Caplin Point Laboratories Limited (CAPLIPOINT) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Kaplan Point Q2 FY27 Earnings Conference Call hosted by 361 Capital Market Private Limited. 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 the call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Julie Mehta from 361 Capital Markets. Thank you, and over to you, ma'am.

Thank you, Leo, and good afternoon, everyone. On behalf of 361 Capital, we would like to welcome you all to the Q2 and H1FI27 Conference Call of Kaplan Point Laboratories Limited. Today, we have with us senior management of the company, represented by Mr. C.C. Parthipan, Chairman, Mr. Vidic Parthipan, Vice Chairman, Dr. Shidhar Ganeshin, Managing Director, Mr. D. Mulhidharan, Full-Time Director and CFO. I would now like to hand over the conference to Kaplan Point Management for the opening remarks. Over to you, sir.

Thank you, Julie, and thanks to 361 Capital for hosting. Welcome, everyone, to our earnings call to discuss quarter 2 and H1 FY27 results. Please note that a copy of all our disclosures are available on the investors section of our website as well as on the stock exchanges. And do note that anything said on this call which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. This conference call is being recorded. The transcript along with the audio will be made available on the company's website as well as the exchanges. And do note that the audio is copyright material of Kaplan's point and cannot be copied, rebroadcasted, or attributed in press or media without specific written consent of the company. I would like to hand over the floor to our chairman for his opening remarks.

Thank you. Good afternoon, everyone. Welcome to our investors' call. The two important works of our business are build and sustain. Get grit and gumption to build unique model, systems and standards to sustain. We are also aware that processes does not live in people's head. And the two people who can damage shop load to everywhere. One, the one who knows the job but does not work with the discipline. Now two, the other one. Work but does not actually know the job. Hence, we are doing the following in our factories for institutional intelligence. One is automation. Number two, digitized architecture. Number three, video SOP. Number four, CCTV 24x7. Number five, biometrics. Number six, quality oversight team. Number seven, AI cameras. Which is a work in progress. Coming to automation, number one, most of actually our missionaries that we are installing now in CSL and also the COL actually, which is likely to be completed in one out of two years' time from now, all are included missionaries from Germany, Italy, and the USA. And we are digitizing the entire shop floor. We have already completed links in most of the areas like QC and micro. And in two to three months time, our factory will be paperless. The third one which we are introducing is video SOP. This is something new. We are trying to capture most of this. Manual, crucial, and critical areas so that it becomes easy to teach to the trainees, and also it becomes easy for us to watch as a reviewer. Then biometrics. It helps us to understand when exactly people enter and what time actually they left the places. Using This digitized architecture and biometric will be in the position to understand who has done what and where. Then six quality, qualified team, 24 by 7. We are going to use the videos and CCTV to give you the performance of the people who are working in the factory. Seven, we are trying to actually integrate. Our normal cameras with Edge AA and Create AA cameras for which the work is in progress. We'll be completing the entire digitization, media SOP, and everything, as I told you, in three months' time, so that the entire factory will be compatible and this will ensure quality with productivity. After the completion of our three factories in India, Which is likely to happen in two to two and of the year. In addition to the practices that we have completed for the anti-cancer, for the anti-cancer products and the general APA, we are also planning to go to Mexico to start a facility for liquid oils and IVs. Once we start our manufacturing in Mexico, the products, especially the liquid orders and IV fluids, will be exported to Central American countries in our own trucks, and the goods will be stored in our airhouses where our business is up and running currently. This will increase the revenue, both top and bottom line, for our Central American business and also in Mexico. Yeah. Central America is well connected with Mexico by Roe. The digitized model of our CSL will also be replicated in the factory that we are planning to build in Mexico too. Further, our second innings of asset-like model will start from China for API and also for biosimilars. We first exported our formulation from China to Latin America when most of the Indian companies imported the Chinese APA from China to India. Now, we plan to import the drug substances from China to India for biosimilar, which we are planning to do in our COIL facility. We will also go for large-volume APIs from China, which is cost-competitive compared to some of the Indian companies. Further, we also started the due diligence for acquiring a distribution company in Mexico. My visit in January will complete the entire acquisition of this distribution company. We also have opportunities to acquire product registrations in Latin and USA, having to use product acquisitions. The White Chairman will detail you everything actually when we do this presentation. Our business model in larger geographies of Latin America will be more on private market sales, which is not the playground of the big players. Especially, we will concentrate on the small chains, wholesalers, and individual pharmacies, and that will be our target to increase the profitability and cash flow in the bigger markets such as Mexico, Brazil, Chile, and Colombia. This helps us to eliminate the intermediaries so that we will directly go from Manufacturing to the last mile, which we have done in the smaller geographies of Central America, now that we are moving to the bigger markets of Latin America. We will also manufacture products from the local companies to increase our basket appreciation in Mexico. There are companies who are not in a position to sell their products in Mexico. They do contract manufacturing for other companies. And we would be one of the few who would use this opportunity and manufacture the products locally. It will also be an asset-like model for our future operations in Mexico. Further, the introduction of EBP, volume-based purchase in China, which, of course, the recent, actually, introduction by the Chinese government, resulted in price erosion for local companies. Hence, there is a good opportunity to repeat our asset-like model in the form of space-sale prometheus to all other products for the larger geographies of LATAM. Our focus will be more on bigger geographies such as Mexico, Chile, Colombia, further, US, Europe, and South Africa, and Brazil also, using our Indian facilities and also the facilities of our associates in China and Mexico. The next two to three years, we will manufacture most of our finished products from our own factory and accept some of the products. Such as, you know, penicillin, suclosurin, and large-volume APIs, you would go for a networking opportunity with a Chinese manufacturer. After the completion of all these activities, our networking arrangement will definitely help us to strengthen our bottom line in the years to come. But in a commodity world, there are only three ways to win. Be cheaper, number two, be faster, and number three, be different. The first two, I think they are temporary, and the call is more durable. The strongest models are built around these things that compound. Press compounds, culture, data, communities, and learning also compounds. Products eventually become general, but an ecosystem. That teaches and improves every day becomes very difficult to replicate. The future value of Kaplan may not come only from the medicine that sells, but from the unique ecosystem that we build around manufacturing excellence, video expertise, trade-driven learning, rural development, and trust across Latin America and beyond. Thank you. Thank you very much. Well, I invite someone to do this.

