Laurus Labs Limited (LAURUSLABS) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Loras Labs Q2 FY27 earnings conference call, hosted by DAM Capital LTT. As a reminder, all participant clients will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you name assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is now being recorded. I now hand the conference over to Mr. Nitin Agriwal from Dam Capital Advisors Limited. Please go ahead, sir.

Hi, thank you. Hi, good afternoon, everyone, and a very warm welcome to Loras Labs due to F27 earnings call, hosted by Dam Capital Advisors Limited. On the call today, we have representing Loras Labs management, Dr. Satyanarayan Chava, founder and CEO, Mr. Vivi Ravikumar, executive director and CFO, Mr. Krishna Chaitanya Chava, ED, Head CDMO, Mrs. Soumya Chava, ED, Affordable Medicines and Commercial, and Mr. Vivek Kumar, AVP, Investor Relations. Before we proceed, I would like to remind you that some of the statements made during the call today could be forward-looking in nature, and a safe harbor statement to this effect has been included in the press release that has been shared on the company's website. I hand over the call to Dr. Chava to make the opening comments, and then we'll open the floor for questions. Please go ahead, sir.

Thanks, Nitin. Good afternoon to all our stakeholders. We are pleased with the substantial programs company making across various business segments. We continue to report strong growth in CDA moordiness, steady momentum in affordable medicine portfolio because of our major advancement in our partners' clinical and commercial programs. The strong performance reflects sustainable, robust demand for our specialized capabilities, integrated offerings, depth of our customer relationship, and disciplined operational execution by our team. In line with our accelerating transformation strategy, we are actively investing into building scientific capabilities and capacities across complex and new modalities. The company's total reactor volume for small molecules API in operation has now reached over 9,000 kilolitres and will continue to expand further. We are also pleased to highlight some of the important disclosures we have made in this spotless investor presentation on the advancements we are making in our integrated peptide CDMO capability. We commissioned commercial-scale peptide manufacturing block. Our current reactor volume for solid-phase peptide synthesis is over 16,000 liters, and we have taken up a significant further expansion to meet diverse program requirements. We continue to strengthen the capacity of liquid-phase peptide synthesis and several new technologies. We are also augmenting our capacities through disciplined business development. During the quarter, we have announced reinvestment into two technology platform companies. The one is an agreement to acquire majority 60% stake in Canada-based Galenus sciences, specializing in oligonucleotides and precision magnetic nanoparticles-based purification. By leveraging Galenus' expertise in early-stage oligo projects, process development, conjugation, precise purification, and field finish, along with Lara's large-scale expertise in complex chemistry, we intend to support clients with seamless journey from complex RNA-DNA-based therapies as a one-stop solution. Together, this will expand Lara's position to participate in emerging high-growth oligo market. Second is an acquisition of majority-stake in SANC resins, a peptide resin technology-focused company based out of IdoBank. This will allow us to enhance long-term supply security by insourcing critical solid support resins for peptide synthesis, and also chromatography stationary phases for large-scale peptide purification. This will boost our LARAS manufacturing competitiveness and reliability with our current and future partners programs. These acquisitions are aimed to advance LARAS integrated scientific capabilities under one roof. These acquisitions are strengthened by LARAS quality infrastructure that will cater to more complex customized projects, allowing with significant increase in future therapeutic demands. Moving on to our financial results, LARUS has maintained his growth trajectory and once again delivered a record revenue and profits for quarter two. Total revenues were 2,216 crores, reflecting a continued strength of our CDMR platform, growing contribution from commercial-based supplies and ongoing momentum in affordable medicines portfolio. Grass margins were also healthy and maintained around 63%. And EBITDA margins further expanded over previous quarters by 2.7 percentage points to 34.5%. Our product mix and operating leverage continue to do well, supporting healthy margins overall. I would request Mr. Krishnachetina to share key updates on our CDMO business.

Thank you. Coming to the small molecule CDMO, the business has continued to deliver robust operation execution in Q2, reporting an 86% growth with the sales of 875 crores. For the first half of the year, of the current financial year, the division recorded rupees 1710 crores, that equates to about 77% growth. This performance was driven by successful delivery of critical late-stage programs, as well as commercial API supplies to multiple global partners. We also continue to see encouraging demand on the newly commissioned assets across both human health and animal health businesses, both in terms of the volumes and opportunities with existing partners, as well as with new client engagements. The company remains focused on enhancing our core capabilities and capacities to better meet customer demand driven by continuous expansions. As Dr. Satya highlighted in the opening remarks, we have commissioned our peptide manufacturing facility and our investment towards other multiple large-scale API opportunities continues to take place in our WISEX side. Strategically, we are elevating client collaboration on complex new modalities, and our focus remains on securing fully integrated projects, seamlessly supporting partners from preclinical development going all the way to finished drug product services. Driven by this end-to-end capability, our CDMO pipeline continues to expand. We are adding clinical programs across a highly diversified mix of manufacturing technologies, as well as therapeutic indications. Our capability expansion for integration and expanding pipeline, LORUS is well positioned to sustain a healthy business growth in the coming years. Now, moving on to Lawrence Bayou. The Lawrence Bayou division reported a Q2 sales at Rs. 29 crores, and for the first half of this financial year, that is at Rs. 64 crores. The year-over-year variation is primarily due to the campaign facing, though our underlying pipeline momentum remains strong. We are actively increasing longer-term strategic relationships with our major customers across both AOF as well as CDMO programs towards anchoring our future pipeline. On the capacity front, our commercial fermentation facility, Loras Bio 4, is progressing as planned, and we expect this to be operational by the end of this year. And we are already advancing on customer capacity reservations for this facility. Now, I would request Ms. Soumya Chawad to share key updates on our affordable medicines portfolio.

