Rubicon Research (NSE:RUBICON) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Rubicon Research q one FY twenty seven earnings conference call hosted by Motilal Oswal Financial Services 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir. Thanks, Praver. On behalf of Motilal Oswal Financial Services, I welcome you all for Q1 FY 'twenty seven Results Earnings Call of Rubicon Research Limited.

0:48 From the management side, we have Mr. Parag Sanjati, Chief Executive Officer Mr. Nitin Rajodhya, Chief Financial Officer and Mr. Sadharaoke, Senior VP, Corporate Development and Strategy. Over to you, sir, for opening comments. Thanks, Ruchat, for hosting us for this earnings call. And also thank you, everyone, for joining the quarter one FY twenty seven earnings call. I'll, you know, take you through the the highlights of the financials. So we've again had a very strong quarter. This is the first quarter we are reporting since Arena acquisition. The Arena acquisition got closed in the month of April, and the revenue impact is roughly around 12 crores. There's no material impact on EBITDA.

1:34 So if you look at our q one numbers, our revenue for operations came out to $5.34 crores. EBITDA came out at $1.31 crores. PAT came out at around 86 crores. So if you just... From a percentage growth, year on year revenue has grown by 51%, EBITDA has grown by 65%, and PAT has grown by more than 100%. I'll request Nitin to take us through the detailed income and income statement and balance sheet. Thanks, Bharat, and good evening, everyone, for joining this call. On the slide number six. So all the numbers are in INR. So our revenue from operation for the quarter was 5,343 million, a growth of 52% versus the same quarter last year.

2:29 Gross profit was 3,543 million versus 2,430 million in the quarter one previous year. Again, a strong growth of 46%. Our pre r and d EBITDA was at 1,871 million, translating into 35% pre r and d EBITDA margin versus 32.5% for the quarter one previous year. Our r and d expense for the quarter was 580,000,000, translating into a 10.9 percent r and d as a percentage of revenue versus $355,000,000 in the quarter one previous year.

3:20 Our operating EBITDA for the quarter was 1,291 million versus $791,000,000 in the quarter one previous year. Again, a strong growth of 63.2%. And operating EBITDA margin was at 24.2% for the quarter one this year versus 22.4% previous year. During the quarter, we had a one off item in other income that was in the form of insurance claim against gross loss in transit. So after that, time other income, the path was at $848,000,000 versus $433,000,000 in the previous year, a strong growth of 96%.

4:16 So overall, a strong performance and EPS was at 5 rupee lesser. Moving on to the next slide, slide number seven on balance sheet. So as Parag mentioned, this balance sheet reflects Arena's consolidation effect as on 06/30/2026. As on that day, our capital employed was $1,400,778,000,000, and it was after excluding cash and cash equivalent of 2,408 million. The net working capital for the quarter or as on 06/30/2026 was hundred and fourteen days versus one twenty six days as on 03/31/2026.

5:14 While there's an improvement in networking capital days, I think you should not read too much into it because it's also a function of quarterly fluctuation. And we see working capital in the range of one twenty five to one thirty days as we have guided earlier as well. Are the ROC for the quarter was strong thirty six percent, and I would like to highlight one point that this ROC of 36% was despite close to one fourth of our capital employed being there in investment which are either pre revenue or which are yet to materially contribute to the revenue.

6:10 So, again, the point is a strong ROT. Now moving on to the next slide on cash flow statement. Our operating cash flow before working capital change for the quarter was 1,390 million. Our cash flow from... Net cash flow from operating activity was 285,000,000 rupees. In this quarter, the cash flow was impacted because of some delay in GST refunds.

6:56 And these refunds are getting normalized, and we should see the impact of this in quarter two in terms of healthy healthy cash flow for the quarter. In this quarter, the cash flow investing activities was primarily driven by our acquisition of Arino Life Sciences and some CapEx. So that's broadly on the cash flow statement. And with this, I'll hand over to Parag, and he'll take us through the business performance for the for the quarter. Thanks, Nitin. So just going... Touching on some of the key highlights for the quarterly performance. So we'll start with the revenue growth.

7:50 As I mentioned, we had a strong, again, revenue growth. And as we go ahead also, we do see a strong traction for revenue. If you look at the growth has been broad based again as our portfolio design is. Our top five products contributed 39% of the revenue in the quarter one and top 10 products contributed 55% of the revenue in quarter one. Again, this is broadly in line with our last four quarters in terms of concentration. For us, the pricing continues to remain stable because of our portfolio, which is focused on specialty and differentiated products. As mentioned, again, we continue to see very strong visibility for revenue in coming quarters. Our USD revenues for Q1 was $55,000,000 which was up 32% year on year from $42,000,000 There is a slight sequential drop owing to the tactical measures we have taken, which we have spoken in the earlier quarters with respect to gross margins, and I'll explain that in detail when we go to gross margins.

