Thanks, Sagar. On behalf of Motilal Oswal Financial Services, I welcome you all for Q1 FY 2027 results earnings call of Rubicon Research Limited.

From the management side, we have Mr. Parag Sancheti, Chief Executive Officer, Mr.

Nitin Jajodia, Chief Financial Officer, and Mr. Sagar Oak, Senior VP Corporate Development and Strategy.

Over to you, sir, for opening comments.

Hey, thanks, Tushar, for hosting us for this earnings call. Also thank you, everyone, for joining the quarter one FY 2027 earnings call.

I'll take you through the highlights of the financials. We have 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 crore.

There is no material impact on EBITDA. If you look at our Q1 numbers, our revenue from operations came out to ₹534 crore, EBITDA came out at ₹131 crore, PAT came out at around ₹86 crore.

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 statement and balance sheet.

Thanks, Parag, and good evening, everyone, for joining this call. On the slide number six, all the numbers are in INR.

Our revenue from operations for the quarter was ₹5,343 million, a growth of 52% versus the same quarter last year. 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&D EBITDA was at ₹1,871 million, translating into 35% pre-R&D EBITDA margin versus 32.5% for the quarter one previous year. Our R&D expense for the quarter was ₹580 million, translating into a 10.9% R&D as a percentage of revenue versus ₹355 million in the quarter one previous year.

Our operating EBITDA for the quarter was ₹1,291 million versus ₹791 million in the quarter one previous year, again a strong growth of 63.2%. 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 our goods lost in transit. After that one-time other income, the PAT was at ₹848 million versus ₹433 million in the previous year, a strong growth of 96%.

Overall a strong performance, and EPS was at ₹5.08. Moving on to the next slide, slide number seven on balance sheet.

As Parag mentioned, this balance sheet reflects Arena's consolidation effect as on 30th June 2026. As on that day, our capital employed was ₹14,778 million, and it was after excluding cash and cash equivalent of ₹2,408 million.

The net working capital for the quarter or as on 30th June 2026 was 114 days versus 126 days as on 31st March 2026. While there is an improvement in net working capital days, I think we should not read too much into it because it's also a function of quarterly fluctuation.

We see working capital in the range of 125 to 130 days as we have guided earlier as well. Our ROCE for the quarter was strong 36%.

I would like to highlight one point that this ROCE of 36% was despite close to 1/4 of our capital employed being there in investment which are either pre-revenue or which are yet to materially contribute to the revenue. Again, the point is a strong ROCE.

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 net cash flow from operating activity was ₹285 million. In this quarter, the cash flow was impacted because of some delay in GST refunds.

These refunds are getting normalized, and we should see the impact of this in quarter two in terms of healthy cash flow for the quarter. In this quarter, the cash flow in investing activities was primarily driven by our acquisition of Arena Life Sciences and some capex.

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 quarter.

Thanks, Nitin. Just touching on some of the key highlights for the quarterly performance.

We'll start with revenue growth. As I mentioned, we had a strong again revenue growth.

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 per as our portfolio design is.

Top five products contributed 39% of the revenue in the quarter one, and top 10 10 10 products contributed 55 5% 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 million, which was up 32% year-on-year from $42 million. There is a slight sequential drop owing to the tactical measures we have taken, which we had spoken in the earlier quarters with respect to gross margins, and I'll explain that in detail when we go to gross margins.

Q2 FY 2027 is tracking strong for sequential USD revenue growth. Coming to cash flow, the cash flow from operations was 285 million.

Along with that, if you just go through 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.

Also would like to highlight specialty portfolio contribution to gross profit for the quarter is 36%. Specialty focus underpinned by a very, very robust pipeline is expected to keep on growing as we have mentioned in our earlier analyst calls.

Thank you. We can move to the next slide.

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. Our gross margin increased sequentially by around 140 bps to 67.7%.

