our existing pipeline like NOR UDC which is an NC product. We have 5.5 B2 which are again a very different product with no generics. I think all of these are driving our gross margins. And how much the percentage and all the details I think you can connect to Monish later.

And just some idea around, you know, the slight dip that we have seen in the gross profit margin that also has to do with, you know, because of the recent political situation globally, the raw material prices and all have gone up, and that ends up impacting, you know, margins, at least for the time being. So that has been, you know, one of the reasons for a slight dip that we have seen on gross margin front. It's difficult to quantify that, Samit, because there are times a part of it you are able to pass on to the customer, not the full piece, so it changes the entire equation depending on where we stand at a point in time.

But you are able to pass on partially.

Partially, yes.

Understood. Thank you. All the best.

Thank you. Thank you. The next question is from the line of Nishant from Grudon. Please go ahead.

Hello. Am I audible? My question is related to the new techs regime which we have followed under H&M 200A. In the Earth-Fried Income Tax Act, there was a provision that we can claim deductions with respect to research and development and scientific research and development deductions to the extent of 100% even on the capital gains. So why we have foregone that and we have adopted the new regime? Because we are in the research and development segment also, so might be there, might be a separate new unit, or is it something like we have incorporated an entity in research and development and we are following that 15% text? And the second point is the U.S. notification regarding generic criteria. Since there was a, I have seen that 45 crore is being exported from Shilpa to U.S. So there is a notification that they will be charging a basically tariff at the rate of 100%. So are we planning to acquire any unit in U.S. so that we can counterfeit that tariff trade?

Yeah, so, you know, on the first question around the new regime, see, as you rightly pointed out, this 100% benefit, tax exemption benefit is available for R&D capex. The R&D, we already have, you know, our fully functional R&D units across our divisions. So we are not expecting any significant R&D related capex coming up. So, whatever is our, you know, capex around our, you know, revenue, R&D spend, that anyways gets fully charged to P&L Indicator, so we get the tax benefit over there. What we lose out by not getting into the new regime is the accumulated match credit that we have got in Shilpa Medicare that we have to forego if we don't get into the new regime.

And I think further additional depreciation will also be foregone in this case.

There is no additional depreciation that comes up, and this particular change, no, no, there is no additional depreciation, but it is something which only becomes a timing difference and nothing more than that. So, even the encapsulated R&D depreciation that you get is a timing difference, but the difference in the tax rate is significant. It changes roughly by 9.75% or so. So, that swing is big. Also, we are able to utilize the MET credit to the extent of 25% of tax. So, effective tax rate comes down by another 6 to 6.5%.

So what you stated is that 25.17% is being reduced by the MAC credit to the extent of 25%, and that comes out around 19%. And further, from the impression, what you have stated is that there is no further CAPEX. So all the development will be matched with the existing capacity through additional production, right?

Yeah, so there are certain investments that happen, but not significant for us to forgo the tax benefit that we get over here.

The second question was related with the U.S. trade. So, how will we be contemplating that? Because 45% is the turnover which we are getting from U.S., right?

No, see, if you see here historically also on the product side what we sell in U.S., right? We are not selling any MeToo generics. All our products are complex. So, for us, materially, it doesn't have very big impact, but saying so, evaluating on the U.S. manufacturing facilities, next steps on that, I think that all the industry in India is still monitoring how the Trump regime will behave on that, what are the terms and conditions. I think once we have more clarity on that, then it will be a right decision to move on that next steps.

Thank you.

Lastly, to give you a very clear picture, Shilpa, as a company, we are not selling any me-to generic in US.

No, it's not about that generic. It's about the strategy because under one situation, they impose a tariff threat that they will be imposing on export from India. Under generic, then they will be coming with a future that they will be imposing tariff on all the messages. So it's about how we can strategize the same thing and what is the point of view of the company. Thank you so much for addressing my concern. Thank you. And congratulations for the number.

Thank you.

Thank you. The next question is from the line of Anupab Goel from Cosma Ventures. Please go ahead.

Sir, congratulations on a good set of numbers, sir. Very broad base. So, just one question. Sir, the strategy of taking stakes in companies to provide CDMO services, if you can just elaborate here, what is our thought process? What is driving this? Can we expect many more like this in the future? Is this something we have to do at this stage to grow this business? And just where can this figure go to in terms of overall space?

So, Anubhav, that's a completely different confidential strategy on our side. I think we are not interested to inform any more details on this, but I can tell you this is a very unique strategy which we have, and we would inform more details really if needed, if the size of such deals increase in future.

