ARV guidance upgraded from INR2,500 cr to INR2,800 cr.

As we commission and scale the upcoming Vizag 400 KL fermentation, what could be the single biggest source of yield variability such as contamination, oxygen transfer, strain stability, or downstream recovery? And how tight do we expect batch-to-batch variance when we commercialize that 400 KL capacity?

The initial batches in the expanded fermentation capacity are for non-pharmaceutical, non-food industrial chemicals, surfactants and polymers where tolerance is very high. The biggest challenge in any fermentation is contamination, but they don't have a very long tedious downstream processing for these products, so no challenges are expected in downstream manufacturing.

What does moving into materials sciences and biomaterials mean for the steady-state economic model for Laurus in terms of utilization, yields, pricing structure and customer concentration? Which variables are most sensitive in achieving aspirational return thresholds?

The products moving to Vizag are from the Bangalore facility where commercials are already achieved using 45,000 liter fermenters. They're moving to 110,000 liter fermenters as the optimum size. This unit will see early commercial stage production for those products, having crossed multiple commercialization gates. Once commercialized, there's a plan to expand to 1 million liters at that site.

For capacities commissioned 2-3 years back, where is the utilization level versus initial expectations? Are we broadly in line with, below, or above the aspirational threshold?

In R2, the 4 x 45,000 liter fermenters are fully occupied, which is why capacity was quickly expanded in Vizag. The current capacity will manufacture 2 products. Once the first 2 commercial productions are delivered, the plan is to expand to 1 million liters at that site. No capacity under-utilization challenges are expected for the plant going online by end of this year.

Do we have enough number of CDMO commercial products to say we do not have product concentration risk and are insulated from inventory destocking risk?

In the last 18 months, 3 APIs were delivered for commercial. These have patent lives of several years, so they are very early in their commercial phase. Based on partner indications, they have given clear forecasts for the next several years, and there are no destocking challenges for these molecules at this point.

Last year EBITDA margin was 20% and this year is ~26%. Majority of increase seems to come from gross margin improvement (55% to 60%), not operating leverage. Is it right to assume operating leverage will play out significantly over the next 2 years?

Operating leverage will come, and the point is valid. We are at the border of leverage or deleverage due to continued capacity expansion. Next year, some operational leverage is expected. If you look at the 4 quarters of FY26, EBITDA margin continuously kept improving, reaching almost 29% in Q4.

When moving from development to commercial, while gross margin would be lower in commercial, will operating leverage ensure EBITDA margins are similar to the development phase?

Whether development or commercial, gross margins will remain similar. More profit is made in commercial rather than development because development employs more people during R&D and tech transfer. So NCE programs will have similar gross margins, and commercial would have higher EBITDA margin because of more volumes and operating leverage.

How sustainable are the current 29% EBITDA margins? How much is driven by mix versus temporary operating leverage?

Very confident on maintaining or improving this EBITDA margin in FY27. Comfortable in maintaining that.

What is the asset turnover currently?

0.89

CDMO has grown 20% to a good base. What is the growth trajectory going forward - can the momentum be maintained or do you see lumpiness?

Year-to-year, a good growth is expected in the CDMO segment. There could be lumpiness quarter-on-quarter. No challenges are expected to record growth in FY27.

Given geopolitical situation, do you see any challenges in operating costs going up due to raw material prices in the next few months?

In Q4 FY26 some impact was there because of solvent price increase. However, production has not been impacted and there is enough visibility for the next 3 months with no challenges in operations from higher solvent prices or availability. There will be some pressure, but improved capacity utilization will help weather that challenge.

Could you give the breakup of ARV business into API and formulations?

Two-third API, one-third formulations broadly. Not giving exact numbers but that is the broad split.

Has the non-ARV formulation business grown or declined for the quarter?

Non-ARV formulations is going up.

INR683 crores of ARV business in Q4 FY26, and two-thirds being formulation would mean INR450 crores of formulation business. Is that correct?

The two-third API, one-third formulations split was for the overall year. So it is around that number. It may change by one month or quarter. Broadly two-thirds of ARV revenue comes from API and one-third comes from own formulation sales.