This is despite we had sequential increase in key input cost, freight cost due to the geopolitical conditions. In Q3 FY 2026 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 manufacturing, which was pressurizing our GM, and company was looking to do certain tactical measures to ensure that we are able to meet the demand, but at the same time, we are also focused on the gross margin piece of it.

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 US revenues, but it has led to increase in the gross margin. This tactical measures allows us to prepare better with mix of our own versus outsourced manufacturing reliance 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 input and freight cost 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 2027, we would some specific costs which could impact EBITDA margin, such as ESOP cost which is arising from the new ESOP scheme, Arena cost which are related to kickstarting the growth for Arena, and the pre-revenue cost for the new facility which we've acquired in New Jersey and Pithampur.

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 2027 to 23%. We can move to the next slide.

Sagar, if you want to just take through the acquisitions we've done.

Thank you, Parag. Good evening, everyone.

I am on slide 11 of our presentation, and I will take you through the updates with respect to our manufacturing facilities. Starting off with Pithampur.

In early July, we had informed that the FDA conducted an unannounced inspection. A 483 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 appropriate response and also received FDA approval on a regulatory filing after the inspection was concluded.

We have pretty much delivered in line with what we had said in early July. We are on track to ramp up commercial operations at this facility from first quarter of calendar year 2027, as we had previously guided.

The second update is relating to our recent announcement of the acquisition of a manufacturing site in New Jersey, USA. We acquired this facility, which is in East Brunswick, via a court-supervised bankruptcy process.

The total purchase price was $2.9 million. Now the site has, in terms of size and in terms of footprint, it's similar to our manufacturing site at Satara in Maharashtra.

We believe it adds a completely different dimension to our supply chain with on-site or on-shore manufacturing presence in the US. This facility has over a decade-long track record with US FDA.

In a way, I think the timing was quite good that FDA carried out an inspection in May of 2026, roughly a month before we closed our acquisition. It gives us a good and I guess an authentic and official assessment or evaluation or a due diligence, almost, 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. 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 483 with six observations, which we believe were largely procedural. We also announced that they had been responded to within the prescribed time.

I think now the current outcome sort of bears 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 3PL. If you actually see at a 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. 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 or on-shore manufacturing presence is an enabler. We expect commercialization to start in calendar year 2027 once we are done with implementing our quality management systems at this site.

Sagar, I would just like to add also, since we're talking about facilities, quality culture, inspections, we just I just want to emphasize the way we have built business over the last few years with inorganic acquisitions of capabilities, let it be the facility of Satara from Cipla, or this facility which we bought from Alkem in Pithampur. 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, resolve the issues or the points which the auditors have highlighted.

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, once we commercialize these sites, we know that, we are going in the right direction from a quality and compliance perspective.

Absolutely, Parag. Fully agree.

I'll move now to the next slide, which is slide number 12, relating to R&D spends and their impact on revenue growth. For the quarter, R&D expenses were 10.9% of our consolidated operating revenue.

As we have said in our previous calls, R&D spend is sort of the lifeline, the lifeblood of our business, the lead indicator of future revenue. We measure R&D productivity by comparing the incremental revenue to lagging total R&D spend, which you can see on that slide.

Now just to quickly recap what is there on the slide, if you consider a typical development timeline in 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 share, a product that we began development in fiscal year '20 would typically register meaningfully in revenue by fiscal year 2024.

We look at incremental revenue over a three-year timeframe, and we compare it to the nine quarters' total R&D spend on a lag basis. In this case, comparing '21 with '24, we are taking two full years of R&D spend, which is fiscal '20 and '21, and adding in Q1 of fiscal '22 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.

By comparing that ₹165 crore of R&D spend with roughly ₹539, ₹540 crore of incremental revenue is the 3.3x multiple or R&D productivity that we've pointed out. We've shown this analysis on a rolling three years basis: '22 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. For the purposes of this analysis, we've multiplied Q1 revenue by four.

As you can see, our current R&D productivity based on this Q1 FY 2027 is about 5.5x. Now this is on revenue that does not include Arena Life Sciences, and we expect that the multiple will expand during the course of the year as the revenue ramps up.