But, sir, fair enough. Sir, is it fair to say we can expect more deals like this?

Yeah, it depends on the kind of programs we get, right? We don't invest. We get many programs where investment opportunities come. But we as a company, we are very selective. It should fall in our therapy. It should fall in our corporate strategy. Only then we take interest.

Okay. Good. Thank you, sir. Yeah.

Thank you.

Thank you. The next question is from the line of Akhilesh Patak from SmartSync Services. Please go ahead.

Hello. Good evening, everyone. Thanks a lot for giving the opportunity. Congratulations on great setup numbers that you have. I see 11x improvement in the US. But there is a considerable downtrend in Europe numbers from 77 crore to 57 crore. What would be the reason and how we want to capture that territory again in Europe?

No, Akhil Esh, I think if you see Shilpa as a company, the way we sell products in the end market, right, these are mainly tender products. So in Europe business, we don't see any dip. It's just that there is a variation on quarter-on-quarter supplies. Some quieter, we have more supplies. Some quieter, we have less supplies. So, that's the only reason. There is no other reason. The performance of Europe business, the product, the end market is really doing good for us.

Okay, great. I have another question on the capacity utilization of various plants that we have in Bangalore, Jachilra, and Darbar. What kind of capacity utilization we have currently? Because there was a comment that they are underutilized as per the cost block that we have incurred.

Yeah, I think for that you can connect to Monish, our IR head. I think he will be able to give you segmental utilization details.

Okay, great. Thank you. Thank you very much.

Thank you. The next question is from the line of Amish Kanani from Novice Investment Managers. Please go ahead.

Yeah, hi, sir. Congrats on a really good set of numbers and a quarter where gross margins were getting, but still, you know, we maintain our operating margins. So, really operating leverage is kicking in. And also, congrats on our credit rating upgrade, sir. So, partly my question was about this capitalization that was asked by the previous participant. Maybe I'll take it offline with Maulish. But, sir, if you can give us some sense, we do disclose ROCX, the new businesses. So, you know, we can approximate the amount of gross block or capital employed that we are allocating to these two new divisions, which are also not, you know, getting utilized. So, if you can give us some flavor there of, you know, what should be the, say, asset turnover and maybe an EBITDA margin or gross margin level, you know, is it in line with company as, you know, blended margins, if you can give us some sense, and should it be, you know, in the year FY28 or FY29, some flavor will be helpful for us to model.

See, I think one thing I want to inform all our investors. To answer this question, I'll answer a bit differently. As a company, if you see, we have a pipeline in formulation, in biologics, in new biological entity, Albumin, right? And API business, which obviously everyone is aware. But if you see, like in biosimilar itself, you can see in our investor presentation, we have several biosimilars as well as ADC program, right? If you see today, we only partnered for only one biosimilar in Europe till date. We have such eight molecules for which we still have to do the partnering, we have to take the product to market, then the commercial revenues will come. So you can imagine the delta of ROC which this asset can generate. Similarly, on the albumin front, where we have already invested from last several years, we have finished the preclinical studies, we have finished phase one studies, we are starting phase three study globally. And for this already, we have partnered in end market like Europe, which is one of the largest markets for albumin. So, you can imagine the kind of commercial ROC which this asset can generate. I think with this, I will leave the points open because segmental-wise, ROC, the details, I think you can connect to Monish, as I mentioned previously, and he can explain you further on that.

I can just add on saying that, you know, from being ROC negative, you know, about a year, year and a half back, these divisions have become ROC positive, albeit, you know, at a lower level because of the higher asset base that it has got. But as Kesha was mentioning, the potential to improve the ROC over there is significant. And I had obviously mentioned what the blended ROC in my opening speech and what the adjusted ROC is. So that can also give you some flavor as to what kind of data could be there.

Yes, yes, I appreciate that. Thanks a lot and all of us.

Thanks, Amish. Thank you. The next question is from the line of Ajay from Nivashen.

Please go ahead. Thanks for your opportunity. Am I out of it?

Yes, please.

Sir, I wanted to understand the economics of the license and service income line. So, like, for last couple of years, we have been witnessing... Good chunk of our revenue from that side. So, what I wanted to understand like what sort of margin does it carry and like does it flow straight away to the PVT or the development costs are already like expended in it. And if you can split this license or service income under the like formulation or API CDMO part, that will be helpful.

