Refused to commit on working capital cycle numbers.

On the gross margin front, where the proportion of Synthesis business has reduced quarter-on-quarter, API and FDF, which is largely ARV, have increased. And despite that, we are seeing reasonably good improvement in the gross margin. Could you elaborate on that?

If we look at our first quarter FY '26, we reported gross margins of 59.4%. And this quarter, we are reporting 59.9%, almost 60%. The CDMO revenues were almost similar, both small molecule and large molecule put together. Some growth came in ARV, API, and formulations. But we have delivered more commercial molecules in CDMO during the current quarter. So, margin profile was better. So gross margins improved because of that.

On the ARV side, could you give the breakdown of API and ARV formulation sales for the quarter?

We have done INR733 crores ARV, both API and formulation put together in this quarter. When you compare the last quarter, we have done about INR647 crores ARV sales, both API and FDF, about INR90 crores more we have done in this quarter.

Breakdown into API and formulation on the ARV side?

Tushar, the API was INR395 crores. So, you can balance it out for the formulation.

For the first half, we are almost INR1,380 crores of ARV. And at the start of the year, the commentary was that ARV business would be largely stable for FY '26 at least. And in FY '25, we had done INR2,300 crores ARV sales, and we have already done INR1,400 crores. So does it mean that we see some decline in ARV sales for the remaining 2 quarters of FY '26, or we have got enough orders to sustain the first half performance of FY '26 in the ARV segment?

Still, I will maintain my commentary, ARV sales will be around INR2,500 crores, give or take, a couple of hundred crores. So, you can't have INR2,500 crores every year. As I mentioned, INR2,500 crores plus or minus INR200 crores. The values differ based on the tender results, awards, and then our supplies. I still continue to maintain the same statement, INR2,500 crores plus or minus a couple of hundred crores.

Can you please give update on the R3 plant at Mysore? I don't see that in the presentation.

We are constructing on a Fast Track basis a large fermentation capacity at Vizag instead of investing that in Mysore. The reason is we have better infrastructure right now. It is in industrial complex. But at Mysore, the waste treatment facilities are not ready. So, we decided to invest in Vizag as of Mysore.

On the formulation side, we want to be the global leader in 15 or more than 15 type of products or molecules. So are we still of the same opinion and the thought process? Or we want to move towards more CMO, like contract manufacturing kind of thing on the formulation side?

Both are happening. We are investing more in CMO generic formulations with our European partner, going well. And we are also doing select products, global launches, and our approach of doing a few products and gaining a leadership position globally is on track. We are not deviating from that principle.

What is the total capex for the current year that you are estimating?

It will be closer to INR1,000 crores. We invested about INR480 crores in H1, and we expect to invest similar amount in H2 as well.

The receivable days and inventory days seem to have come down for the midyear balance sheet compared to the March balance sheet and even compared to the earlier balance sheet. Has anything changed there materially?

I think additional sales has resulted in the reduction in inventory, Bino.

What is the full year consolidated tax rate that we are looking at?

I think similar. Right now, we have about 28%. At Laurus Labs, we have converted into new regime, but there is other subsidiaries are going at a different. So that is the reason it is coming around 28%. But I think it will be in a similar range.

At the same time last year, the capex run rate was 11% of sales, which was very healthy, of course. And today, our sales have increased. They are significantly better Y-o-Y, but the percentage capex is not just 11%, it's 15% now. So both the sales and the capex have increased Y-o-Y. The question is what's driving this level of conviction? What kind of interactions or feedback are we getting from big pharma and other innovators?

We are investing into new modalities, which are taking more capex. And we're also investing in fermentation. And we are also building some additional blocks in our animal health. So the building qualification, validation are also taking a very long time. Right now, if we start the construction of a manufacturing block, by the time we build, qualify, and do validation, it is anywhere taking between 18 to 24 months. So because of that cycle, we are investing more. And we don't expect that investment around INR1,000 crores will come down in the future years also. It probably may go up.

While our small molecule CDMO pipeline is well-positioned to take us to the next level over the medium term, we will eventually need to demonstrate leadership in biologics and precision fermentation as well. So, how do you see the competitive intensity in both human and non-human bio non-food proteins and polymers evolving? And where do you think we have the sort of opportunity to differentiate ourselves, given the current industry dynamics in these segments?