We already spoke about how Q1 revenue compares year-on-year with Q1 of last year. Coming then to our guidance, we had guided for INR 5 billion or ₹500 crore of R&D spend over nine quarters of fiscal '26, '27, and Q1 of fiscal year '28.

We have completed spend of about ₹251 crore out of ₹500 in five quarters. The current rate of spending is about ₹60 crore, ₹600 million per quarter.

We believe we're on track to comfortably meet the ₹500 crore spend guidance by Q1 of next year. Also just want to call out, in our unlisted phase, we invested significantly in R&D.

Fiscal year '22 relative to revenue was just under 40%, was 39.5% R&D spend. 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 2027 is the last year of what you see on screen as on a cumulative three-year, nine-quarter basis reducing R&D spend, and from FY 2028, you should see the impact of the increasing absolute spend as well, and I'll just clarify what I mean by that. If you look at nine quarters R&D spend, fiscal year '24 plus '25 and quarter one of '26, these are all, of course, actual numbers, that is a total of ₹278 crore.

Moving forward one year, '25 plus '26 and Q1 of '27, again actuals, ₹380 crore. Then there is the period for which we have guided ₹500 crore, which is fiscal year '26, '27, and Q1 of fiscal year '28, 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&D, the second part to this slide is revenue. 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.

This actually shows for the six products that we had showcased as part of the IPO process, with updated data and added on fiscal year '26. I think what you can see here is we are ranked number one in all of these products despite the competitive scenario not having changed much.

In fact, there is one product where market share is a tad down, ranking has gone up; another where market share 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. Market execution for us is a moat, and I think should be seen hand-in-hand along with product selection as well as R&D execution.

With that, I'll hand it back to Parag, and we would go to slide number 13. Parag?

Just a minute, I think Parag is joining this call from US, there may be some

some lag or the issue. Just a minute.

Hey, hi. Sorry for this.

I think there was some technical glitch. Coming to the slide number 13, and I think this is a very important slide and a very important organizational update.

As Rubicon's vision to grow and become a global pharmaceutical company, as you've seen that we've been working in various areas, and that also with a growing organization, it is 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. I'm very, very happy to state that Nitin, who's currently the CFO, is moving on to a Chief Commercial Officer role.

Rohit, who will be right now as a CFO designate, but as Nitin transitions his CFO responsibilities to Rohit, Rohit would move into the CFO role. This is an important update is because as the company is getting into newer areas, it's important that management bandwidth also keeps up.

We are focusing on building that management bandwidth within our company, also growing our own folks via leadership, also looking at the right talent from outside to ensure that we have the right people as we look at expanding our business. Nitin joined us in 2021.

Beyond a CFO role, he's immensely contributed in building the business, let it be supply chain, IT, business transformation, organizational development. Nitin has played extremely critical role in building all these functions from the scale we have grown.

When Nitin joined, we were roughly around at ₹400 crore revenue. Today, last year, we closed at ₹1,700 crore revenue.

He's been integral part of the journey and a pillar of the management team. This is after five years, I think, was opportune time that we use Nitin's focus on business functions where we are seeing tremendous amount of opportunities to grow our business.

Completely appreciate Nitin's efforts as a CFO, but also welcome Rohit to the Rubicon family.

Thank you. Thank you.

Sir,

Yes.

Hello. Hi, sir.

Am I audible?

I think your voice is not very clear to me, at least.

We can hear you, but Am I audible now?

Yes, go ahead.

Okay. Thank you for the opportunity and congratulations on the great set of numbers.

My first question is about the product contribution. Currently, top 10 products contribute around 55% of the revenue.

If you can give some color in terms of therapeutics area, from which therapies these products contributes, and also in the which stage are these products, are they maturing or still growing, and also going ahead, how many products we can expect such products to commercialize with relatively large total addressable market? Thank you.

Nitin, you want to take that?

Yeah. 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, these are the product which we had launched 8, 10 years back, even in those product, we continue to see strong growth, strong demand.