Thank you. Thank you, Simon, and good evening once again to everyone, and thanks for joining us today. We are pleased to share that Kaplan has delivered another quarter of steady growth with strong performance across our businesses during the first half of 2026-27. Our CFO will go into more granular details on the numbers for this quarter. While these numbers reflect the consistency of our underlying business, I would like to spend a little bit more time today discussing an important development in our growth journey, our expanding presence in the U.S. market, particularly the progress that we are making with our own front-end platform, which is Captain Serence USA, or CSU that we call internally. The U.S. remains one of our long-term growth opportunities, and we are already starting to see the results of the investments and groundwork that we have put in place over the last decade or so. At the manufacturing level, Captain Seren continues to make steady progress, both in terms of product portfolio and market reach. We have now launched 40 products in the U.S. while continuing to expand our regulatory pipeline and commercial presence across other regulated markets also like Canada, UAE, etc. While 40 products being launched as a good start, it is also equally important for us to have consistent inventory of these products in the market. We don't want there to be a situation where we launch on time but go into back order immediately. So the next 12 months is going to be a lot of focus on ensuring adequate inventory level, maintained, and decent market share is achieved. Our own label CSU is now entering its second full year of operations, and the traction we are seeing has been very encouraging. During the first half of this year alone, we have surpassed the sales that we have done in the last full year. We have been very successful in adding several direct sales contracts to both large and small integrated delivery networks, alongside our relationship with the three large wholesalers. Our daily average sales has doubled from, nearly doubled, from $33,000 last year to $61,000 on a daily basis currently. We believe this is a good milestone to achieve for the business. We feel that it demonstrates that our tried and tested model of keeping the product closer to the customer continues to service well, not just in LATAM, but also in the U.S. more and more now. Our expectation is that CSU will double its revenue and profitability in FY27. While we are at an early stage in building this platform, we believe it has the potential to become a meaningful contributor to the group over the coming years. Alongside this commercial expansion, we continue to invest in strengthening our manufacturing and product development capabilities. Captain Service Facility has completed exhibit batches for two pre-sale syringe products with another 12 products under development, which is a new area and a new segment that we are getting into in the inevitable state. We also plan to launch an additional 10 products in the U.S. in the next financial year. Our 3OL2 facility in Gumnitundi is progressing well, and it's expected to be completed by August 27. The facility will initially accommodate six injectable lines, ophthalmic, which includes ophthalmic and blow-fill seal lines, with provision for further expansion. The capabilities and capacities we're putting together in this facility is going to comply with the latest expectations from FDA and EU Annex 1, and we are confident this will be one of the best state-of-the-art sterile facilities in India once it is completed. We're also making considerable progress on the backward integration journey, particularly on the API front. We have completed scaling up of five APIs from this site, four of which are secondary source to our existing approved products, and one is a primary source. We continue to work on scaling up multiple more APIs, both for regulated markets and Latin America, and we expect to file the first few DMFs from this site within next year. Oncology API site also will be coming up before end of next calendar year. We'll keep your picture on the progress. When it comes to our CRO, we are making good progress in recent times with multiple internal pipeline products, completing pivotal BE studies, and we are seeing an increase in the requirements. So, taking this into account, we're expanding our CRO from 72 bids to 120 bids by the end of the financial year. This should help us get to around 6 to 8 bids per month going forward from the site. As we look ahead, our priorities remain very clear to strengthen our existing business, accelerate our presence in the regulated markets, and build CSU into a larger and more meaningful commercial platform, and continue investing in manufacturing capabilities and impactful integration. We are conscious that these investments will take time to translate to their full potential. However, the foundations that are being laid today... We will position Kaplan very well for the next trajectory of growth, and we are doing all of this without taking any debt from the bank, and we are living within our means. Thank you, and I look forward to discussing the results and answering your questions. I will hand over to our CFO to throw some light on the color, sorry, throw some color on the numbers for this quarter. Over to you, sir.