8:57 But Q2 FY 'twenty seven is tracking strong for sequential USD revenue growth. Coming to cash flow. The cash flow from operations was $85,000,000 This just along with that, if you would just go to the footnote, this was impacted by certain GST refunds, which were stuck. But in this quarter, that should normalize. Coming to the approvals for the products, we received two approvals in this quarter. The commercialization rate remains strong at 88%. Some of these products need to be commercialized in the coming two quarters. And also would like to highlight specialty portfolio contribution gross profit for the quarter is 36%.

9:47 Specialty focus underpinned by a very, very robust pipeline is is expected to keep on growing as we mentioned in our earlier analyst calls. Thank you. We can move to the next slide. So coming to the next slide on gross margins and EBITDA. I wanted to highlight a few things. Again, this is in line with our commentary what we have given earlier. Gross margin increased sequentially by around 140 bps to 67.7%. This is despite we have had sequential increase in key input cost, freight cost due to the geopolitical conditions.

10:35 In Q3 FY 'twenty six update, we had flagged off that stronger than anticipated revenue traction, coupled with our own constraint in manufacturing, was leading to a larger reliance on contract contract manufacturing, which was pressurizing GM, and company was in looking to do certain tactical measures to ensure that, you know, we are able to meet the demand, but at the same time, we are also focused on the gross margin piece of it. So post that, I think the company over the last few quarters has taken those tactical measures. And what we have done is we have given up relatively lower margin businesses, which has led to a marginal sequential drop in The U. S. Revenues, but it has led to increase in the gross margin.

11:24 These tactical measures allows us to prepare better with mix of our own versus outsourced manufacturing alliance. In light of the strong demand generation or revenue traction expected over the next coming quarters. Coming to EBITDA, the operating EBITDA rose to 24.2% compared to 23.1% in the sequential quarter, which is again despite sharp increase in our import and freight costs due to the prevailing geopolitical conditions plus employee appraisals, which have been concluded in quarter one. For the remaining three quarters, I also want to point out in FY 'twenty seven, we would some specific costs which could impact EBITDA margins such as ESOP cost, which is arising from the new ESOP scheme, Arena costs which are related to kick starting the growth for Arena, and the prerevenue cost for the new facility which we've acquired in New Jersey and Pitampur.

12:27 But despite all these cost impact, we are slightly up guiding for around now 20% earlier, our guidance was 22% to 23% on EBITDA, but now we are comfortable to revise this upwards for the whole of FY 'twenty seven to 23%. We can move to the next slide. Sadhguru, if you want to just take over take through the acquisitions we've done. Thank you. Thank you, Prag. Good evening, everyone. So I'm on slide 11 of our presentation, and I will take you through the updates with respect to our manufacturing facilities. Starting off with. So in early July, we had informed that the FDA conducted an unannounced inspection.

13:19 A four eighty three was issued with two observations, which we had said we were confident of concluding the evaluation in a timely way. The observations were procedural. We are happy to report that we filed an appropriate response and also received FDA approval on a regulatory filing after the inspection was concluded. So, you know, we had... We have... We've pretty much delivered in line with what we had said in early July. So we are on track to ramp up commercial operations at this facility from first quarter of calendar year twenty twenty seven as we had previously guided.

14:07 The second update is relating to our recent announcement of the acquisition of a manufacturing site in New Jersey, USA. So we acquired this facility, which is in East Brunswick, via port supervised bankruptcy process. The total purchase price was $2,900,000. Now the site has... In terms of size and in terms of footprint, it's similar to our our manufacturing site at Sahara in Maharashtra, but we believe it adds a completely different dimension to our supply chain with on-site or onshore manufacturing presence in The US.

14:54 This facility has over a decade long track record with US FDA. And in a way, I think timing was quite good that FDA carried out an inspection in May 2026, roughly a month before we closed our acquisition. So it gives us a good... And I guess an authentic and official assessment or evaluation or or a due diligence for most, if you will. I can also tell you that as of today, the updated status on the FDA's website for the May 2026 inspection is a VAI or voluntary action classification.

15:39 So this is, again, in line with our commentary when we announced the acquisition. You may recall that at that point in time, the FDA had issued a four eighty three with with six observations, which we believe were largely procedural. We also announced that they had been responded to within the prescribed type. And and I think now the the current outcome outcome sort of best testimony to the fact that the inspection has been successfully concluded. This facility offers us a number of benefits. It is located adjacent to our distribution operations that sit within our subsidiary, AMRX three p l.

16:26 If you actually see it, slide later on in the deck shows that they actually share a wall. It's also not very far away from our US headquarters, which is also in New Jersey. So so we believe the facility from an operational efficiency standpoint brings in a fair amount of synergy for us. Our intent is to focus on specialty and high value products from this site as well as demand from certain customers such as US government departments where having an on-site for onshore manufacturing presence is an enabler. We expect commercialization to start in calendar year 2027.