See, our current capacity in Bangalore is already sold out. And for us to grow, we need capacity. That is the reason we are doing on a Fast Track basis, an additional capacity of 400 KL in Vizag. So, especially in bio, we know what to make, how much to make. So we are not at a stage where we're putting capacity and don't know what to do. Bio, at least we need capacity. So we continue to invest in bio more and more in the next 2, 3 years.

Between ADCs or gene viral vector or whether it's non-food proteins and polymers, which area is looking more exciting to you as of today?

In the next 3 to 5 years, we are not expecting any revenues coming from cell and gene therapy, except our investment in ImmunoACT. That's one statement I can make. And second is the CDMO of large molecule precision fermentation is as attractive as small molecule CDMO.

Comparing with other players like Divis, relatively Laurus is not getting the return on investment quickly as others are. Why is there a delay in getting the orders from the innovators or are we not investing in the capacities where the demand is growing incrementally?

Modalities of CMO offerings have changed significantly, which demands very early and a large amount of capex is required. That's the one factor contributing. Investments are being done well in advance, whereas revenues are coming in future. Another big change is, you get a Phase III molecule, you do validation and create a large capacity, and wait for NDA submission and approval and all. So, from late-stage supplies to commercial supplies, there is a gap of almost 18 to 24 months. So during that period, utilization will be very, very low. So if you look at our traction in the CDMO is not 10 years old. We have a significant traction happening in the last 3, 4 years. So we are catching up with our investments and the projects, commercial sales, and all. So this will continue for a few more years, and then we'll be back on track with our return on capital to a good level.

In last quarter, you had guided a capex of INR5,000 crores for 5 years. And if I see your presentation, it's US$600 million, which comes to around INR5,000 crores again, but it's for 8 years. So are we reducing or extending the tenure of capex in this?

So that $600 million capex in the new 530-acre complex. That has nothing to do with the capex in our existing land bank.

So the total capex remains the same, that is INR5,000 crores at least for the next 5 years, it remains constant, right?

Yes, you are right.

If I look at 1H last year, ARV formulations were about INR350-400 crores of revenue. And this is about INR600 crores plus in the first half this year. The guidance was to be in the same band of INR2,500 crores, plus or minus INR200 crores. So this jump up - is it more in terms of the shipment timelines? Or have we done more tenders outside of what we usually used to do?

I would say 2 reasons contributing to that increase. Shift in supplies is one reason. And second is there is a slight increase in demand.

And this is in our existing market itself, like which we are servicing earlier, where there's been an increase in demand? Or are we doing some newer markets?

Anything increasing demand from our existing customers, put it that way. So, more demand came from API rather than formulations.

On the newer modalities that we're investing in ADCs, for example. Could you just give some qualitative sense in terms of what kind of pipeline are we doing? Is it more early-stage work? Or do we have some late-stage projects here? And could you give a little bit more detail about this investment that we've done in a platform for ADCs?

In the ADCs, as a company, we already make payloads and supply for multiple programs to big pharma. Because of that, we wanted to have capabilities to do bioconjugation, purification, and fill finish. To gain that, we decided to invest in a company that is developing novel ADCs. So that partner will give us conjugation, purification, and fill finish technology, and we will make their clinical programs. I think that's much I can share right now. There are multiple programs. They are about to file the IND for one of the molecules. Once they file IND, they will do tech transfer, and we will manufacture.

Our investment is only $2 million. And the IND which they filed for the molecule, like for this one, we plan to make payload and linker, or we plan to do the integrated ADC?

Integrated ADC.

At this run rate of growth, will you soon outgrow your capacity, whether your growth will be constrained by your capacity?

No. We are adding capacities to meet our expected customer demands, Manoj. We are conscious of that.

There were U.S. FDA observations on Hetero plants. Have you seen any incremental requests or inquiries on the ARV business in terms of products?

This is very recent. We haven't seen any disruptions as in.

On margins, which has been very strong. Is there a scope of operating leverage kicks in margins to incrementally get better in the next 12 to 24 months for us?

Yes.

On the CDMO business for Animal Health and Crop Science end markets. How is the commercial ramp-up of these facilities dedicated to this? And in Q2, is there any material contribution from these two end markets? And if you could also provide some understanding what would be the capacity utilization of these facilities?