Thank you. Thank you, Mr. Vivek. Good evening, once again, to all of you who have taken time off to take part in this conference call. Having well begun the year in the first quarter, we are pleased to report that the momentum has continued, and we will take you to the consolidated financials, so the second quarter, and first off of the conference call, this is all due there in our website and also the stock exchange website. But before that, one point which is to be noted is all these parameters, EBITDA, PBT, and FAT of current year H1 is either equal to or more than whole year of whole FI 22, 23. That means we are able to more than double. North Korea, all the three parameters. So, having said that, let us go to the Q2 and H1 numbers. As already reported, we have had an operating revenue of 1,240 crores, which is about 18.2% growth, equally coming right as distributed within the U.S. and also the Latin American market. Right. So the U.S. passed through weight of quality food. Our strategy to go to B2C has paid huge dividends. And as against the whole year of 91 crores last year turnover, first off has already given us the regulation of 103 crores. And they are highly profitable as well. And the PSL as a company has contributed 271 crores. To the total revenue for H1, this is about 21% growth over the previous year. When the gross profit for the current quarter has improved by about 100.5%, primarily because we have taken certain orders on TAF basis and high cost, high price prices, which are supplied on TAF basis, also we have to engage certain via media commission agents to get those orders. So this was resulted in, while this was resulted in increasing contribution or operating expenses have slightly gone up, both on account of spray and also certain saline expenses. So having said that, EBITDA stands at 38.7% and PBT at 38% and then P80 at 21.2%. Effective tax rate also is hovering around 21%. Our target difference is what we will be ending at the year as a whole. And the operating expenses we are really conscious and we are keeping them at a check and this is resulting in the entire contributions going into the EBITDA level. The depreciation has gone up compared to the last year, constantly because of the capitalization what we have done, the ontology facility injection has been capitalized in the month of April and other nominal capitalization because it has happened in other entities as well. This has resulted in the differentiation going up during the current H1, and as we go along, the next few quarters, and... Yes, as well, the depreciation will keep increasing, but our top line also will go in tandem with us to absorb all the expenses, and we will be well on target to yield that 25-25% of fat what we have committed. Cash and, coming to the balance sheet, it is worth noting that our network is close to 4202, which is 3903 codes to be refined, and cash and cash returns to 4202 and our growth, which will enable us to both fund our expansion and also attribution, both organic and non-organic growth out of our own accruals, and without having to borrow anything. Tax flow from operations is worth noting that as against 250 crores, last year it was about 205 crores. It may look like assets is big, but this is a conscious decision to increase inventory. About 115 crores is increased in inventory and about 70-yard crores is increased in receivables. The inventory 50% of it will get sold this year. About 115 crores increase, 45 crores is to supply it at Tender in El Salvador. That law will get built in the current quarter, and that inventory will definitely come down, come to about normal level as in the month of March. Also, receivables are receivables from the government tenders what we have supplied in the last six months or so. They will all be received during the, partly received at least during the Q4, and inventory will hover around 120-120 days, which we have said we will be our benchmarking. Number of gate. The CAPEX program is gone close, and we have spent cash spent of over 100% close during the current year, mostly towards advance payment. As Mr. Jake said, about two lines have already arrived. After six, four lines, we have paid advance. This is a major CAPEX that we have spent, apart from small capital patients in our APA facility and OSB facility in Pondicherry. So the gather capets will happen in the next 12 to 18 months. Thereby, it indicates it will take about 100 to 150 crores, which also are awaiting certain approval. And once the approves are received, we will be spending close to about 100 crores in the facility. The Canadian OST, under capital in one lap, will have 120 to 150 crores, which will be spent over the next 12 months. So, as I said, these are all funded through our own accruals, and as Sharman put it, we are also on the report for certain inorganic opportunities, and also setting facilities in Mexico, and this also will be facilitated by our own accruals in the Kaplan Quarious Limited, which is based out of Hong Kong. So, that is it from my side, and if there are any questions, we will be more than glad to answer them. Over to you, Mr. May.

Thank you, Mr. Zipo. So, I think we can turn this around for questions from the participants, please.

Sure. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question is from Abhijay from AJ Capital.

Please go ahead.