Thank you. Revenues from the affordable medicine stood at 1,302 crores in Q2, which represents a strong 15% year-on-year growth. For the first half of this financial year, we achieved a healthy growth of 13%. This growth was driven by continued expansion of our order book across various established portfolios, which was also supported by stable pricing in both our ARV portfolio and developed market portfolios. Looking ahead, we remain committed to investing in the business in line with evolving market requirements. Our positive long-term outlook is underpinned by a robust pipeline of new product launches, integrated CMO engagements, and ongoing expansion of product registrations across emerging markets, which is creating new business opportunities for us. I'm also pleased to report that despite heightened global volatility, our supply chain has demonstrated exceptional agility, enabling us to maintain highly reliable delivery performance for all our global partners. With respect to our strategic Karka joint venture, progress at the formulation facility remains firmly on track. The Phase 1 production blocks are scheduled to commence operations in mid-2027, which will significantly enhance our commercial capabilities with a focus on high-potent and general OFD manufacturing. On the filings front, we have cumulatively filed 92 DMFs to date. In developed market formulation, business refiled two dossiers and received two approvals during H1. Overall, we have cumulatively filed 96 products to date.

Thanks, Krishna and Swamya, for the overview on CDM mode, affordable medicine. On the R&D front, overall spending to sales for the first half of this financial year was at 4.3%, increased by over 34% year-on-year. It has been exceptional, primarily on account of capability development efforts for our gene therapy ADC technology infrastructure. We maintain our commitment to invest in portfolios focusing on product complexity, scale, and sustainable technology platforms. I would also like to share a brief on quality and ESG. In the first half, Clarus underwent 59 quality artists by multiple drug regulatory agencies and key partners, and has been successfully cleared audit inspections without any critical findings. On ESG front, we continue to drive sustainability initiatives. It's continued recognition by leading global rating agencies. Meanwhile, we're also making operational progress against our SBTI, validated near-term GHG reduction targets. You can see more in our IR slides. To conclude, we are pleased with the way we are executing our transformation strategy and that way we are making into building a stronger foundation for future. By broadening our integrated capabilities, diversifying our pipeline, and advancing key commercial opportunities, we are well positioned to accelerate our long-term growth project. Now, we request Mr. Ravi Kumar, our CFO, to share overall financial highlights.

Thank you, doctor. A very warm welcome to everyone to our quarter 2 and H1 earning call. Let me take quickly through the highlights. Total income from operations for H1 is at 4,233 crores, registering growth of 31%. We continue to deliver strong growth mainly due to continuing strength in CDM execution and stable performance in affordable medicine. For the quarter two, total income from operation is 2,206 crore, which is the highest from the beginning. Grants margin maintained at a healthy level for H1 at 62.9% and for quarter two at 63%, mainly due to better product division, product mix and division mix and improved operational efficiencies. EBITDA for H1 stands at 14.06 crores with a margin of 33.2%. For the quarter 2, EBITDA reported at 7.62 crores with a margin of 34.5%. This profitability is on account of improved operational leverage. Profit after tax for H1 at 8.09 crores and for the quarter 2 at 4.41 crores. So, ROSE is moving upwards to 22.5% for the H1 versus FI26 of 17.7%. On the capex front, we invested close to 470 crores for the quarter and 864 crores for the H1. We are making good progress in executing ongoing key capex across diversified growth projects. Our net debt stood at 2,466 crores, and debt EBITDA is around 1.02 versus 1.28 for the last quarter, on the back of strong internal cash flows. On the capital allocation front, our strategy remains unchanged, and we will continue to prioritize investments into high-value business segments to draw details with this.

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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Tushar from Motilal Oswal Financial Services. Please go ahead.

Thanks for the opportunity. So, firstly, on the peptide large-scale manufacturing block, we started. So, as a trajectory, how to think about the commercial level sort of revenue coming through, considering the customer might require certain regulatory approvals to come in place, or you will have the inventory build-up quantity, if you can just explain that business trajectory.

Krishna, would you like to answer this question?

Sure. Thanks for that question, Tushar. As you rightly said, for every program, there's a certain runway towards commercialization, as you rightly identified, related to validations and regulatory approvals. With that being said, we have several programs in the pipeline, which I can't really divulge too much about, But that are in various stages, including development, scale-up validations. So we already have a visibility into how we would leverage these facilities and thereby having the visibility to invest more and further in this capacity.

For the existing capacity, can you just consider not getting into product-specific or company-specific, But in terms of timeline, where we see the commercial benefits starting to, and what could be the quantum for the existing capacity, maybe in terms of asset turn over a period of time, how to think about?

For the commercial revenues, we expect somewhere around the 29 timeframe for some of these peptide capacities that we are talking about today. But with that being said, in terms of utilization, even for some of these validation campaigns also, it will be fairly high for the asset itself.

As we mentioned in our investor presentation, we are also expanding our peptide capacity significantly. We will give you more details as and when the facilities are qualified. So, we have good visibility on the programs, progress of the programs and the volumes requirement for those programs. We have visibility. One point I would like to add here is our peptide manufacturing capabilities are fully integrated. In the sense, we are not making fragments. We are doing complete synthesis of the peptide purification isolation. We are offering an API, not just to fragments.

You got it, sir. And on the, that's really helpful on the side. And on the overall CDMO side, like considering multiple projects at multiple stages, is there any, maybe in the near term where the inventory buildup is happened at the customer end, and hence there would be some buffer before the revenue picks up on the overall basis in the CDMO segment? Or, we have certain projects which are yet to sort of scale up, and hence, we will continue to have growth in this segment, maybe over, let's say, next 12 months or 6 to 9 months.

Based on what we know at the moment, we don't anticipate such a situation. But with that being said, we have several programs that are commercialized in nature. So, these volume changes generally tend to balance out. So, we are not anticipating any such surprises, at least from the perspective that we have today.

Got it, sir. Thanks a lot. Thank you.

Thank you. The next question comes from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.

Yeah, congratulations. Am I audible?

Yes, yeah, you are. Hello, am I audible? Yes, yes, you are audible, Saji. So, congratulations, Dr. Satya, Raviji, and team. Yeah, sure. The numbers are finally catching up with the work you have been doing for years. Well-deserved. I have three questions. First, Dr. Satya, if you remember in April 2023 on that NDTV profit interaction with me, You agreed that a bigger surface area would mean better growth. Since then, CDMO has grown about four times. What can LORUS do for customers today that it couldn't three years ago? Thank you.

See, as years pass by, we are not just adding reactor volume, we are also adding various technical capabilities as well. See, our first commercial scale biogatologist happened in 2021. And then flow chemistry happened later on, flow hydrogenation happened later on, fermentation happened later on. So, we are adding technical capabilities for a period of time. Today, if any partner comes with a tech pack, we will not say no because we don't have capabilities except monoclonal antibodies and cephalosporins and penicillins. Those are the areas we don't have right now. Other than that, we can offer any chemistry, any modality, any scale, any potency also. So, we just commercialized a OEB-5 facility for payload linker now. So, we were adding capacity and capabilities for a period of time. In 2023, we don't have this many capabilities. Now, we have capacity and capabilities.

No, you are not audible.

Dr. Sathya, thank you. So, my sense is execution. No, I am. I think there is slight delay, but I think I am audible. So, thank you. So, my second question is, execution, to my mind, is earning customer trust, and trust is bringing more complex programs, something you alluded to in a private function at the CPHI. Over the next five years, what is most likely to break this winning loop? That's my second question, and I've got one more. Thank you.

It is difficult to predict, Sajid Kapoor. We are putting our best efforts to keep our service level constant, if not increase. So, our ability to take projects, we are very conscious not to compromise on our service levels. So, our project abilities, we are choosing where we will add value to our customer, not deplete value to our customer. That's where we would like to maintain a service level. Business will not come today, we will come tomorrow. So, we don't want to spoil partnerships or relationship by taking too much that we cannot handle.

Now, that's helpful. And finally, Dr. Satya, alongside the large capex, you are making small beds across peptides and oligonucleotides. Which one could become a flywheel for Loras in, let's say, five years, give or take? Thank you.

Our investment in peptide resins is not going to give so much of financial benefit, but it will strengthen our position in our peptide synthesis. But our investment in oligo peptide startup Galenas in Canada, we have no customer right now in oligos. So we believe that will add significant value in the near to medium term future.

And I think, Dr. Satya, is that exactly the loop that we have been playing over and over again? We try and control the full value chain integrated. And I think what we did with ARV, we are kind of, in my view, and correct me if my understanding is wrong here, we are just playing the same playbook of integrated end-to-end value capture in the entire pharmaceutical space and new modalities. The thinking for the new modalities is along the same playbook as we have already executed over the period of time. Is that how one should look at this transaction? Because we are not spending too much into this, but the capability that you are getting is meaningful, perhaps five years, six years out, if not immediately. Thank you.

Thank you. I think it is, I would say it is not same, but maybe similar. The scale is also not same. The scale could be different. ARV is a mammoth, but I don't expect the oligos will go to ARV level in the next four or two years. We are investing because our customers are asking. It is not that we are investing, we are liking. Our customers are asking us to get there. So we are investing. That's the message I can give you right now.

Thank you. That's all.

I wish you all the very best. Thank you. I'm done.

Thank you. The next question comes from the line of Chirag Shah from White Pine. Please go ahead.

Yeah, thank you for the opportunity and congratulations for the set of numbers. Sir, I have first a very short term question. If I look at Q1 to Q2 on the CDMO side, can you give some color? What has driven such a strong ramp-up sequentially? Is it a large-sized molecule that you have supplied? Or is it some projects have moved from either phase 1 to phase 2 or phase 2 to phase 3 that has driven? Or is it sheer number of molecules for which the supply has happened is driving it? So it would be helpful if you can give some more granular whatever you can share on the qualitative side.

I think it's like a meaningful growth between the quarter one of this year and this quarter, but as we've highlighted in the quarter one conference call, we expect this to be pretty consistent is what we've alluded to also in the last call. But to answer your question, there's no specific one-offs that we are looking at in this case.

Okay. No, it's not about one-off. It is about the quality and the nature that is driving it. Is it more molecules getting added or it is some large molecule or some phase 2, phase 3 movement which is driving this? So, I'm just trying to understand that side.