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, okay?

That the point it's a fairly broad-based portfolio, continues to grow.

Sir. Sir, my second question is about the artificial intelligence use.

Due to artificial intelligence, does our efficiency increase in terms of product development cycle and R&D? In Rubicon's perspective, are we currently leveraging AI?

How AI does improve our efficiency and all business processes, especially in terms of CDMO and pharmaceutical companies?

So. Sorry.

Go ahead, Nitin.

Parag, carry on. Yeah.

I would put AI, automation, other process as technology, I would say. 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.

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, Regulatory is a very important aspect, whenever we adopt technology, the important aspect we also need to think through is we have to give regulators the confidence that whatever we are using has enough checks and balances which allow that technology is giving consistent, predictable, and robust results. We are definitely adopting it in the right processes, but again, it's a very, very large field, and we don't want to specifically comment on just AI part of it.

Sir. 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, sir?

I think we do not comment specifically on phase one, phase two, phase three, but I think there is a slide which is there. I think Sagar can point out with number of products which are approved, and then we've also mentioned our commercialization rate is strong at around 88%.

If you look 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.

Sir. Fair enough.

Parag, that number was 63 at the time of filing RHP.

Yeah.

Just to add to that, Akshay, we usually do not comment on product-level developments, and pipeline is something that we prefer not to go into too much detail on because it's commercially sensitive. 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.

In terms of how we expect portfolio to impact business, and that's what we spoke about as we went through slide number 12 on R&D productivity. At this point, we would not be commenting further on that.

Sir. Fair enough.

Thank you so much, and all the best.

Thank you, Akshay.

Thank you.

Hi, Parag, Sagar, Nitin, and the team. Congratulations again on a great set of numbers and on the consistency of delivering.

Few questions from my end. One, the rate of approvals seems to be marginally slowing down while revenue growth, obviously, continues at a very, very healthy pace.

Is this a pure bigger strategy now, or how should one think of your pipeline in terms of the molecules you will pursue and the molecules that will 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? In that context, how should one think of gross margins?

The third one was on the churn in your specialty portfolio, where you classify products only being specialty if they have zero or one competitors. 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?

Just one other clarification, on the capacity slide, you've mentioned that there is headroom for expansion. If you could clarify on what that capacity utilization is, and what do you mean by headroom for expansion?

Is there more land available, how should one think of future expansion on the existing facilities? Those were my questions.

I think the first question, let me take that, Sagar, on the portfolio approvals or approvals slowing down. Siddharth, it's more again, this is as per the plan we have or what we've been expecting as we were expecting approval.

More importantly, we are very, very conservative, Siddharth, when we look at building revenue forecast from that further. I think right now, I wouldn't comment that the approvals have slowed down.

Also, I think you alluded that we're going to take fewer approvals, but I think you're 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. I think numbers of how many are coming, what are coming, I think it's just indicative.

I think I can assure you that we are on track to the approvals on which our forecast and the plan is built on. Nitin, you want to just take the question on gross margin and

Siddharth, if I understood correct, 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. If you look at the acquisition of US facility, okay, that is a fairly strategic move for us because it gives us lots of avenues.

It gives us ability to enter into government stroke VA business. It gives us ability to be closer to our customer.

It gives us flexibility to manufacture certain strategic product in United States. Also we mentioned that it also gives us advantage in terms of being a next-door facility to our warehouse in United States.

From that perspective, this is a valued addition. We don't see margin I would say getting diluted because of this, okay?

We definitely see that it will be in the overall scheme of thing should be margin-accretive only. Siddharth,

just to add, Nitin, I would just say, Siddharth, I think what Nitin was just summarizing in a simple way is, it's a very strategic move than I think, and when we look at financials, obviously, from a strategic perspective, an extremely important move we have done. We obviously don't see impact on gross margins or, again our forecasting, we build some of these things into it.