Good evening. I hope I'm out of here. First of all, congratulations, sir. Your team has done a good job of, you know, growing every quarter. Obviously, it is understandable that you are making certain investments so the profitability can behave in a quarter. But otherwise, on the top line, this has been a good source of congratulations. So, my first question is around the cash use. You have 15 rows of free cash now on the books, and I think you are evaluating or you have already evaluated the Mexico distribution acquisition and 12 plus 1 quality ANDA. So I just want to understand, how do you, you know, how much do you expect to spend on these in the next 12 to 18 months, and what sort of the return on capital are you projecting from these two investments? That is my fourth question.

Yeah, so when it comes to the return on capital investment, etc., I think it's a little too early to... Get into those areas right now. What we are looking for is, when it comes to Mexico, we are looking at anything that will give us a little bit of a jump start into the distribution area, which is something that we've always been, you know, very comfortable with. In fact, our Latin American business is what we call internally much more as a distribution concept with a strong supply chain back end compared to more traditional sales over there. So, this is something that we look forward to in Mexico as well. Of course, the numbers have to make sense. The overall underlying business in that distribution entity also needs to make sense, which is what we are evaluating right now. When it comes to the oncology assets we are talking about, these are basically filed and approved products in the U.S., which will also give us a little bit of a kickstart rather than doing everything from scratch. And our idea is always to try and pay, you know, less than what it would cost us to do everything from scratch on our own. So that's another thing that is, you know, undergoing intelligence as we speak. Yeah.

Let me add a few words also to this question. We don't try to grow on a shaky ground. You know very well that our main business is from LATAM. The market, whether it's small or big, actually, the market, actually, the information we provide to the market is one or the same. We always systematize before we scale. And the products that we buy in the form of actually the re-stations or the distribution company that we are planning to go for in Mexico will give us the correct inputs in the form of actually what is happening in the private market in the interiors and the peripheries. Most of the time, we make money only when we go to the peripheries and interiors. That's where you see small chains and polyclinics and individual pharmacies. And big companies will always focus on the tender business and the leading chains because they can balance the economies of scale. In ours, if you look at it in the past actually, we went to countries which are smaller and that time we didn't even have this type of factories also. Today we are building actually the best assets. On one side is the asset-like model and the other side is the asset-right model. So, what we do, we are sure actually, it may take little time, but at the same time, this is actually in the form of something called delayed gratification, which is not the absence of actually something fundamentally right. It is more of building something in the form of brick and brick by brick. Thank you. I think...

If we can add a few words, Chairman, permission, I would like to add. Please. Yeah. So, to answer the gentleman, the ROE, if you look at our business model, as Kevin rightly put it, we have a mix of both asset light and asset heavy model, and each of them complement each other. So, each of the businesses, what we are expanding into or growing, we always complement each other. So, the facility what we have here will enable us to replicate it elsewhere, and then the ontology facility will also take us to the regulated market, and the China 2, what Sherman probably has mentioned in his opening remarks, will complement the R&D, I would request you to look at the basket of the role and the ROE, which is higher than the average of the industry, which is about 20% plus now, with ongoing investment. And also, it's an R&D heavy company, which directly does not yield to her immediate return. So, it's a delayed ratification. Each facility, what we put up, will take anywhere between three years to four years to be meaningfully at the return on equity, and the perseverance is the only goal. In the meantime, as I mentioned, there are other complementing business opportunities which will be there and which will improve my top line as well as sustain the fact what you have promised to the investors.

Can I just first of all say that, Chairman, sir, your passion, the passion that you have towards your business is quite infectious. And, I mean, I've not met a founder who's so passionate about the business. I just hope that, you know, the business, like a snowball, keeps compounding because your passion is very infectious. The amount of detail and the amount of... Yeah, the thought and the amount of time and thinking that you give to your business and to our ideas is just tremendous. So, I just have one more question, if I can squeeze in.

Yes, please, please, please.

Okay. So, my second question is that LATAM has been your bread and butter. It is now almost 68% of your revenues. And I can see that, you know, when one part of the business becomes too high, obviously. You know, it starts slowing down, and LATAM has grown a bit softly against your balanced revenue. And your investments are towards the right areas in LATAM. But given the thought that you give to the business, given the way you're so passionate about it, and you just want to keep growing, I just want to understand from you that do you see that LATAM again growing back to, you know, higher 18 and 20? Do you think that you will find different revenue sources to, you know, ensure that the growth rate continues? Because I'm pretty sure that you are quite passionate and you might be sitting in every day thinking about, you know, what can I do more for this business?