Yeah, so we probably would not be in a position to provide segregated numbers for them, but, you know, this licensing income, what we generate, you know, it's not that there are no spends or no expenditure for that. We obviously have, you know, developed the products. Spends have been done at a particular point in time. Revenue may not necessarily come in the same, you know, period that the spends have been done. Because, you know, we develop the product, we take initially the spends, R&D spends up to a particular level, and only then we end up, you know, getting some licensing revenues out of it. But these are continuous developments, so at any point in time, we have various programs which are under development, and some of them would end up generating licensing income in future, the way the current licensing income-related spends were done in the past. We obviously, and for every successful program, it's not necessary that, you know, every program that we work on is successful. There are some failures also that we have to budget, and that goes straight to our, you know, P&L as a hit. So some of these things are, so it's difficult to quantify and segregate what is the margin profile. But obviously, that's what we receive as licensing fees is significantly higher than the spend that we incur.

And so, like, how should one look at this, like, because majority of that would be a recurring revenue, or, like, it will be a one-time income, just, for example, like, when a product like Unisysive, for which we are doing a CDMO product, if that gets commercial, so, would, like, so, wanted to understand, like, how should one look at this part of the revenue?

I understood the question, Ajay. See, the point here is that our business is a B2B business. So, we are in the business of developing these products, the portfolio, and we license it out. We don't really do an in-market presence of our own. So, in that light, you know, the more and more portfolio development we keep doing, we will keep getting licensing opportunity because that's our fundamental business model. CDMO is a separate kind of business altogether, and it should not be mixed up with the licensing revenue at all. Understood. Can we receive questions too, please, Ajay? We have others waiting in the queue.

Just one last link. That was...

Sorry to interrupt, Mr. Ajay. May we request you to turn to the question queue for a follow-up question?

Yes, sure.

Thank you. The next question is from the line of Surendra Khemka from AVS Equity LLP. Please go ahead.

Sir, I want to know any adverse effect of bias to react vis-a-vis China in India, even in future.

Sorry, your question was not clear.

Any adverse effect of the biosecurity from the U.S. vis-a-vis India and China on our production, selling, formation?

No, because Biosecurity Act is mainly for China and that also, I think it's all there in the public domain. But I think these are some things which are more policy-related decisions, which happens at a regulator level. I think we will not be able to comment more clearly on that. But as on date, we don't see any major impact of this act for us.

Okay, thank you.

Thank you.

Thank you. The next question is from the line of Nidhi Kumari from Narnolia Financial Services. Please go ahead. Ms. Kumari, your line has been unmuted. Please go ahead with your question.

Hello, am I an audition? Thank you for the opportunity. I have a few questions. First on the court, NPA, what is the peak API revenue opportunity for SILPA if you could broadly answer? Also, as the product scale, what percentage of the innovator's product scale does SILPA technically earn through API supply? Second, on more UBPA, could you share the revenue mix this quarter between product sales and licensing income? Within product sales, what was the contribution from SILPA's own channel versus partner supply? Thanks.

Yeah, okay. On the second question, I think Keshav had already specified that we will not be able to provide product level detailing and all. And on what would be the overall potential of API business, I think API business has been there with us since a few decades now. It is a business that we have been growing. I don't think there is any specific cap that we look at that the API business can grow only up to a particular level. It is just a function of creation of capacity and, you know, making our supplies and growing our portfolio.

Actually, this was the event venue opportunity. I was asking for the first NCE program.

Okay. No. So, product-specific or project-specific details we will not be able to provide, Nidhi. You know, you'll have to pardon us for that.

Okay. Thank you.

The next question is from the line of Tirumala Reddy, an individual investor. Please go ahead.

Yeah, we can hear you.

So, just to understand how.

Yeah, we have overall in Shilpa group, right? We have more than 20 customers on only CDMO site, okay?

The second part is on Alimamab. How the commercial sales stand?

Yeah, the Adalumumab as a product is doing good. Today we have decent market share in India because the partner who is selling our product has very good reach in the arthritis space. So, product as a case is doing good, but it's not a very big opportunity. That was our first product. So, the way we partnered here was just to give a fair idea to the market that Shilpa has capabilities of developing and getting approval in buyers similar, where Adalimumar was one such simple product. Then, you will see the future, how our pipeline we have designed is more complex products like Aflibarsef, Naknevolumar, which were more complex than Adalimumar.

The next question is from the line of Yash Doshi from Unify Capital. Please go ahead.

Yeah, just one question. You know, 505 B2 ramp up for the two products. Just wanted to understand, like, the ramp up in coming quarters, will it be more for those products? And how is the penetration level in the U.S. market?

Yes, I think product level details we don't give, but I think what I can tell you is the kind of product what Shilpa has and the complexity. It's not that just you have developed a 55B2 so you get market share. It's also the kind of product advantages it has against the generic products and all of that. That's what we understand very well in the market and accordingly our product is developed. So yes, it has a very good opportunity and sustainable opportunity. That's what I can tell you.

Okay. And just last question. Regarding our complex FDF products, which we are expected to launch in around 28, 29, like Z&B and other two products, whether it will be kind of a first-way launch or will it be a kind of second-way launch?

No, every product is different. Like if you see Rotigotin as a product in transgermal patch, it's more a first wave of generic launch what we are doing. But if you go to product like, suppose Abrex and there are already generic players, but very few generics and very complex and goes in almost every tender. So it's a mix of both. But more important is we select only products which will give us, the day we are in market, it will give us sustainable growth in the upcoming years. We will never do a product which one month or six months it's selling and suddenly the sales has gone down by 90%, 95% in the pricing. Such product Filpa will never do.

Okay. Thank you.

Thank you.

Thank you. The last question for the day is from the line of Ajay from Nevashay. Please go ahead.

Hello.

Mr. Rajai, your line has been unmuted. Please go ahead with your question.

So, I wanted to understand, like, now on the Oncology API segment, like, we have 15 new Oncology API products which we are targeting. So, and also a new CapEx which we are coming up. So, wanted to understand the growth trajectory on the API and just like on the formulation part, like what portion of our formulation requirement is sourced internally, like how much of our formulation business is capital We'll lay down to our API business.

Yeah, for your first question on the oncology API and the kind of growth trajectory we will have, that will all depend on how this molecule is translating at our end customer line. But we have very strong promising opportunities in many of these products. It's just that the timeline and the way it will commoditize, I think that's something we will have to monitor. But for sure, each of these products, the kind of investments we have done in these products. There is already end customer who is interested to buy only then we invest in the product. So I think that kind of visibility we already have. Coming to the second question on the formulations. How much is the captive? So in formulation, the overall captive percentage, if I tell you, it's more than 50%.

Got it. And so, like, given currently how in the US market or the global market, the biotechnology and biosimilar have again started to pick up, and our biologics revenue has also now scaling up, like, with 50 crore in this quarter, and, like, in last year, we did 150 crore. So, I mean, just wanted to know your thoughts, like, we also have good number of products in the pipeline. So, like, going forward, would the strategy be more of, like, doing a CDMO kind of business over here, or, like, just outlicense the product and get a milestone income from this? So, wanted to just understand the strategy on this plan and like also like some of your thoughts on how are we looking at this business going forward.

See, in the biosimilar side or in our biologics division, we have a mixed strategy, okay? We have a small mid-term and long-term strategy. Small to mid-term, we depend more on biosimilars as well as CDMO programs. Long-term is something which are more strategic partnership where you will see with Alveolus Bio, with Map3 Biologics, which are more long-term beds, but one product clicks, then you have very good potential for many years. I think that's how our overall strategy is for biologics.

Got it. And so, one last question if I can shift in. So, on the Orion deal which we have for the European market, like, I mean, I have been following the presentation of late and on some of the products which we have mentioned, there is slight delay which we have mentioned because of some issues with maybe the USFDA and this. But on this Orion particularly I want to ask you like internally what launch year are we expecting this to get like which what launch year are we expecting this and on like scale or anything if you would like to comment on the peak revenue or the timings you see.

So, Ajay, on Orion or client-specific details, as we mentioned previously, also, we don't give any details. So, pardon us for that. We don't give any client or product-specific detailing. Further, if you have any query, you can connect to Monish. Whatever is possible, he will be happy to answer.

Sure. Thank you. Ladies and gentlemen, due to time constraints, that was the last question for the day, and now I hand over the conference to Mr. Alpej Dalal for closing comments.

Yes, thank you. Thanks a lot. Thank you for your time and your thoughtful questions. Each year, we remain committed to growing and scaling the company to new heights, and your continued interest and support mean a great deal to us. As has been, you know, repeated in our call as well, that if you have any follow-on questions, please reach out to our industrial relations team. Thank you very much.

Thank you. On behalf of Shelpa Medicare, that concludes this conference. Thank you for joining us, and you may now disconnect your line.

Thank you.