Was there any revenue from the Crop Science business in FY26?

There has been some, but very marginal.

Can we see meaningful contribution from Crop Science and Animal Health both in FY27?

In Animal Health, some meaningful API shipments were undertaken in FY26 and FY27 will also see a good contribution from that space. For Crop Science, a couple more financial years are needed to ramp up, though there are a few ongoing projects in registration and development phases.

On the electronics customer that got a breakthrough some months back - any visibility on shipment delivery or contract signed?

In active discussion with them. It's still under development and application phase. It will take a few more quarters to see the actual demand outlook from them.

The new formulation facility commissioning in June is for the new CMO contract with the 3 billion tablet contract?

Yes, for an existing partner. Most of that capacity came online and is being used commercially. Majority of the proposed capex has been implemented and revenue generation has started in the back end of the year. Majority revenue will start from Q1.

Given Richcore was acquired in 2021, why are we not able to scale to 2 million liters? And what would the revenue be at 2 million liters?

Expansion is being done in a phased manner. Currently at 250,000 liters, another 400,000 liters coming by end of this year, and that facility can accommodate another 600,000. When Richcore was acquired, revenues were about INR50 crores; now they have gone up significantly closer to INR185-190 crores with INR35-40 crores EBITDA. Creating capacity takes time - R1 to R2 took 1 year, R2 to R4 took 2 years. Market dynamics are being gauged with interesting projects underway.

What will be the capex and gross debt outlook for FY27 and FY28? And what is the effective tax rate?

Effective tax rate will be around 25% to 26%. Standalone is definitely 25%. Capex guidance is around INR3,000 crores in 2 years' time. Gross debt may slightly go up in FY27, but debt by EBITDA may be maintained at similar levels or soften from current level.

You had earlier alluded to CDMO contribution going towards 50% of total sales. How soon do you see this 50% number being achievable?

Both targets were stated - going to 50% and doing so by 2030.

Now that capex has increased from INR1,000 crores annually to INR1,500 crores annually, how do you see return ratios shaping out? Do we still expect operational leverage?

Most of the capex is growth capex. Visibility exists on which product, which customer, and how much will be manufactured in new capacities. Not putting capex and hoping customers will come.

Could you talk on the ARV to non-ARV split for FY27? Right now ARV is 40%. Will it remain at 40% or shrink?

In quantum, ARV was INR2,800 crores and will remain constant around that number. But the percentage will go down.

Revenue mix was more inclined towards ARV a few years back; CDMO footprint has expanded. How do you foresee the mix over the next 5 to 10 years?

ARV absolute quantum wise revenues would be around INR2,500 plus or minus INR300 crores. By FY30, CDMO revenues are expected to be 50% of overall sales and the ARV percentage will come down significantly while absolute ARV sales remain constant.

Many CDMOs do well at micro or pilot scale but fail at multi-ton batch consistency. For recent CDMO programs that moved from lab to commercial scale, what percentage met target yield and quality spec in the first 3 commercial batches? How predictable is the scale-up process today?

Laurus invests in large capacities well in advance of commercial launches because big pharma wants validation and engineering batches at commercial scale. All commercializations done in the last 2 years were scaled up, with validation done at the same scale, in the same line of equipment, same batch size and same facility. There have been no surprises and no challenges so far.

With AI disrupting multiple industries, do you see any challenges in how the discovery phase is getting impacted or disrupted?

Laurus within the CDMO space is not involved in the discovery side for partners. Generally, AI is being leveraged in discovery space to significantly accelerate pipeline generation. However, molecules designed by AI tend to also be more complex in structure or synthesis. Given Laurus is not in the discovery space, this is not typically what they focus on. For Laurus, which is mostly in the manufacturing part, the split from AI or impact of it is minimal if any.

On the non-ARV formulation side, there has been decent growth for FY26 vs FY25. What kind of outlook can we expect for the coming year from new launches or scale-up of existing molecules?

For non-ARV formulations, growth is expected from existing products and capacities will be utilized to ramp up formulation units. The momentum will sustain in FY27 compared to FY26 as well.