17:13 Once we have done... Once we are done with implementing our quality management systems at this site. Yeah. Tyler, I would just like to add also, you know, since we're talking about facilities, quality culture, inspections, you know, we just... I just wanna emphasize we... The way we have built business over the last few years with inorganic acquisitions of capabilities, like it be the facility of Sattara from Cipla or, you know, this facility which we bought from Alchem in Pitambut. I think I'm very happy the way team has executed to build the right culture before these sites have been offered to FDA in record time. And within the first inspection, we have been able to, you know, resolve the issues or the points which the auditors have highlighted.

18:08 So, you know, we continue as we build even the facility in The US. I think the important part we really focus on is building the right culture, the... And the right systems, which allow us us to... You know, once we commercialize these sites, we know that, you know, we are going in the right direction from a quality and compliance perspective. Absolutely, Barag. Fully agree. I'll move now to the next slide, which is slide number 12 relating to r and d spends and their impact on revenue growth. For the quarter, expenses were 10.9% of our consolidated operating revenue.

18:57 As we have, you know, said in our previous calls, r and d spend is sort of the lifeline... The lifeblood of our business. It's a lead indicator of future revenue. And we measure r and d productivity by comparing the incremental revenue to lagging total r and d spent, which you can see on that slide. Now just to quickly recap what what is there on on the slide, if you consider a typical development timeline and FDA approval timeline, a product that you begin working on today will come to market about two years hence. When you consider that along with our measured approach of building market shares, a product that we began development in fiscal year twenty would typically register meaningfully in revenue by fiscal year twenty twenty four.

19:57 So we look at incremental revenue over a three year time frame, and we compare it to the nine quarters total r and d spend on a lag basis. So in this case, comparing '21 with '24, we are taking two full years of r and d spend, which is fiscal twenty and twenty one, and adding in q one of fiscal twenty two to account for cases where development may have been largely completed, but filing would have been done in the first quarter of the next year. So by comparing, you know, that $1.65 crores of r and d spend with roughly 539,540 crores of incremental revenue is is the 3.3 x multiple or r and d productivity that we've that we've pointed out.

20:43 We've shown this analysis on a rolling three years basis, '22 and... Versus '25 versus '22, '26 versus '23, and '27 versus '24. Just want to call out here that the '24 and '27 analysis is based on an arithmetic annualization of the quarter one revenue. Simplistically, we've... For the purposes of this analysis, we've multiplied q one revenue by four. And as you can see, our current r and d productivity based on this q one FY twenty seven is about 5.5 x. Now this is on revenue that that does not include RUBICON Life Sciences.

21:30 We expect that the multiple will will expand during the course of the year as the revenue ramps up. And we already spoke about how q one revenue compares year on year with q one of last year. Coming then to our guidance, we had guided for INR 5,000,000,000 or 500 crores of r and d spend over nine quarters of fiscal twenty six, twenty seven, and q one of fiscal year twenty eight. We have completed spend of about 251 crores out of 500 in five quarters. The current rate of spending is about 60 crores, 600,000,000 rupees per quarter. So we believe we are on track to comfortably meet the 500 crore spend guidance by q one of next year.

22:24 And also just want to call out in our unlisted phase, we invested significantly in r and d. So fiscal year twenty two relative to revenue was just under 40%, was 39.5% r and d spent. Since that has normalized to what is still an industry leading 10 to 11%, which as we have previously stated, we will continue to hold. FY twenty seven is the last year of of what you see on screen as on a cumulative three year... Nine quarter basis, reducing r and d spend. And from FY '28, you should see the impact of the increasing absolute spend as well, and I'll just clarify what I mean by that.

23:15 So if you look at nine quarters r and d spend, fiscal year twenty four plus twenty five, and quarter one of twenty six, these are all, of course, actual numbers. That is a total of 278 crores. Moving forward one year, twenty five plus twenty six and q one of twenty seven, again, actuals, 380 crores. And then there is the period for which we have guided 500 crores, which is fiscal year twenty six, twenty seven, and q one of fiscal year twenty eight, which is our current guidance. I think at this point, it's also useful to highlight our track record of market execution because along with r and d, the second part to this slide is is revenue.

24:07 And if you look at how we have executed in the past on revenue generation, I'll ask you to see slide number 22 later on in this deck. And this actually shows for the six products that we had showcased as part of the IPO process. We update the data and added on fiscal year twenty six. And I think what you can see here is the rank numb... In all of these products despite the competitive scenario not having changed much. So in fact, there is one product where market share is is a bad down, but ranking has gone up.

24:54 Another where market share is is marginally down, but the ranking has been maintained. And the remaining four products where ranking as well as market share have both gone up. So market execution for us is a moat, and I think should be seen hand in hand along with product selection as well as r and d execution. With that, I'll hand it back to Parag, and we would go to slide number 13. Parag? Parag, sir, this is the operator. Can you hear me?