Firstly, on the Crop Science side of things, there was not any significant material contribution from the Crop Science. Of course, it made some amount of time to go through the whole qualification filing activities for our partners, which we expect to ramp up in the coming quarters. But nonetheless, there was no significant contribution from the Crop Science side of things for this quarter. From an Animal Health side of things, one particular asset that we currently manage, we've started doing the commercial supplies itself. But the dedicated animal health site is still undergoing validations and filings. And as and when the filings are successfully approved for our partner, we expect to start the supplies. But predominantly, validations are going on with one commercial asset that's being supplied already.

The CMO opportunity for the animal health, is there any contribution from that in this Q2?

It is there. From the animal health side of things, it is there. But yes, Crop Sciences, no sign almost nothing there.

How are we planning to finance the capex either it will be by way of debt or by way of internal accruals? And are the current gross margin and operating margin sustainable going into future?

Both internally and then if needed debt. That's how we are going. We are not thinking on any dilution on the capex funding side. The gross margin, Dr. Satya last time indicated 55% to 60% gross margin.

Are the current gross margins and EBITDA margins sustainable?

If We look at six, seven quarters earlier, we said our gross margins will be around 50%. And then as and when the business mix has changed, we said it will go to around 55%. Now we are saying it is closer to 60%. I think that's a good sign as the business matures, our clinical programs move into commercial programs, we strengthened our leadership position in ARV and oncology. Things are looking better.

Two or three years back the asset turn for the company was pretty high. It was close to around 1.5, and it went right down to around 0.7. Today, it is around 0.9. Could you give some colour on how the future on the asset turn looks like?

Our average asset turn was 1.1 for 5 years. That's what we are guiding, and 1.4 was the peak asset turn in one year. So first, our aim is to reach 1.1. That's how we are progressing from 0.7 to 0.9 we already progressed. We are expecting to progress from 0.9 to 1.1 over a period of time.

When will the company achieve return ratios closer to 25%?

Still we are in a growth phase. So we continue to invest aggressive in capex. And we need at least two more years where our return ratios will improve closer to 25%.

On the leverage on human capital, there is a lot of competitive intensity around pharmaceutical companies, particularly based down south. How are you looking at the attrition and the well-being of employees at your organization?

Our attrition is in a lower range of teens. And we have a lot of novel things we have adopted over a period of time of inducting post-graduation in the fourth semester, etcetera, that we are managing. So we are also planning to have a skill development centre to help other people, other industries and also pharma and Vizag, then that will improve. So you are right, the skill is a challenge, recruitment is a challenge, but we never face the challenge, we are getting people.

There was a breakthrough in the HIV drug with a $40 jab that can come for the developing nations. Does that impact Laurus in any way?

See, the drug is for prevention, not for the treatment. So we don't expect any materialistic impact in the near- to medium-term because of the PrEP market.

On Laurus Bio, we saw a good uptick this quarter. What would be a steady-state run rate that you are targeting from a capacity expansion perspective for, say, '27 or '28?

New capacity will come online by end of 2026. Next five, six quarters, we don't see significant ramp-up. Margin growth will be there, but no significant ramp-up in revenues will come until end of 2026.

How much investment are we doing in the facility for genes and ADC, which is expected to be completed by CY '26?

We are investing both opex and capex in the next 3 years, about INR250 crores.

This is like principally, this would be like once we build the facility, we'll then sort of try to get the contract from the prospective customers?

Yes. One thing I would like to add, Tushar, here. All the expenditure on CGT or preoperative expenses and R&D, everything is expensed. We are not capitalizing single rupee out of it.

Have seen higher other income this quarter. Would that be largely driven by forex income this quarter?

Yes.

We saw significant lower debt repayment in 1H of this year and the finance costs were also lower in Q2. Given operational cash flows were significantly higher and should be higher in H2 as well, can we expect more debt repayments in the second half of this year as well?

No, we are not expecting that. We're not expecting that. But the interest cost reduction also helped through an interest rate come down.

On the new acquisition which you've done called Aarvik Therapeutics. What part of ADC manufacturing do they have expertise in?

They have expertise in both conjugation, payload linker conjugation, purification and then fill finish. So they don't make mabs. They outsource mab manufacturing.