I'm waiting in the wind, actually, to move to Latam in the month of January. Before that, to put it simply, there are two reasons why, again, we'll have to go for Mexico and other larger geographies in the form of establishing fund factories. We were aware that we went to Central America when there was no other Indian companies present, and that time, 2021 years ago, when we went there, I didn't even see any Indians were Chinese there. But today, what we are trying to do in the form of building the factory is something that no other Indian or China has invested in that particular bulky items. These are actually the companies, especially, you know, the one which I said openly, the liquid or else and IV players. Here, the local companies, the mainstay is from the multinationals. Multinationals are the one who focus on this IV plate and other business. Coming to RecoRus is actually the local companies who concentrate because you can't be exporting from India and China. It will be very costly. It will not be cost effective. So, as I told you before, first we went to places where there were not much of a competition from India and China. Now we are going for factories where there is not much of a competition from Indian and Chinese entrepreneurs, which means we are confident of actually making it successfully, A. Okay, V. The business that we do in the form of keeping our goods next to the customer, we know you are aware that we have warehouses in six, seven countries in Central America. And Mexico is just one hour drive from actually Guatemala. So once we start our factory, maybe in two years if we complete everything, or two to three years if we complete, the way in which we are distributing our medicine from Guatemala, city to various places, we will also do the same from Mexico to all other Central American countries and keep our goods in our own warehouses, which means it becomes easy for the customer to come and buy actually the products which are not there in that actually warehouse. We never store actually IV fluids or liquid or else, except one or two. But once we start the factory, you know, 50-60 products, the products in the form of addition will create a value add. We are very sure, you know, it may take little time for us to make it big. But when we make it, it will be like actually the way in which we have created the liquid assets, we will again create it actually in the years to come.

Right, sir. Have we answered beautifully, sir? No, no, beautifully, sir. Just one objective vision that I want from you, like you provided your investors back in 2021-2020, you that time said that, you know, my top line will become my pack in five years' time. So, in the next four to five years, what sort of vision do you have for Kaplan Point? Have you objectively thought about, you know, how do you, what do you see Kaplan Point to be by 2030?

Yeah. In 2030, we are very sure, you know, we'll do well. I'll tell you the reasons. One, two, three, like that. A, once we complete all these facilities, which we are currently completing, and then, you know, we'll get the restations. And then we will start the commercial up and running. That's the time what we will do. We will go for, actually, exhibitions for the major cities. We must be knowing CPHA and that kind of stuff all over the world. There are so many exhibitions happening.

Right.

Right.

Right.

Since we know how most of the products under one umbrella, this will actually help us to exhibit, actually, to the customers, to the visitors who come all over the world. Which means, all these days we have been going to the market to sell the products. Once we have everything lined up like all these top companies, they will come to our place to buy. In the sense, you know, whoever comes to our stall, they will give their address and they will be in a position to buy everything from us. The second advantage is Most of the big companies, the overheads will be high. If you look at them, whether it is an ulti-national or the Indian big company, they always get into discovery or get into actually areas which are high tech. But companies like us actually, even a product which is generated, if we can create actually a price which is adaptable to the middle class and poor. And then, you know, quality medicines at affordable price will always reach the bottom of the pyramid. Probably one among the few people will cater to the BOP. So, I'm very sure that we're very confident of actually increasing our profits and cash flow by first 2030.

Thank you, sir. I'm assuming that your book value growth will be almost similar to your return on capital that you have been getting. I am hopeful for that. Congratulations, sir, and I hope your passion continues with the business.

Thank you. Thanks for your kind work. Thank you so much. Thank you, sir.

Thank you. The next question is from CA Garvit Goyal from Serene Alpha. Please go ahead.

Hi, I'm out.

Yes, yes, yes.

Good evening, sir. So my first question is on the U.S. front. I was checking the consolidated numbers, the segment level details that people have shown there. Looking at the quarterly run rate, our U.S. business went down as compared to the previous quarter, and the rate of change that we were earlier expecting for our U.S. business, It's not in that line, sir. And also, if I look at PVIT, that has also fallen in the perspective, sir. The margin, how we should look at it?

Before I talk of the margin, I would like to convey one thing, because I know you are a shareholder for quite some time in Kaplan Point. That's why I want to tell you this openly. See, this margin which has come down is the one which makes me to go to the market actually starting from January, because there are some markets you understand you can actually manage, you can also create new versions in our business. But there are some markets which are monopolies and near monopolies, where you have to work with the system. You can create something new in the form of unique business models. You have to go with the stream. And you know, when you are small, if you have to fight actually against the wind, then it's a possibility to make it also. We always feel, you know, we don't want to go actually with the stream because dead fish only will go with the stream. And I would actually now ask Vivek to give you actually the replies for your particular question also.