25:44 Just a minute. Parag is joining this call from US, so there may be some Yeah. I think some lag or issue. Just a minute. Ladies and gentlemen, please stay connected while we reconnect the line for Parag, sir. Ladies and gentlemen, thank you for patiently holding. We have the line for Parag, sir, reconnected. Yes, sir. Please go ahead. Yeah. Hi. So sorry for this. I think there was some technical glitch. So coming to the slide number 13, and I think this is a very important slide and a very important organizational update. You know, as Rubicon, we tend to, you know, grow and become a global pharmaceutical company, we've been... As you've seen that we've been working in various areas. And with that also, with the growing organization, it was important also to create management bandwidth, succession planning, and everything what is required to ensure that for the next phase of growth, we are completely ready in terms of people. And I'm very, very happy to state that Nitin, who's currently the CFO, is moving on to a chief commercial officer role.

26:58 And Rohit, who will be right now the CFO designate, but as Nathan transitions his CFO responsibilities to Rohit, Rohit would move into the CFO role. And this... Why I wanted to lie, this is an important update is because as the company is getting into newer area, it's important the management bandwidth also keeps up in the same... We are focusing on building that management within our company. Also, growing our own folks via leadership, also looking at the right talent from outside to ensure that we have the complete... You know you know, we have the right people as we look at expanding our business. Nitin joined us in 2021.

27:43 He's beyond the CFO role. He's immensely contributed in building the business, let it be supply chain, IT, business transformation, organization development. Nathan has played extremely critical role in building building all these functions from the scale we have grown at least. We were at... When Nitin joined, we were roughly around at 400 crores revenue today. Last year, we closed at 1,700 crores revenue. So he's been integral part of the journey and a pillar of the management team. So this is after five years, I think it was a fortune time that, you know, we use Nitin's focus on business functions where we are seeing tremendous amount of opportunities to grow our business.

28:31 So completely appreciate Nitin's efforts here as CFO, but also welcome Rohit to the Rubicon family. Thank you. Thank you. Sir, we can open the floor for questions. Yes. Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touch tone phone. If you wish to remove yourself from the question queue, you may please 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. Your first question comes from the line of Akshay with AK Investment. Please go ahead.

29:37 Hello. Hi, sir. Am I audible? I think your voice is not very clear to me, at least. Yeah. We we we Can you hear loud? Yes. This is me. Okay. Okay. Thank you for the opportunity, and congratulations on the great set of numbers. So my first question is about the product contribution. So currently, top 10 products contribute around 55% of the revenue. So if you can give some color in terms of therapeutic area from which therapies these products contributes and also in the which stage are these products like there are like like are they maturing or still growing and also going ahead, how many products we can expect such products to commercialize with relatively larger addressable market?

30:29 Nathan, you wanna take that? Yeah. So I think if I were to talk about the growth maturity, just to tell you, we continue to see growth across. There are products which we launched a couple of years back, continues to grow. If you look at the slide 22, which Sagar talked about, the other product which we had launched eight, ten years back. Even in those products, we continue to see strong growth, strong demand. So as we mentioned earlier that our portfolio is pretty broad based. If you look at the concentration of top five, top 10 products over the year have continued to come down. Even if you look at last few quarters, it's range bound.

31:26 Okay? So so that's the point. It's a fairly broad based portfolio, continues to grow. Okay, sir. And, sir, my second question is about the artificial intelligence use. So due to artificial intelligence, does our efficiency increase in terms of product development cycle and r and d? And in Rubicon's perspective, are we currently leveraging AI and how AI does improve our efficiency and all business processes, especially in terms of CDMO and pharmaceutical companies? Yeah. So... So... What? Yeah.. So... Yeah. So I would put AI automation, other processes, technology, I would say. And we adopt technology wherever... You know, and we are very actively adopting technology wherever we see that technology can value add in the work we are doing in terms of increasing efficiency, increasing compliance, reducing errors.

32:33 So that's one of our guiding principles which are there, and we continue to invest and find use cases of doing it in the appropriate way. I do not want to specifically just comment on AI because AI is a very evolving area. We are definitely looking at it. But in pharmaceutical setting, have to regulate these are very important aspects. So whenever we adopt technology, the important aspect we also need to think through is we have to give regulator the confidence that whatever we are using has enough checks and balances, which allow that technology is giving consistent, predictable, and robust results. So we are definitely adopting it in the right processes.

33:21 But, again, it's a very, very large field, and we don't want to specifically comment on on just AI part of it. Okay, sir. And lastly, on the product pipeline, how many are in the phase one, phase two, and phase three in the development cycle, and how many molecules are commercial as of now? So I think we do not comment specifically on phase one, phase two, phase three. But in terms of, I think, there is a slide which is there. I think Sadhguru can point out with number of products which are approved. And then we've also mentioned our commercialization rate is strong at around 88%. So... And if you looked at the DRHp at that point of time, when we had filed the DRHp, we had mentioned 60 plus products were at the advanced stages of development, which were qualified by the appropriate consultants after looking at the data.