What we are focus had also that we are going to focus on value-added differentiated products, which will create and business for the government. Also with this will create risk diversification for us in terms of our customers getting some of these very important products from two sides, one in India, one from the US, and mitigating any risks in terms of supply chain.

I think though no financial impact, but it has very high strategic impact, which customers can view very positively and could give us some premium in the market when you do something like that.

Siddharth, I think the other question you had was around composition of specialty pipeline. I think it's obviously sensitive from a competitive standpoint.

We've tried to strike a balance of providing thoughtful disclosures to help investors track in the long run without jeopardizing sort of the business itself. 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. I think we want to be consistent with our disclosures in that sense.

I think at this time, we wouldn't be sort of expanding set of disclosures around specialty.

Sure. The last one was on the clarification on the headroom for expansion on the slide for the manufacturing facilities, if you could share that.

Sagar, go ahead.

Headroom for expansion, you are referring to at Pithampur, Siddharth?

Give me a second. I will tell you the slide number I'm referring to.

This is the slide that

talks about

all your manufacturing facilities, all the four manufacturing facilities. This is slide number 30.

Yes. Absolutely.

If you look at the site in Pithampur, which is a pretty large, nearly 30-acre area site, of which today we are using barely five, six acres. We have significant room that we can expand at that site.

Just for sort of order of magnitude, that amount of space is, Nitin, correct me if I'm wrong, greater than the footprint of all of our sites put together. Absolutely.

In addition, I think Nitin in a slide has mentioned we have a facility in CSN, which is for niche dosage forms, which is kind of modularly ready, which is there. Again, there's headwind to grow this business from a manufacturing standpoint.

We have different areas. We are having ability to grow the facilities.

Very clear and very helpful. Thank you so much.

I'll join the line queue again for more questions. Nitin, congratulations on your new role.

Thanks, Siddharth.

Thank you for the opportunity and congratulations to the management for the fantastic set of numbers. My question to the management is related with the year-on-year additional cost of material consumed.

As I see that it is roughly ₹19.83 crore, and additional purchases is roughly ₹19 crore. While our additional sale is ₹181.9 crore, does it reflect the substantial value addition on account of transfer pricing mechanism that is transferred to the US entity and from there, we are selling?

Because what I can see is that on standalone basis, there is a decrease in the closing stock of roughly ₹10 crore, while on consolidated basis, we have a incremental closing stock of ₹7 crore. Further, how we will manage if in the worst-case scenario, US tariffs get imposed because we are certainly 97% exporting to US?

Okay. I think the math which you explained, I've not been able to follow your underlying question seems.

Two things. One is you mentioned that how are we prepared to take care of or face if there is any tariff in future, okay?

The other point you alluded on with respect to the transfer price. Is that correct?

Sir, because what I can see is that with the additional expenditure of ₹38 crore in terms of purchases and cost of material consumed on standalone basis, our incremental sale is roughly ₹181 crore. That seems to be 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.

That's what I was feeling, but clarity is from the part of management which I feel that you must address.

From a gross margin perspective, I think as we have mentioned earlier, if you are comparing let's say on a YoY basis, we explained in the last few quarters that how our reliance on the outsourced manufacturing has gone up in the last three, four quarters, and that has had some impact on the gross margin of the business if you compare versus the last year quarter one, okay? The other thing, as far as gross margin is concerned, I'll tell you as an organization, we are very conscious of our margin profile of the business.

As Parag alluded, that we have sort of taken tactical measures to let go of relatively lower-margin business, okay? 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.

No, I'm just trying to convey that with an additional increase of ₹38 crore, our revenue has jumped up by ₹181 crore YoY sales. If I see as a layman, there must be a substantial increase in the price of the products through transfer pricing.

The stock has decreased on standalone basis, it has decreased by ₹10 crore, while on consolidated basis, I'm seeing that there is an increase in the stock by ₹6 crore if you see the changes in the inventory. I'm unable to understand how this has been in terms of volume jump or a price jump.

I don't know that.

Again, it's a combination of various things. 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, etc., we are fully compliant, and no sharp movement in transfer pricing mechanism.

The other thing, all of these numbers is also a function of various things in terms of our own manufacturing, outsourced manufacturing, sale of traded goods, own manufactured, okay? Again, as I suggest, I think we can take this offline to understand your math and then clarify.

Sure, sir. Sure.

Sir, further, one more question, last question, that if we start the facility, that is which we have acquired from Alkem in calendar year, January to March, what can be the incremental margin as against the outsourcing? How much we will save more in terms of percentage?

We'll refrain from quoting any specific margin percentage. What I can assure you that our own manufacturing is both from a gross margin as well as overall margin profile perspective is far more efficient.

Thank you. Thank you so much.

Yeah. Hi, Parag and team.

Congrats on good set of numbers. A couple of very small questions from my end.

One is that I think in the opening remarks, you mentioned that Arena's contribution to top line and EBITDA for the quarter, the top-line contribution was ₹12 crore, and I think EBITDA you said was flattish. Just wanted to clarify.

Did I hear that correctly?

You're right. The revenue was close to ₹12 crore, and the EBITDA contribution on that ₹12 crore revenue was not material.

Understood. Does that mean that our base business margins were in fact higher than the reported margins if I just adjust it for this acquisition?

If you do that math, you're right. Slightly on that ₹12 crore, there will be some slight impact on the overall margin profile.

I think overall, considering order of magnitude, Harsh, it's probably not going to have too much of an impact.

Understood. How do you look at Arena's margins going forward in the next few

As we had mentioned earlier, and I'll just reiterate that we are looking at this Arena business in various phases. As we had mentioned that in the first phase, our focus is to identify and fix the growth levers, okay?

That will be the focus for this financial year. In the next phase, we'll be focusing on beating IPM growth, how do we drive growth in that business.

After that, we will look at profitability. That's how we look at various phases in Arena journey.

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. I think what we are guiding towards is after taking into account sort of the growth and the build-out that we've mentioned previously.

Understood, Sagar. Thanks, Parag, Sagar, and Nitin.

That's it from my end.

Thank you.

Congrats and all the best.

Thanks, Harsh.

Congratulations on multiple fronts, may it be financial performance, may it be getting successful compliance at Pithampur site, and establishing the US manufacturing footprint. In fact, connecting to US manufacturing footprint, would like to sort of understand that how you sort of got this facility in a way at just couple of million dollars, if you can just sort of explain that part.

Sure, Tushar. Thank you.

If you look at our approach to M&A and M&A strategy, I think we have focused on sort of looking at deals where we can create long-term value. We are prepared to be patient because we believe M&A by design is not relating to next few quarters, but more sort of long term in nature.

Whether you look at our past acquisitions, whether it was the center in Canada, which was Impopharma, whether it was the manufacturing site in Satara, which was five years ago and by all accounts has been reasonably successful. In this case, I think this acquisition process was ran fairly long, I think well over a year and a half.

It was a court-supervised bankruptcy. I think we were able to stay the distance.

The fact that we already have an adjacent site over there, I would say, gave us a little bit of an advantage in the process because we are well connected in that ecosystem. I think it also boils down to, I guess, culture, right?

I think our approach in terms of how we scout deals, how we pursue deals, and get them over the finish line.

Got it. Also,

Tushar, just to add to it, I would say is also the ability to assess, right? How we can build on these acquisitions, right?

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. 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. Secondly, while the quantum of R&D sort of increases and as guided, ₹500 crore, and subsequently it remains as 10 to 11% of sales, just would like to understand, while not sort of getting into product specifics and rightly so, is this going to be certain product-specific R&D, or is this going to be spread across the portfolio?

Tushar, I think it will be again a portfolio approach. When I say portfolio, we look at various parameters including risk, probability, execution ease, maturity of the organization in doing those products.