I think if you look at the increase in quarter 1, quarter 2 by 200 crores is because of the overall revenue increase. The CDMO revenue increase only contributed by 40 crores, but the rest of the our affordable medicine increased by 160 crores. It is the overall overall performance.

Fair point. And, sir, second on the peptide side, can you just indicate the kind of capacity that we have currently and the infrastructure, what kind of capacity addition that can happen? So, that's one, and I presume you already have soft commitments or soft confirmations from customers, or that is also yet to happen, because it's a new facility, that's why I'm asking.

So, on the capacities for the peptides, on the only coating the SPPS synthesizer capacities as we captured in our investor presentation, it's a little over 16K. And, of course, LPBS, I don't want to quote at this point in time, but like we've always maintained, we'll provide a meaningful update whenever we reach that stage. But, yes, generally we tend to shy away from quoting too much information, which might not be meaningful or translate into actual numbers. Again, I think we'll keep you updated on peptides as in when there's some updates there, but yes, that's something that I can share at the moment that we continue to invest extensively in enhancing the capacity further.

And is a fair assumption that lead times are longer in peptides versus small molecules? It's a fair assumption, right, sir?

It depends on which, I mean, it's not a statement that's always true. It depends on the complexity of the small molecule, the number of steps involved, and also the complexity of the peptide if you're doing the fragments, if you're doing the API. So, it has a question that has probably three, four fall-on questions. But, yeah, I think at a high level, maybe you could say that, but it might not be always true.

Thank you.

Thank you.

Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question comes from the line of Shekhar Kadiyala from Family Office. Please go ahead.

Yeah, yeah, thank you. So, Dr. Chava, congratulations on, you know, adjustment for this quarterly numbers, but I think the journey that, you know, Lawrence has been giving all of the universities quarter after quarter. My question is primarily on the peptides, although many questions were already there, but I think I wanted to, you know, get a broader color from you or from Mr. Krishna. So, you know, in the peptides world, I think what we've been, you know, hearing about is the solid state, liquid state, hybrid, and then, of course, I also read somewhere that fermentation-based peptides are the cheapest one in terms of manufacturing. So, what I would like to understand from you is, how do you see this whole scenario emerging in terms of how over the next three to five years, would it be the hybrid that could probably drive most of the manufacturing, or could it be fermentation, and how? Lawrence is preparing as we are building the peptide capacities and the fact that we also have the fermentation capabilities. How we are preparing for this 3-5 year sort of a story, if you could throw some color. I don't need any numbers, but just the color around peptide manufacturing and how we are developing our capabilities.

Thank you. The use of fermentation and peptide synthesis depend on how many amino acids, natural amino acids are there in sequence. If it is, the sequence is small, nobody will go to fermentation base. Yes. Currently, the programs what we have, mostly SPPS, LPPS are hybrid. So, that's where our capacity expansion is also going.

Just to add on to that, I think every program in the peptide space is unique and comes with its own unique requirements. So, it's not very easy to say that, you know, five years down the road, there will only be a certain type of programs. We believe there will continue to be a space for SPPS, LPPS, hybrid, and as you've said, for the fermentation base as well. But they'll continue to play a meaningful role because they offer unique characteristics

depending on the peptide requirements.

Thank you. Thank you. My second question and the last question is, if you could throw some light on the fermentation, you know, in terms of our facilities, if they are, you know, GMP approved, do they have any limitations, so to say, or they could do any type of a fermentation requirements that our customers may have?

See, we have one GMP facility in Bangalore that will do up to 500 liter, 5000 liters fermentation. And we have a food grade, industrial grade facility in Tumkur with 200,000 liters fermentation capacity. And we are building 500,000 liter facility, which will be operational in this quarter. That's also food grade and industrial grade, not a GMP grade. We're also building a GMP grade fermentation facility for some of the products in animal health. That will be operational second half of next year.

Great. Thank you. Thank you and all the best.

Thank you. The next question comes from the line of Forum Parekh from Bob Capital Markets. Please go ahead.

Yeah, thank you for the opportunity. My first question is on the CAPEX. We have announced 3,000 crore CAPEX over a period of 27 to 28, and it's across various modalities. So, could you give us some color of which modalities would have, like, higher contribution, or would the CAPEX be equally distributed amongst oligo, peptides, you know, some color there?

It's difficult to break into several segments for confidential purpose. So, we are investing significantly in growth capex.

Yeah.

A majority into API. Yeah.

My second question is on the EBITDA margin. While on a sequential basis, I see gross margin is almost flat, but EBITDA has increased, EBITDA margin has increased, and I see that's largely because of R&D cost rationalization. So, just wanted to understand, why has R&D come down steeply on a QOQ basis, and how sustainable is it?

Sir, I think we, for quarter one, we have filed some handouts. So, there is a reason the cost has gone up in quarter one. It is not that we are refocusing on our R&D expenditure.

And second, there is operational leverage as well. So, from Q1, FA27 to Q2, we also achieved 200 crore extra revenue. So, our EBITDA margin improvement, not just to lower R&D cost, but higher operational leverage.

Sure. And so, any guidance on the sustainable run rate of EBITDA margin? Because 34% seems to be the highest ever, and now CDMO segment is also stabilizing at 40% contribution. So, what's the stable EBITDA margin, you know, we can expect for the year?

At the beginning of the year, we already indicated we were comfortable in maintaining over 60% gross margin and over 30% EBITDA. I think we still stick to our guidance. That's the number you should take in your mind.

Sure, and my last question is on the, again, custom synthesis side. So some color, you know, or some dynamics, like how many molecules have we commercialized and how many molecules are there in phase three?

Fortunately, that is not something that we are in a position to divulge, ma'am, because of various convolutional reasons. And also, like you've alluded to in the last call as well, Well, at least internally, we believe that number does not necessarily translate into the actual numbers, like in terms of revenue, because one program might give, let's say, a million dollar versus another program could potentially give a hundred million dollars. So that number, at least from our end, we believe does not paint the full picture, and that's why we always refrain from quoting that number.

Okay. And, sir, lastly, if you can give us the number on the CC, you know, constant currency growth and the percentage exports of the total sales.

Percentage exports, I have to check. I think majority is there. Actually, I think we, domestic, domestic must be less than 20 percent. And the constant currency on a sequential basis is not a significant number. On a sequential basis. It's about a 12 crores. On a sequential basis.

Yeah, yeah, yeah. Thank you. Those were my questions.

Thank you. The next question comes from the line of Rahul Bharatwaj, an individual investor. Please go ahead.

Sir, you're not audible.

Do you do...

Yes, sir.

Hi, yes. Thank you for the opportunity.

Yeah, so my question is primarily to understand the CDU must be a little better. So we probably have around 100 plus active programs. Can you give us some color into what percentage of the commercial state supplies they are originating either from, let's say, phase one to developing versus late-stage debt transfers?

I think it's difficult to cue

that granular answer for this question. See, as Krishna mentioned, the number of projects may not give you right color of revenue. Say we have projects from $200,000 to several tens of million dollars. So if we give, say, we have 200, 300 projects, whether you multiply that number by 200,000, So, I think that may not give you a right picture to our investors. So, we refrain from giving that number.

Thank you.

And I don't have any further questions.

Thank you.

Thank you and good luck ahead.

Thank you. The next question comes from the line of Daval from Jefferies. Please go ahead.

Hi, thank you for taking my question. So, again, joining the peptide bandwagon, you know, What is the gross block of the peptide facility that we have put up, and any very broad, high-level estimate what, you know, peptide business can generate in terms of peak acetone whenever we achieve, but very high level?

I think after a lot of deliberation internally, we agreed to give the reactor volume. I think beyond that, we are not going to give you how much of capex we have invested, what is the asset turnover issue we are going to get.

So that's, unfortunately, we weren't able to give you further details on that.

And in the call earlier, it was mentioned that, you know, even the validation batches will require significant capacity and will drive a good utilization. So, any broad timeline when these validation batches, you think, could begin for the peptide community?

In the modalities like peptides, the complexity of synthesis is very high. So nobody would like to do validation at some scale and scale up later on or move reactor or move facility, move manufacturing block. So, for these modalities, the commercial scale facilities are needed for the validation itself. So, we have built facility, not just new validation, but also meet our customer commercial demands from the same manufacturing block.

Yeah, definitely got the concept, but any broad timeline you think when these validation batches could begin?

Sir, broadly speaking, 12 to 18 months is the number that you can take, but again, in clinical programs, things can move around, but you can assume that number.

And last question, it seems like we are trying to do some backward integration in SPPS manufacturing by investing in resin facility and resin capabilities. So, again, approximately how large is resin cost when, you know, the peptide is getting manufactured using SPPS or hydrate? Again, it can vary a bit. I understand, you know, depends on how large the fragment is, how much is SPPS, how many LPPS. But very broadly, given, you know, you guys are doing investment, what is the, you know, typical resin cost versus the total cost of manufacturing the peptide?

I'm able to give a range. The smaller the fragment, the cost of resin is higher. The longer the peptide, the resin contribution is less. So, you can take, in the cost of manufacturing, raw material cost of peptide, it will vary between 10 to 20%. Raw material cost. Raw material cost, not the cake price. The raw material cost of peptide resin contribution varies between 10 to 20%, depending on the length of the fragment of the peptide.

Got it. Understood. Very helpful. And any other major cost beyond resin which is involved, or is it all the regular solvents and typical raw materials, nothing specific beyond resin that one should be aware of?

We're going to give you that grant.

Hope you are not building a model here, cost model.

So, I think it's difficult for us to go that grant. Sure. Okay. Okay. Thank you.

Thank you. The next question comes from the line of Vivek Agriwal from City. Go. Please go ahead.

Thanks for the opportunity. One question is on CapEx. So, this year, for this as well as the next year, you have guided the 2000-year-old CapEx. So, how good you are in terms of completion of this amount, given that in the first half, the run rate is slightly on the lower side. And second, a related question. How do you see the investment or the overall capex, let's say, even beyond these two years, even 28, and if you want to look at, let's say, another three years, 29, 30, 31?

Vivek, your voice is not clear. Can you just remove your speaker?

Should I ask this question again? Yeah, now it's better. Yeah, thanks. So, in terms of CapEx, right, so we have guided a 3,000 crore CapEx for this as well as the next year. And given that the current trend rate is slightly on the lower

side, how good you are in terms of completion of this?

And second, even beyond these two years, if you want to build the model, let's say for another three, four years, what kind of the investment or the overall CapEx you are envisaging? Thank you.

So, although the first half, the number is less, most of the investments are going on track. So, as we guided 3,000 crore capex for 27-28 is the right number. And the second, we expect the investments will continue to at that range in the years to come. So, around 1,500 crores per year capital expenditure. Based on the current understanding, it may go up if the opportunities come, but otherwise, it will be in that age.

Understood. And if I look at asset terms, right, so you are consistently seeing that asset terms are moving up. So, what is the fair level of asset terms, let's say, you are expected to reach in the next couple of years, and at what level you think that overall asset terms can stabilize?

See, the average asset turn even for 6 years is 1.1. We are at 1, definitely we can move up to 1.1. But you know, our peak asset turn was 1.4. We also wish we should go there. But like, no, somewhere, somewhere in between it will go. But it's a, for a period of time, based on the maturity of the projects, it depends.

Understood. One question on peptide. So, when you are expecting the commercial revenues to decay of this 15,000 liter capacity, and how much in your view has already been committed?

What percentage of the capacity has already been committed by the customer? Unfortunately, Rick, for both of those questions, we will not be able to give you an answer primarily because of confidentiality reasons and also for strategic reasons. I'm sorry about that.

No problem. And you also talked about that you're also looking to expand the peptide capacities, right? So is this an experimental statement or you already have some visibility from some of the customers that you are looking to expand the capacity or is it like that it depends on the execution in the existing capacity projects, etc. You are expecting more products and that can driven the expansion. I'm just trying to understand the thought process behind the statement that you are looking to expand the supply capacity.

The current capacities we

foresee may not be enough for us to cater to the requirements in the near to mid term. So we are significantly increasing capacities because we see some of the programs in the early clinical phases. When they move, when they move to validation phase, we wanted to move those programs to a commercial manufacturing block. That's the intention we are building, new capacities.

Are you also involved or, let's say, do you send any opportunity to be involved in some of the existing GLP-1 products, approved, prepared GLP-1 products?

We don't want to comment. We reserve our...

No problem at all. And just dragging here a bit more, in terms of backward integration, how important it is, right? So you are building the regions, etc. But in terms of building blocks and amino acids, so how backward integrated you are on these aspects? Or are you also looking to add capacity in building blocks, amino acids, etc.?

See, these programs will have multiple sources of amino acid suppliers, including us. So, these partners' programs are so large, they don't want to depend on one vendor for any of the key amino acid derivatives also. So, we have programs where our derivatives will go into the validation, like we buy some amino acid derivatives from the other party third vendors also.

Understood, understood. And so one question I have on affordable medicines, right?

So this quarter you have dropped a decent number, and first half around 13 at the floor.

So what broke the sharp uptick this time around, how sustainable it is, and how you think that this finished dose formulation revenue can pan out, let's say, in the next one to two years, once this CARCA project becomes live?

So, for the formulation revenue, as mentioned earlier, we are doing product registrations in multiple countries. So, we see our formulation revenues will continue to grow in the upcoming quarters as well. And regarding the pricing for APIs, they've stabilized. Though there is a lot of geopolitical pressure, supply chain resilience has stabilized those prices.

Thank you. That is from our time.

Thank you. The next question comes from the line of Nayant Patsala, an individual investor. Please go ahead.

Hello. Hello, am I audible? Yes, yes, you are audible, man. Good evening, sir. Regarding the KRKL joint venture, how is the business progressing, and when can we expect it to make a meaningful contribution to LORUS LEF's revenue and profit?

The Karkov formulation facility is getting ready, and we will start validations for products mid-2027. So, we are already working towards validations. So, once the validations are done, we will do the filing. So, 28-29, we should see meaningful revenues.

Yeah, thank you, ma'am. And secondly, you mentioned around 125 active CDMO projects. What is the current number?

That number is a very dated number, but we don't want to say further, but yeah, you could assume 125 even today, but we don't want to expand further on that. Okay, okay. No problem. Thank you, sir.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question comes from the line of Shrikant, Akulkar from Nuwama. Please go ahead.

Yeah, thanks for taking my questions, and Congress will listen to the management for the good trade-off numbers. I have two questions. Firstly, on the tip ties, is it possible for the management to quantify ballpark number that they have invested in solid phase, liquid phase, isolation, purification, and ownership? Is there any total investment in this?

Unfortunately, we would not like to divulge that information due to strategic reasons.

Understood. But any ballpark number or any quantification like a percentage of total investment that we have incurred so far without giving any proper number?

I'm sorry, but, yeah, we are not able to provide that color, as Dr. Satya mentioned and Ravi mentioned, even this peptide capacity that we've created, we've shared after a lot of deliberation and feedback from a lot of customer, sorry, investor community, and, but, yeah, even beyond that, we are not in a position to share at this point in time, yeah.

If we can share, we'll share to all investors, not the collective. So that, yeah, please bear with us. Okay.

No problem, no problem. And again on peptides, so I know that you don't want to talk on any GLP-1, of course, in the near term. But do you think that in the next five years, there will be a right for us to get any peptide GLP-1 related contracts?

Yes, I think given the capabilities and the capacities that the company is investing in, I think we certainly expect to play a very useful role in that.

Understood. And the last question is now recently, this is a broader industry level question. So recently, China has banned the export of energy technologies outside China, and the U.S. has also banned some of the investments that will happen in Chinese biotech. Now, what kind of opportunities or industry things that will emerge because of this?

From a geopolitical standpoint, I would not want to comment on this call at the moment.

Okay, understood. Thank you so much.

Thank you. The next question comes from the line of Krish Mehta from Inam Holdings. Please go ahead.

Thank you for taking my questions. I have two questions. The first is on, you know, understanding the sustainability of this quarter's revenue and EBITDA margin run rate. So if I were to look out, say, to FY28, would it be a fair assumption to assume that, you know, what we've done this quarter can be repeatable in terms of looking at something like a broad 10,000 crore revenue at 35% EBITDA margin, or should we kind of normalize this current quarter's run rate? That's my first question.

The one we are always answering without giving any guidance, two things we are committing. One is we were able to maintain 60-plus percentage of gas margin and 30-plus percentage of EBITDA. We are comfortable to guide all our investors. Beyond that, it is very difficult to give any guidance at this point.

Sure, thank you. And my second question is on if you could provide the breakup of your ARV API and ARV FDF for this quarter.

So, ARV API for this quarter is 625 and FDF is 677.

Okay, thank you so much.

Thank you. The next question comes from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.

Hi, good evening, everyone. First question on peptides. Within peptides, how important do you think will be purification as your programs move from clinical to commercial over the next two years? And this is particularly for the longer peptides.

I think purification is similar to synthesis, the downstream, which includes the isolation. Purification and isolation are equally important as complex.

Just to break the complexity, synthesis, purification, isolation, all three will be equally important, maybe one-third, one-third, one-third kind of situation from a complexity point of view.

Understood, sir. And where are we in that journey when it comes to scaling up both, say, downstream purification or isolation capacity in parallel to creating the overall reactor capacity?

So, like we've mentioned in our investor presentation, when we say we've created website capacity, that includes the entire value chain of synthesis, purification, and isolation. Got it.

Just one follow-up there from, say, 2,000 litre currently. Are there any plans to move to 3,000 litre synthesizers? And if yes, possible to give any timeline for that?

I would not like to answer this question at this point in time.

Yeah. Fair enough. No problem. And just one final question, given that you have been working on various modalities, as Dr. Satya mentioned, pretty much all capabilities, except maybe maps and cephalosporin, penicillin. In terms of talent availability, how would you assess the current situation? There are multiple companies working on multiple modalities, adding capacities. So just from an industry standpoint and your own talent hiring standpoint, do you assess any challenges and where are we in that journey?

As you have seen in this quarter of earnings presentation, so we invested in, signed a We have a different agreement to invest in oligonucleotide company because we believe a talent is there. Whereas we can manufacture because oligonucleotides, manufacturing, purification, isolation are similar to peptides. So we have that expertise. But synthesis-wise, we don't have R&D-wise. We invested there. Like that, we invested in a solid support resins company because we don't have talent right now. So, we are trying to build the gaps in our technology development by investment in these companies, like we invested in Laras Bio to get expertise in enzymes and fermentation. So, our investments are to build the capabilities where we don't have right now. We are not investing in capacities, if you have seen, for the last several years. We build capacities, we build, we bridge the gaps by acquiring technology-based companies.

Understood, sir. That's very helpful. That's it from my side. Thank you and all the best.

Thank you. The next question comes from the line of Yaseer Lakrawala from M3. Please go ahead.

Grieving team, and, you know, before that, wish you all a happy Diwali in advance. You know, my question was, you know, on the CDMO side, is there any color you could give in terms of, you know, for each one, our mix between animal health, crop science, and human pharma?

Well, firstly, happy Diwali advance as well. Coming to the breakup, while we've not given a split between our human health and animal health side of things, what I can say is crop science, we continue to, you know, discuss with several partners and hope to have meaningful contribution from that, but that's still minuscule compared to our human health and animal health initiatives. Yes.

And, you know, and just as you said, you know, we've got more than 100, 120 odd customers. Would you say that, you know, or could you probably give us some sort of color? Is there any customer concentration, like, say, are there like five or 10

customers who are responsible for a larger pool of the CDM or revenue? And, you know, the reason I just ask that is in case, you know, there is some de-stocking

event or there is, you know, a comparative program that replaces the, you know, dominant customer, would that have sort of a material impact on our revenues going forward?

Just to understand the concentration of the CDMO business.

I think that would be helpful.

Currently, we don't have a significant concentration of customers or programs. We are managing, actually we are not managing, we were lucky that the projects are coming like that. I will put it that way. And second, we don't foresee any secretive supplies for launch and then de-stocking events. So we don't have that problem because of visibility for next to 18-24 months.

In addition, fortunately, in the space that we've been in, we're not necessarily looking at any patent cliff or any of the programs that we support. So, there's a fair bit of good visibility for some of these programs that we've successfully commercialized. That's very helpful.

Thank you for that. Lastly, you know, as we look at some of these newer modalities, be it peptides, ADCs, you know, in terms of, you know, when we sort of look to announce these capacity additions, how do you sort of weigh that? Because a lot of these new modalities don't tend to be very high volume products, right? If I've got that understanding right. So, how are you sort of, you know, balancing on one side capability addition and on the other side capacity addition? If you could sort of help us understand that, that would be great.

Let's say from an EDC perspective, like you rightly said, this might not be large volume, like it will not be in multi-metric on scales, but from a value point of view, it will be quite significant from a general value point of view in the commissary side of things.

Absolutely.