34:21 Okay, sir. So, Prabhat, that that number was 63 at the time of filing RHP. Yeah. So just to add to that, Akshay, we usually do not comment on product level developments, and pipeline is something that that we prefer not to go into too much detail on because it's commercially sensitive. But if you look at slide 28 of the current quarter's earnings presentation, it provides an overview of how the portfolio has evolved with time. And in terms of how we expect portfolio to impact business, then that's what we're about as we went through slide number 12 on r and d productivity.

35:11 But at this point, we would not be commenting further on that. Okay, sir. Fair enough. Thank you so much, and all the best. Sure. Thank you, Ruchi. Thank you. Your next question comes from the line of Sudhat Negande with CWC. Please go ahead. Hi, Praj, Sadar, Nitin and the team. Congratulations again on a great set of numbers. And on the consistency of of delivery. Few questions from my end. One, the rate of approval seems to be marginally slowing down while while revenue growth obviously continues at at a very, very healthy pace.

35:59 Is this a fewer, bigger strategy now, or how should one think of, you know, your pipeline in terms of the the molecules you will pursue and the molecules that you get approved? That was question one. Question two is in light of the acquisition in New Jersey, how should one look at the manufacturing footprint playing out between US and India? And in that context, how should one think of gross margins? And the third one was on the churn in your specialty portfolio where, you know, you classify products only being specialty if they have zero or one competitor.

36:45 So what's the churn there? And if you could give us some idea on how many products do you have currently in this that you would classify as specialty products. And and just one other clarification. On on the capacity slide, you mentioned that there is headroom for expansion. So if you could clarify on, you know, what the capacity utilization is, and what do you mean by headroom for expansion? Is there more land available? You know, how should one think of your expansion on the existing facility? Yeah. Those were my questions. So I think the first question, let me take that, Sagar, on the portfolio approvals or approvals slowing down.

37:37 So that it's more... Again, this is as per the plan, we have or what we were expecting in our... As we are expecting approval. And more importantly, we are very, very conservative, so that when we look at, you know, building revenue forecast from next further. So I think right now, I, you know, I wouldn't comment, know, the approvals have slowed down. Also, I think you alluded that we are going to take fewer approvals, but I think you were referring to that less approvals and bigger numbers. I don't think that's the right way of putting it. I think we still follow a very clear portfolio strategy. So I think numbers of how many are coming, what aren't coming, I think it just indicative. But I think I can assure you that we are on track to the approvals which we have, which... On which our forecast and the plan is built on.

38:31 Nathan, you want to take the question on gross margin? And So so, Siddharth, if I understood correct, your question your question around gross margin, can you please repeat once? Sure. In context of The US acquisition of the manufacturing facility, how do you see the manufacturing footprint playing out between US and India? And how should one think of gross margins in context of the manufacturing split between India and US? Okay. So if you look at if you look at the acquisition of US facility, okay, that is a fairly strategic move for us because because it gives us lots of revenues. It gives us ability to enter into government stock via business.

39:32 It gives us ability to be closer to our customer. It gives us flexibility to manufacture the certain strategic product in United States. So... And also, we mentioned that it also gives us advantage in terms of being an extra facility to us, a warehouse or the, yeah, warehouse in in United States. So from that perspective, this is a this is a valued addition, and we don't see we don't see margin, I would say, getting diluted because of this. Okay?

40:18 We definitely see that it will be a... In the overall scheme of thing, should be margin accretive only. Thanks, Siddharth. And and just to add just to add, Nitin, I would just say... So, Siddharth, I think what Nitin is... Was just summarizing in a simple way. It's a very strategic move. Then I think... And when we look at financials, obviously, from a strategic perspective and extremely important move we've done, we obviously don't see impact on gross margins or, you know, again, our forecasting, we build some of these things into it. And what we have said also that we are going to focus on value added differentiated products, which will create an business for the government. Also, this will create risk diversification for us in terms of, you know, our customers getting some of these very important products from two sides, one in India, one from The US, and, you know, mitigating any risks in terms of supply chain. So I think there was no financial impact, but it has very high strategic impact, which customers can view very positively and could give us some, I would say, some premium in the market when you do something like that.

41:38 And, sir, I think the other question you had was around composition of specialty pipeline. So I think, you know, it's it's obviously sensitive from a competitive standpoint. So we've tried to strike a balance of providing thoughtful disclosures to help investors track in the long run without jeopardizing sort of the the business itself. So we share on an ongoing basis what is the share of gross profit of the specialty portfolio? Once a year, we also talk about number of specialty products that we have.