Yeah, so two, three things here. Number one is, if you look at our overall numbers, I think we are still growing at around 24-25% and of a larger base as well. We're almost a 5.0 crore company right now in Captain Starek, and I think 24-25% is still a very decent number when it comes to the rate of growth, number one. Number two, I think quarter-on-quarter is not the right kind of metric to compare, you know, because even though much of the business is largely not cyclical, it would still be very difficult for us to quantify each metric on a quarter-on-quarter basis. So, quarter from one year ago to what it is today, I think there is still definitely good growth. One more thing that we are doing is, especially this quarter and next quarter, There will be some amount of slowdown that we have put on ourselves because we are upgrading two of the lines. That are some of the older lines that were there from the inception of the facility. There were some areas that we needed to upgrade, and this would require some amount of downtime. So on line one, we expect there to be some slowdown, and then on line three as well, until December, there will be a little bit of slowdown as well. So I think in Q4 and beyond, we should be in a position to catch up to a large extent, But I would say that that is probably one of the reasons why we've shown a slightly lesser number compared to what we expected before. Also, as we slowly transition from a B2B to a B2C company in Captain Seville, you will see some amount of choppy waters when it comes to EBITDA and bottom line and stuff. And that is also because we are planning for the future, right? We do not do any new deals, and we do not look for any milestone revenue and all of that to a large extent because we are focusing on our label to the maximum extent possible. We're not really going out and doing more B2B deals because our B2C space is doing very well, and we want to continue to focus on that as much as possible. So, I think overall numbers are still very healthy, they may not be in line with Kaplan's point yet, but I think we are moving in that direction over the longer term, and yeah,

Yeah, one more thing I would like to add is. That in two to one of US time, I'm sure we will do very well in US too. Main reason is the kind of actually the machineries which we are going to install. All are imported machineries from the best of the best companies from Germany, Italy, and the US. And what has happened in the last 10-15 years, as Vivek has put it, some of the areas we have to do the retrofitting. That also, you know, affects the increase in production. It's not that, you know, we have a depth of order. The issue is we have to complete the manufacturing, which is not that easy, actually, in a U.S. FDA facility, if the machineries are not in good shape. And we are trying our best, actually, to do everything. Today, maybe in the next two, three months, as I told you before, it's going to become a paperless factory, which means There is nothing in the form of data integrity or any other issues because it's going to be, you know, like anyone who comes there, any auditor, whether it's from U.S. or any other country, they will see the audit trial and find out everything is going well. So we are very, very confident that, say, two years from now, we will have a huge opportunity in U.S. market two and a half years from now.

The contribution margins have remained either same or it is improved only. That means there is no price reduction, there is cost control. Top X will vary from port to contract depending on what activities undertake, and that will get set by 2-4, and we will be back on race.

Definitely US actually will continue to be a volume-based actually sales. The value-based sales comes only either from technically superior products or actually a business model which is much superior and unique compared to other competitors.

Just a follow-up to the response. I just wanted to understand now, like, what I'm understanding is that we are planning for future, right, for our US business. How we should look at The overall impact on, I would say, on OPM percentage and net profit margins for all the kind of efforts we are doing for the next two, two and a half years, maybe in Fx27 and Fx28, will we be able to maintain those Fx26 levels or if not, what kind of drawdown we can see in those margins in the next one and a half years?

The next one on the fear, we will maintain actually what is happening now. The best will happen starting from 2030. The best of the best will happen actually starting from 2030. That is for sure. And before that, we don't want to actually over promise and underperform. We will do well. We are sure we will do well. Even now, actually, whatever way we are doing, we will continue to work. There is an opportunity to increase our performance also. But again, I don't want to tell you something. And then, you know, this is the reason being when you get into the bigger geographies of the world, there are so many things which is actually beyond your comprehension in the form of registration, in the form of VE studies, in the form of actually, you know, understanding the competitors and how to compete actually. in the market. So We will do it, but again, you know, we don't want to actually give you something which is not correct in the form of like what will happen in one end of year. That's the reason I said, you know, delayed gratification is not the absence of actually a strategy or something. This is something in the form of building brick by brick.

No, sir, my question is from the point of view of margin, whatever the kind of effort we are doing. That's what I said.

Margin comes based on the business, right? Unless we create something unique, the way in which we have created in Central America, other countries also will, definitely will do well, but it takes time. It doesn't happen overnight, actually. That's the reason I said it. If it takes two, three years, then of course, we are very sure, we are very confident, we will be able to do it. Because everywhere the restation is happening. And then, you know, our bio studies are happening. Even complex molecules now only know we have completed or we are about to complete actually the R&D. So all these things will start rectifying maybe two to three years from now. And in one end of year from now, we will continue to maintain what we have been doing now.

Okay, and secondly, again, coming to the same point which I used to highlight in every call, sir, we are starting to have problems, the cash reserves that we have. These are very large, I would say, kind of company we are. Again, I wanted to understand from you, if I look at last three or four years on a full year stage, our growth... As mainly in the, on an average range of. We are investing for future. Thank you. Do you understand, do we have any plan of buy that or something like that to reward the shareholders? Because the kind of growth is 15-16% is still moderate, sir, right? I understand that we are focusing on the cash flows and we are generating them. But again, this point is valid, sir. So can you put some color on that, sir?

You mentioned, you know, one of the opportunities, probably, if we come across some extraordinary, actually, and meaningful acquisition, that will satisfy, actually, you know, your question. Probably, if you are able to acquire some company, with the kind of money that we have as cash result, that probability also is there, but we can't say, because it's not in our hands. There is, it can happen even six months from now, it can happen after two years also. So, Actually, the liquidity. We are rewarding the shareholder. One may be instant gratification, other is actually as I told you before. It's delayed gratification. I would only request you to... For so long, we are not telling you actually that, you know, we are not in a position to show you the sunshine. We will die. Let me show you. It's not there.

Thank you very much, sir, and all the best for the future.

Thank you. Thank you so much.

The next question is from Preetam Kamarji from Purnathna Investment Advisors. Please go ahead.

Oh, yeah. Hello. Am I audible?

Yes.

Yeah. Thank you for the opportunity and congratulations on the great threat of numbers. So, my question is around U.S. specifically. So, basically, earlier it was targeted that the U.S. revenue would be growing by 25 to 30% in FI27, but as it was instructed now that we are planning for upgradation of some line and there would be slowdown in second half of the FI27. So, considering the slowdown, are we still targeting that growth or what are the numbers for FI27? And also compared to Q1. The PVT margins almost fell half in Q2. So, was Q1 some exception or are we facing some kind of stress in US specifically?

Yeah, two things. Now, question number one, like you said, we are still targeting around 20% to 25% growth with this year, and I think we should be on target to achieve that. Number two is, like I said, as we are slowly transitioning from B2B to a more B2C-heavy company, there are certain aspects of B2B business that will fall away, which is specifically on milestone revenue. Now, milestone revenue is only received as and when you make deals with B2B companies for many of the products that you are doing or products that they want to use you as a CMO, etc. Now, as we are focusing maximum on our own label, we do not want to do non-exclusive, exclusive, or even semi-exclusive deals, you know, because what happens is eventually those companies will come onto the market and will compete with our own label only. So, as a company that has always been in the forefront of the marketing side of it, we are very comfortable, and the numbers that we are seeing also from our front end, you know, gives us more encouragement to focus our maximum efforts in terms of our own R&D, our own filings, and etc., to be promoted through our own label, right? So, because of this, you will start to see some moderation, at least on a part of the basis, I think some sort of a moderation that you may see from time to time. But I would say that it's more of a timing issue rather than any stress in the market or anything like that. For example, of course, maybe CFO has more information on that. There might have been some rather large milestone revenue that was accrued in Q1 compared to Q2. But I would say by and large, our EBITDA margins from last year Should be very similar to the ones that you will see going forward as well.

Okay, okay. So, thank you for such a little explanation. So, my one more question was, so, in previous call, it was guided that we were planning around 14 plus new products in USA in FY28. But in latest PPPT, the number has been reduced to 10. So, I just wanted to understand that what were the reasons because of which the number was reduced. Thank you.

See, we rationalize our filings and also our launches based on the dynamism of the market in itself. You know, there are some products by the time we get to market, you know, at the time of development, there might have been like two, three players, and by the time we get to market, there may be seven or eight. So rather than focusing our attention and getting too diluted by way of focusing on numbers, I think it will serve us better to focus on areas and products where we feel that we are, you know, much better focused towards, you know, success of that product. So I would say that rather than going after numbers...

Yeah, as he rightly said, actually, product surveillance also matters. There is no point in increasing the number of products. On the contrary, you will have to look at it, actually, as the product really makes sense. And I hope you would agree with me, you know, in, as I told you before, in the next two years' time, we are very sure that we will grow at a very healthy clip.

Thank you, and all the best, and definitely believe in you, thank you so much, thank you so much.

A reminder to participants that you may press star and 1 to join the question queue. The next question is from Arun from Unify Capital. Please go ahead.

Thanks for the opportunity, sir, and congratulations on the good set of numbers. Sir, on the U.S. FDA inspection at the Kumudipundi facility in August, could you update us on where we stand as the FDA come back with any classification yet? Are there any pending approvals of planned U.S. launches on hold because of this, sir?

So, we have responded comprehensively to FDA, and we've also sent in our monthly updates as well. The classification is pending, we speak, and probably over the next few weeks, there may be some clarity on that. And, of course, there were some remediation measures that we needed to take, and much of it is completed.

Some of them are also work in progress right now.

So, it's a status quo as we speak right now.

Thank you, sir. My second question is on the other expenses. So, they have gone up 18% in a quarter and 30% worldwide. So, is it mainly because of the right expenses that you are seeing, and how has it been post-September?

So freight definitely has gone up. Of course, I'll let CFO answer this in a minute, but freight has definitely gone up in the last three, four months. As you can imagine, the global situation is not very conducive for air or sea freight. And typically between the month of August, September, October, you will see a lot more increase in freight because of the Christmas season and the holiday season in the US and Latin America and all of that. Thank you. Also, let me pass it to...