All put together, I think you'll always have a portfolio approach. It's never going to be that we are going to concentrate only on few big bets which are there, but it's going to be a combination of a various threshold where we are looking at long-term high innovation products, then we're looking at some other products which could be in the range where we are able to execute and have a competitive advantage.

It will always be a portfolio-based approach.

Got it. Lastly, while there was a discussion as far as manufacturing facility is concerned, but just if you can sort of elaborate why so many facilities across so many sites?

Yeah. Tushar, if you've seen, we've grown facilities over a period of time, and always when you grow the facility, the underlying basis has been our portfolio.

We've not done acquisition because this site was available, or that site was available, or it was available at a certain cost. We've always had a underlying thesis of our pipeline, and that has guided us towards the next acquisition or what we have been looking at.

When you look at right now when we have facilities, Ambernath has been the core where we started with, where we're 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 are building nasal capabilities there.

Which could be a backup to our Ambernath facility. Again, risk diversification also is extremely important for protecting revenues and also creating capacity.

Then we had Indore. Indore, as we have said, we've been seeing strong traction from a revenue perspective for our existing products.

Also, we wanted to add additional capabilities like hormone, steroids, high-potent products, and plus one single site which gave us room to build so that it's very important that we build a 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. That's where came Alkem.

The CSN piece or what Nitin mentioned in his balance sheet is looking at some niche dosage forms in our pipeline. 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.

That's I think the way we have looked at building our footprint. Also the US one, we already discussed, I'm not again going back to the US one.

This is the way we've looked at each of these facility. Also, we have to look that manufacturing outsourcing came into the whole play along with that was because our manufacturing is again driven by portfolio, and capex will always lag sales.

We are doing capex based on these revenue visibility we have, and we will keep that mix of where 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.

Thanks a lot for that elaborate explanation. That's it from my side.

Thank you, sir, for giving me this opportunity. Congratulations on great set of numbers and the progress you're making on all the multiple sides.

Sir, my first question is on the US revenue. We saw that the Indian revenue grew 9.7, but the US grew only 4%, and you mentioned we walked away from some lower-margin US businesses that was in, again, Q1.

Now what is the latest status here, sir? Have we got some new higher-margin business now for our US subsidiary?

Nitin, you want to take that?

Yeah. If I understood your question correct, you said that when we have given away tactically some lower-margin business, then have we got the higher-margin business in place of that?

Correct. Yes, what is the latest status?

Because in Q1, we walked away from some lower-margin. Now are we getting higher-margin?

Yeah.

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. We have tactically given away relatively lower-margin business.

In a way, yeah, that's correct. Again, 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 securing a higher-margin business.

You're right. Right.

Fair enough, sir. My second question is now on the Pithampur side.

I see there are around close to ₹1,500 million capital sitting there pre-revenue. The EIR is still awaited.

Now what is our capacity utilization curve, sir, in near term, around six, nine months to a year, versus let's say a long term, two, three year out?

I think first, we don't want to jump the gun. We have mentioned that we are looking at quarter one for commercialization or ramp-up from there.

For that, we have enough capacity which is there. Plus, as we have mentioned, the site is roughly around 30 acres.

We have only utilized six acres. Even with the current building, incrementally if we build the site, I think there is enough headroom for capacity expansion fairly quickly.

I think the next two, three years, I think there's a lot of land or footprint available to grow that business from Pithampur. I think in one line, I think there is enough capacity available at Pithampur in the long run.

In the short run, again we'll be scaling up the facility gradually in the next 9 to 12 months. For that also, we have enough capacity.

Got it. Sir, my final question again is in Q4 concall, you gave a number that there were 24 products under FDA review, but this time around, the number is not there in terms of ANDAs, NDAs.

Any specific reason or the company has chosen not to disclose? Yeah.

Yeah. Last time, if you recollect, we had specifically mentioned that this numbers we will give once in a year, okay?

We shared that in the last quarter, and then we'll be sharing that number once in a year.

Got it, sir. Thank you very much, and all the very best, sir.

Thank you, Prateek.

Hey, thank you, Motilal Oswal, 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.