42:25 And... But I think we want to be consistent with with our disclosures in that sense. So I think at this time, we wouldn't we wouldn't be sort of expanding set of disclosures around specialty. Sure. And the last one was on the clarification on the headroom for expansion on the slide for the manufacturing facilities, if you could share that. So Yes. So Yes, sir. Go ahead. So headroom for expansion, you are referring to at Pitampur, Siddharth?

43:19 Give me a second. I will tell you the slide number I'm referring to. This is the slide that comes on all your all your manufacturing facilities, all the four manufacturing facilities. Yes. This is slide number 30. Yeah. Absolutely. So if you look at, you know, the site in Pitambut, which is a a pretty large, you know, nearly 30 acre area site of which today we are using, you know, barely five, six acres. So we have significant room that we can expand at that site. And just for sort of order of magnitude, I mean, that amount of space is...

44:11 Nitin, correct me if I'm wrong, greater than the footprint of of all of our Yeah. Yeah. Sites put together. And in addition, I think, Nathan, in the slide has mentioned, we have a facility in CSN, which is, you know, for niche dosage forms, which is kind of modularly ready, which is there. So, again, there's headwind to grow this business from a manufacturing standpoint. We have different areas we are having ability to grow the facilities. You know? Very clear and very helpful. Thank you so much. I'll join the line... Queue again for more questions. And, Nitin, congratulations on your on your new role.

44:58 Thanks. Thanks,. Thank you. Your next question comes from the line of Nishant Maheshwari with Rodel with... Please go ahead. Thank you for the opportunity, and congratulations to the management for the fantastic setup number. My question to the management is related with the wire wire wise. I mean, year on year, additional cost of material consumed. As I see that it is roughly 19.83 crore and additional purchases is roughly INR 19 crore. So while our additional sale is INR 181.9 crore, So does it reflect the substantial value addition on account of transfer pricing mechanism that is transferred to the U. S. Entity and from there, we are selling?

45:53 Because what I can see is that on stand alone basis, there is a decrease in the closing stock of INR 10 crore, while on consolidated basis, we have an incremental closing stock of INR 7 crore. And further, how we will manage if in the worst case scenario, S. Tariffs gets imposed and how we will because we are certainly 97% exporting to U. S. Okay. So I think the the math which you explained, I'm not being able to follow that number. Your underlying question seems to... Two things. One is you mentioned that how are we prepared to take care of our fees if there's any tariff in future.

46:57 Okay? And the other point you alluded on with respect to the transfer transfer price. Is that correct? Yeah. Because what I can see is that with the additional expenditure of 38 crore rupees in terms of purchase and cost of material consumed on stand alone basis, our incremental sale is roughly INR 181 crore. And that seems to be very I mean, in terms of volume number, I don't see that there is a substantial growth unless and until we have increased the prices of the product substantially. So that's what I was feeling, but clarity from from the part of management which I feel that you must address. So I think If I look at...

47:47 So so from a gross from a gross margin perspective, I think as as we have mentioned earlier, if you are comparing the... Let's say Y o y. On a a Y o Y basis, we explained in the last few quarters that how how the... Outsourced manufacturing has gone up in the last three, four quarters. And that has had some impact on the on the gross margin of the business if you compare versus the last year quarter one. Okay? And the other thing as far as cost management is concerned, I'll get...

48:37 As an organization, we are very conscious of our margin profile of the business. As Barag alluded that we have sort of taken tactical measures to let go of relatively lower margin business. Okay. So that's what I can say in terms of our focus on gross margin. In terms of your math, I think maybe we can connect offline and understand what you are trying to convey. Yeah. I'm just trying to convey that with the additional increase of 38 crores. Our revenue has jumped up by one eighty one crores by on by sales, I mean. So if if I see as a layman, there must be a substantial increase in the price of the products through franchising, and the stock has decreased in stand... On stand alone basis, it has decreased by 10 crores. While on consolidated basis, I'm seeing that there is an increase in the stock by INR 6 crores, if you see the changes in the inventory.

49:41 So I'm unable to understand how this has been in terms of volume jump or a price jump point. I don't know. So, again, it's a combination of various things. But let me first tell you that as far as the transfer pricing is concerned, in line with a very high standard of governance, okay, with respect to the transfer pricing, etcetera, we are we are fully compliant and no shop movement in transfer pricing mechanism. And the other thing is all of these numbers is also a function of various things in terms of our own manufacturing, outsource manufacturing, sale of traded goods, own manufacture. Okay? So... And, again, as I suggest, I think we can take this offline to understand your math and then clarify.

50:37 Sure, sir. Sure. So, sir, further one more question, last question, that if we start the facility and that is which we have acquired from in calendar year, I mean, January to March. So what can be the incremental margin as against the outsourcing? I mean, how much you will save more in terms of percentage? So we'll refrain from putting any specific margin percentage. But what I can assure you that our own manufacturing is is both from a gross margin as well as overall margin profile perspective is far more efficient. Okay. Thank you. Thank you so much. Thank you.