And also from an investment point of view, it can also be sizable, given the type of modality and how complex it can get. Fair enough.

Thank you. Appreciate it. Thank you.

Thank you. The next question comes from the line of Arindam Mukherjee, an individual investor. Please go ahead.

Grieving. Am I audible?

Yes.

Grieving. Firstly, congratulations on the fabulous set of numbers. My first question is, H1 operating cash flow fell 26% on strategic inventories, and free cash flow after 864 crores of capex was slightly negative, and the net debt rose a bit. What are those inventories? When do they convert to cash? And is FY27 pre-cash flow positive after CAPEX and the investments you have announced?

The inventory is a regular inventory. We are not saying the XPA inventory. So, there is some additional absolute number inventory as of 30th September. That will be what you call utilized in the current quarter, in the coming quarter. And the coming to the free cash flow, yes, last year only we have a free cash flow. When you are making that kind of a capex investment, we have taken a call between the free cash flow versus the growth capital, and then we are investing growth capex. So, I think we may not be worried on the pre-cash flow front because if you look at our net debt by EBITDA, it is still at a very healthy level of 1, around 1. So, I think we will manage, we will see how it can move.

Thank you for the clarification. I just have one more question. Loris Bio did 64 crores in H1, and it's down 16% against roughly 200 crores base you cited in July. With LB for commissioning this quarter and customers' reserving capacity, what are the reservation terms, stake or pay or advances, and what does H2 look like? If you can throw some color on that.

We expect Larisbury will be on good track from quarter 1 next financial year. Although facility will be qualified this quarter, but we will only do trials in the Q4 of this financial year. The actual commercial supplies may start in Q1 after 28. So, although there is a reduction in the revenues, but that's as part of our some customer allocations or projects to scale up from the customer side, from our side. So, the prospect looks good.

Just one more follow-up. But the minority losses suggest that Loras Bios' net loss is around 50 crores for H1. Is that about right? And what is the EBITDA break-even?

I think we will provide offline...

Please write to Vivek, our investor relations. We'll get back to you on that.

Okay. Sure. Thank you. Thanks a lot.

Thank you. The next question comes from the line of Tushar Madhupanne from Motila Loswal Financial Services Limited. Please go ahead.

Yeah, thanks for the opportunity again. Sir, just to understand how the asset term would improve from, say, 1.1 to 1.4, what are the key factors that would drive this scale-up?

Sir, I think it's a, that is the one year we achieved 1.4, that's actually based on the large purchase order. I think in future, I think the lot of unlocked assets are there, like, you know, we are not generating to the full extent. Once every asset is being generated, I think there is a possibility. I am not saying that we will reach a 1.4, but we will inch towards it.

Sir, but given the ongoing capex, we will continue to have certain assets or, let's say, certain investments in the gross block, which will then sort of suppress this asset term, which is why I was trying to ask that how or, let's say, over what period we think that even if the incremental investment that happens, still we will be able to do the asset term of component food.

You are right, but we also have a greenfield and brownfield capex. Like, now, we are investing a lot of investment in our unit 4, that is a brownfield capex, and then our unit 2 investments are a brownfield capex, which are going to, but we will see. But as I said, like, now, our first target is 1.1, which is our average of last six years.

Got it. And just lastly, while many questions on the project, just one last question. On my side, unlike in other set of products, is the validation batch also similar to that of a commercial-sized batch in what we are manufacturing in the peptide block?

That is generally the case, Tushar, but generally you could say that, yes.

All right, sir. Thank you.

Thank you. The next question comes from the line of Dhawalkut from Jeffries. Please go ahead.

Thanks for the opportunity. Last quarter, you guys had mentioned about a small molecule project about to go commercial. So what's the status on it? And you think it will be a meaningful growth driver, given, you know, generally in first year, there's a significant supply that happens. So is that a growth fever in the CDMO business, given, you know, now we are we have a really large base? Or is it more like, you know, a typical,

I think there are several programs at NDA filing stage, NDA filing stage, even now. So, we feel comfortable with the projects at various scales we have right now.

We were not able to give you more granular than this. No problem.

Second question, you know, maybe it could be a bit technical, but just want to understand, you know, concept behind it. So, you guys emphasized quite a lot that you are doing API, not just fragment, and you have full API capability. So, let's say, you know, there's an API, whatever is the chain length, let's say 10 is the chain length. So, how does the realization vary, you know, versus an API versus a fragment which is half the size? Let's say a 5 amino acid fragment versus a full 10 length API, just ballpark range, just to understand, you know, the significance of having a full API capability.

It can be small or it can be quite drastic, but I don't want to, while I know the answer, I don't want to go into too much detail as to in our cost model and all of that.

The reason is if five fragments uses all unnatural amino acids, cost could be very significant. If the 15 amino acids are all natural, then cost is very, very, very, say, significantly lower. So it gives a wrong signal. Any answer is project-specific. As you mentioned, your question was very technical. We don't want to give a very generalized answer for such a complex question.

Thank you. Thank you.

Thank you. Ladies and gentlemen, we will take this as the last question for today. I now hand over to the management for closing comments. It's over to you, sir.

Thank you, all the stakeholders for your active participation in the call. And thanks for asking very interesting, detailed questions. And in advance, we wish you happy Diwali for all the stakeholders.

Thank you. On behalf of Glorious Labs, that concludes this conference. Thank you for joining us. You may now disconnect your lines.