We had to export some of the goods, actually, by air also to El Salvador. Probably PO4 is the right person to answer to this question.

Thank you, sir. As I was mentioning in the opening remarks itself, the price as you rightly said is the main reason for this one. Most part of my, we have two kinds of dispatches. One is FOB where we recover the price from the customer. One is on PIS basis. Basically, most of our subsidiaries, all the subsidiaries we send on PIS basis and certain orders we took on PIS basis. The prices are compensated for that. That is the reason why my contribution margin has gone up by one and a half percent over the previous quarter. That has been more than offset the increase in the. So what at the bottom line is that my PBT, EBITDA, PIT all remain at the same level as compared to the last quarter and then we are on that. So whatever we have spent more on price has been recovered from the customers in terms of pricing.

Got it. So, it's matched between the gross profit margin and the EBITDA margin.

Yes, yes. You see, and the general overall price rate is there, even though we are able to partly profit on to the customers in the market.

Got it. And I just wanted to understand the regime policy as well of the company. So, can you talk about how the impact has been in Tech 1? Thank you.

So, we do not actually have a policy for hedging, or we try and do any hedging at all. In fact, way back, almost some 20 years ago, we in fact lost a little bit of money trying to hedge.

More than that, we are natural hedging also. We are exporting actually some 30% of goods from China, which is more of a natural hedging.

So, it's almost considered like an import, right? Because you pay for it in U.S. dollars, so we have a magical hedge.

Other than that, we don't do any hedge.

Got it, sir. And any inflation you are seeing on the raw material side, sir?

Is this your price of the business of the country? So, it's very difficult to answer. See, prices will continue to rise. There will be, you know, geopolitical risk. There will be a lot of wars and tariff wars. However, like, you know, the problems, somehow or other, we will have to hit the problems and doesn't allow the problem to actually affect our business. Or even if it happens, somehow we will have to turn it around. That's how the business has to happen. So, these are few things which will continue to happen. No way, you know, we can stop it, because it's beyond our actual control. Am I right, Mr. Arun? Is it Mr. Arun?

Yes, Arun from the United Kingdom.

Yeah, okay. Is there anything else you want me to try, sir, also?

Got it, sir. That's it, sir. Thank you.

Thank you.

Thank you. The next question is from Abhinav from Danyan Capital. Please go ahead.

Hi, I know I'm audible. I just have two questions. First time is that in our P.O.L.2 plant, you know, we were first finishing in December 26th, then March 27th, then August 27th now, and I just wanted to know, you know, when can we expect our first revenue here, and how sort of firm is our August 27th deadline, and my second question is on the U.S. you know, TBT, which has half from country close to 16 crores. So, what led to that? And, you know, what should be the long-run sort of margin that we should expect?

I'm not able to hear it properly. Is it okay, Vivek, you're in a question today?

Yeah, your voice was a little muffled, but if I'm not wrong, I think what you were asking is from COL2, when are we likely to expect revenues? Is that what the first question was?

Yes, yes, that's the first question.

So, see, we are likely to complete the project by August of next year, and what we are planning to do is do some site transfer of some products, especially aseptically filled products from TSL to 3OL2, because all aseptic products will be manufactured through isolator technology in this new site, which is the latest expectation as per FDA and EU Annex 1 guideline, number one. But for that to happen, you will need to do the site transfer, run stability, file the product, bring in an inspection, all that. So it will take probably about 15 to 18 months from the time we complete the facility. So you can expect something meaningful in FY2829 and beyond. Pro, COL2. And the second question you asked, I believe, was with regard to PBT on CSL, which, like I said in the previous one, it's probably more of a timing than anything else, and it's not really a current metric to discuss on a quarter-to-quarter basis. Of course, if CFO has any views on that, please go there.

Just to give a comment to the gentleman. To compare X1 of last day, it was 29.5% EBITDA, which was going to 35.2%, X1 to X1, and PBT was 19.9%, which was going to 25.5%, which is clear, 5.5% growth. Q2 was an aberration, which is for various factors, which will get moderated, and then we will be back on rails, as I said, between Q3 and Q4. Here, as well, we will be back on rails compared to the last year's percentages, and if not, we will better it.

I understood. Thank you. Thank you. Back to the portion of the microphone.

Thank you. Thank you very much. That was the last question in queue. I would now like to hand the conference over to the management team for closing comments.

Thank you to yourself. Thank you to Ms. Julie and 361 for conducting the call, and to all the participants that took time out to join us, joined us for the earnings call today. Thank you, and we'll be in touch.

Thanks to all of you. Thank you. Thank you very much.

Thank you very much. On behalf of 361 Capital Markets, that concludes the conference. Thank you for joining us, ladies and gentlemen.

You may now disconnect your lines.