51:25 Your next question comes from the line of Harsh Kundani with Ionis Alpha. Please go ahead. Yeah. Hi, and team. Congrats on good set of numbers. Couple of very small questions from my end. One is that I think in the opening remarks, you mentioned that Arita's contribution to top line and EBITDA for the quarter. So the top line contribution was 12 crores, and I think EBITDA you said was flattish. Just wanted to clarify, did I hear that correctly? Yeah. So you're saying the revenue was close to 12 crore, and the contribution on that 12 crore revenue was was not material.

52:15 Understood. So does that mean that our base business margins were in fact higher than the reported margins because of if I just adjust it for this acquisition? Yeah. If you if you do that, Matt, you're right. Slightly on the 12 crores, there'll be some slight impact on the overall margin provide. But I think overall considering order of magnitude, Maharsh, it's it's probably not going to have Yep. Too much of an impact. Understood. Understood. And how do you look at I mean, as margins going forward in the next few quarters? Yeah. So as we had mentioned earlier, and I just reiterate that we are looking this arena business in various phases. And as we had mentioned that in the first phase, our figure... Our focus is to put the the growth, identify and fix the growth levers.

53:21 Okay? That will be the focus for this financial year. And in the next phase, we'll be focusing on beating the IPM growth, how do we drive growth in that business. And and after that, we will look at profitability. So that's how we look at the various phases in arena journey. And, Harsh, if you look at the EBITDA guidance that we have given, that is obviously at a consolidated level taking into account what Nitin just mentioned in terms of growth investments in Arena. So I think what we are we are guiding towards is after taking into account sort of the the growth and the build out that we've mentioned previously.

54:15 Understood, sir. Thanks, Parag, Sagar, and Nitin. That's it from my end. Congrats on all the time. Thanks, Suraj. Thank you. Your next question comes from the line of Tushar Manudani. Please go ahead. Yes. First of all, congratulations on multiple trends, maybe financial performance, maybe getting successful compliance at Pitambu site and starting or establishing The U. S. Manufacturing footprint. In fact, connecting to U. S. Manufacturing footprint, we'd like to sort of understand that how you sort of got this facility in a way at just a couple of million dollars, if you can just sort of explain that part. Sure,.

55:04 Thank you. So for... If you look at our approach to m and a and m and a strategy, I think we are focused on sort of looking at deals where we can create long term value. We are prepared to be patient because, you know, we believe m and a by design is is not relating to next few quarters, but but more sort of long term in nature. And, you know, whether you look at our past acquisitions, whether it was the center in Canada, which was in post pharma, whether it was the manufacturing site in Sattara, which was five years ago and, you know, by all accounts has been reasonably successful. In this case, I think, you know, this this acquisition process was ran fairly long. I think well over a year and a half.

55:59 It was a court supervised bankruptcy. And I think we we were able to stay the distance. The fact that we were... You know, we already have an adjacent site over there, I would say, us a little bit of an advantage in the process because we are well connected in that in that ecosystem. But but, yeah, I think this is... It also boils down to, I guess, culture. Right? I think our approach in terms of how we scope deals, how we pursue deals, and and get them over the finish line. Got it. Got it. And, also, Tushar, just to add to it, I would say is also the ability to assess, right, what, you know, how we can build on these acquisitions.

56:47 Right? So these come at a certain value, but I think more important work we do is how do we see that value and build on that to create a significant revenue and profit multipliers on all our acquisitions we have done till now. So from the start to now, if you take any acquisition, we've been able to build multiple revenues and profitability on those capabilities. Got it. Got it. Got it. Secondly, while the quantum of R and D sort of increases and as guided like crores and subsequently, it remains as 10% to 11% of sales. Just would like to understand, is this going to be while not sort of getting into product specifics and rightly so, but is this going to be certain product specific R and D? Or is this going to be spread across the portfolio?

57:45 Tushar, I think it will be again a portfolio approach. And when I say portfolio, we look at various parameters, including the risk, probability, execution ease, maturity of the organization in doing those products. So all put together, I think we'll always have a portfolio approach. It will... I can... It's never going to be that, you know, we want to concentrate only on few big bets which are there, but it's gonna be a combination of various threshold where, you know, we are looking at long term high innovation products, then we're looking at some other products which are in... You know, could be in the range where, you know, we are able to execute and have a competitive advantage. So it will always be a portfolio based approach.

58:36 Got it. And lastly, while there was a discussion as far as manufacturing facility is concerned, but just if you can sort of elaborate like why so many facilities across so many sites? Yeah. So, Tushar, if you've seen, we've grown facilities over a period of time, and always when you've grown the facility, the underlying theory theory has been... Or underlying basis has been our portfolio. So we have not done acquisition because this site was available or that site was available or it was available at a certain cost. We have always had a underlying thesis of our pipeline, and that has guided us towards the next acquisition or what we have been looking at. So when you look at...

59:23 Right now, when we have facilities, Ambanath has been the code where we started with, where we are doing oral solids and nasal sprays. Now when we acquired Satara, we had a liquid portfolio, which we were doing with CMO, then we got those products in house, and then we have built... We are building nasal capabilities there, so which could be a backup to our facility. So again, risk diversification also is extremely important for protecting revenues and also creating capacity. Then we had indoor indoor, as we have said, we are... We've been seeing strong traction from a revenue perspective for our existing products. And also, we wanted to add additional capabilities like hormones, steroids, high potent products. So... And plus one single site which give us room to build so that it's very important that we build up big capacity from a perspective of at one facility, we can have very, very large batch sizes or we can build in some modern technology to deal with continuous process manufacturing.

1:00:31 So that's where came Alchem. And the CSN piece or what mentioned in his balance sheet has been... Is looking at or we are looking to... Looking at some niche dosage forms in our pipeline, and hence, that facility has been prepared modularly to ensure that when we are looking at these niche dosage forms, we have a separate facility from a compliance and management perspective. So that's, I think, the way we have looked at in building a footprint. And also the US one, we already discussed, so I'm not, again, going back to the US one. But this is the way we've looked at each of these facility. Also, we have to look at that manufacturing outsourcing came into the whole play along with that was because our manufacturing is, again, driven by portfolio and CapEx will always lack sales.

1:01:26 So we are doing CapEx based on these revenue capability and visibility we have, and we will keep that mix of where we are doing. We have risk diversification also is important and also keeping for every important product having a couple of sites, which ensure that we are offering our customers a business continuity. Yes. Thanks. Thanks a lot for that elaborate explanation. That's it from me. Thank you. Your next question comes from the line of Prateek Shiva Sabha with Nivesh Wisdom. Please go ahead. Thank you, sir, for giving me this opportunity. First of all, congratulations on great set of numbers and the progress you are making on the multiple sites. Sir, my first question is on The US revenue.

1:02:18 We saw that in, you know, like, the Indian revenue grew nine forty seven, but The US grew only 4%. And you mentioned, yeah, you you sort of... There you... You know, because of some... We walked away from some lower margin US businesses, and that was in, again, q one. Now what is the latest status here, sir? Have we got some new higher margin business now for our US subsidiary? Nathan, you wanna take that? Yeah. So so if I understood your question correct, you said that when we have given away some... Technically, some lower margin business, then have we got the high margin business in place of that? Yes.

1:03:10 What is the latest? Because q one, we want to see more of month. Now are we... So if you look at if you look at couple of things, if you look at our share of specialty in the overall gross profit, okay, that has gone up with increase in revenue. Right? We have technically given away relatively lower margin business. So in a way... Yeah. That's correct. That's correct. And, again, also look at also also look at that if we are letting go of a relatively lower margin business, okay, in that choice making, we will do that only if we are we are securing a higher margin business.

1:04:07 So you're right. Fair enough. Fair enough, sir. My second question is now on the Pitampur side. So I see there are around, like, one... Close to 1,500 million in capital setting there pre revenue. And the EIR is still awaited. Now what is our capacity utilization curve in sort of like in near term, like around six, nine months to a year versus, let's say, a long term two, three year out? Yeah. So I think first, I think we don't wanna jump the gun. We first... You know, we have mentioned that we look...

1:04:52 We are looking at quarter one for commercialization or ramp up from there. And for that, we have enough capacity, which is there. Plus, as we mentioned, the site is roughly around 30 acres. We have only utilized six acres. Even with the current building incrementally, if you build the site, I think there is enough headroom for capacity expansion fairly quickly. So I think there, the next two, three years, I think the capacity of the facility is extremely... There's a lot of land or footprint available to grow that business from. So I think there is just in one line, I think there is enough capacity available at at Pitampur in the long run and the short run.

1:05:39 There's an... Again, we'll be scaling up the facility gradually in the next nine to twelve months. So for that also, we have enough capacity. Got it. Got it. And sir, the final question again is on Q4 comp call, you gave the number that there were 24 products under FDA review. But this time around, the number is not there in in in terms of, you know, ANDAs, NDAs. So any specific Yep. Reason what the... Can you just give some color? Yeah. Yeah. So last time last time, if you recollect, we had specifically mentioned that these numbers, we will give in... Once in a year. Okay. So we shared that in the last quarter, and then we'll be sharing that number once in a year.

1:06:32 Okay. Got it. Got it, sir. Okay. Thank you. Thank you. Thank you very much, and all the very best. You. Ladies and gentlemen, we take that as the last question for today. I now hand the conference back to the management for closing comments. Thanks. Thank you, Mudhila, Uswan, Tushar and Sagar for hosting this call. We thank all the participants who joined us in this call, and we look forward to speaking you in the next earnings call for quarter two. Thank you. Thank you, members of the management.

1:07:17 On behalf of Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines.