LAURUSLABSNSEfull year FY 22April 29, 2022

Laurus Labs Limited

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Management on call

Satyanarayana Chava

FOUNDER &

V. V. Ravi Kumar

ED & CFO, LAURUS CEO, LAURUS LABS LABS

Vivek Kumar

SENIOR GM/INVESTOR RELATIONS, LAURUS LABS

Monish Shah

ANTIQUE STOCK BROKING

Key numbers — 40 extracted

rs,

our Q4 and full year FY 22 results Conference Call. I hope and wish everyone and their family members, colleagues, and friends are keeping safe and healthy during these challenging times. We're pleased

30%

n fairly resilient where we are stabilized on our sales and profitability was maintained closer to 30% despite headwinds in our ARV API business. We also believe that it was an important year where we

INR 4,036 crore

all divisions, including CDMO. Moving on to our financial results for full year FY 22, we achieved INR 4,036 crore with a growth of 3%, whereas Q4 we achieved in 1,420 crore against INR 1412 crore in the correspon

ving on to our financial results for full year FY 22, we achieved INR 4,036 crore with a growth of 3%, whereas Q4 we achieved in 1,420 crore against INR 1412 crore in the corresponding quarter. Sequ

1,420 crore

ts for full year FY 22, we achieved INR 4,036 crore with a growth of 3%, whereas Q4 we achieved in 1,420 crore against INR 1412 crore in the corresponding quarter. Sequentially, we have substantially improve

INR 1412 crore

2, we achieved INR 4,036 crore with a growth of 3%, whereas Q4 we achieved in 1,420 crore against INR 1412 crore in the corresponding quarter. Sequentially, we have substantially improved on our revenue numbers

INR 1,880 crore

ke to share key updates on our formulation business. The formulation division reported revenues of INR 1,880 crore in FY 22 with 13% growth, whereas INR 491 crore for the quarter with an increase of 14%. The cont

13%

formulation business. The formulation division reported revenues of INR 1,880 crore in FY 22 with 13% growth, whereas INR 491 crore for the quarter with an increase of 14%. The contribution from this

INR 491 crore

s. The formulation division reported revenues of INR 1,880 crore in FY 22 with 13% growth, whereas INR 491 crore for the quarter with an increase of 14%. The contribution from this division has improved during F

14%

NR 1,880 crore in FY 22 with 13% growth, whereas INR 491 crore for the quarter with an increase of 14%. The contribution from this division has improved during FY 22 to 38% when compared to 35% in the

38%

quarter with an increase of 14%. The contribution from this division has improved during FY 22 to 38% when compared to 35% in the previous financial year. Coming to LMIC business, we started witnessin

35%

ease of 14%. The contribution from this division has improved during FY 22 to 38% when compared to 35% in the previous financial year. Coming to LMIC business, we started witnessing gradual stabilizat

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Guidance — 20 items

Monish Shah

opening

“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.”

Monish Shah

opening

“We remain affirmative on our aspirational sales target of a billion in FY 23 and this will be supported by several approvals anticipated and good progress we made in our multi-site capacity expansion across all divisions, including CDMO.”

Monish Shah

opening

“Happy to share that Laurus has signed and will be part of MPP license for Pfizer's oral COVID vaccine, this will increase the broad access in LMIC markets.”

Monish Shah

opening

“Our overall filing number improved versus FY 21 and we expect filing pace to pick up during the current financial year.”

Monish Shah

opening

“In Canada we have 11 products approvals, of which we have launched five products and we intend to launch two more products in the next few quarters.”

Monish Shah

opening

“We expect a significant upside in FY 23 from these products.”

Monish Shah

opening

“Currently the brownfield expansion is under qualification and will be ready for commercial use before June 22.”

Monish Shah

opening

“We also initiated validation of few APIs and expect to see good growth in FY 23 and 24.”

V. V. Ravi Kumar

opening

“Scheduled expansion at R1 including new R&D block and installing balancing equipment to enhance capacity at R2, this expansion will be completed before September 2022.”

V. V. Ravi Kumar

opening

“Our RoCE is at 26.3 and CapEx front for a cash flow we have done about INR 950 crore CapEx in the full year, this is well within the 2-year guidance, rest of the CapEx will be incurred in this current fiscal FY 23.”

Risks & concerns — 8 flagged

We are not seeing any pricing pressure here.

— Monish Shah

Of course, you are aware that we are in a most difficult challenging times, not only on the war side, but also from the COVID front in the China side, we are trying to gear up by using all the techniques to not to have any production losses.

— V. V. Ravi Kumar

Satyanarayana Chava: Maybe we can take this question offline, we can't give you the specific product share in US, we haven't lost any market share, and we haven't seen any types of pressure in our products what we are selling in Europe and US.

— Pratik Gupta

Like you said ARV the price pressure, which is new base, even solvent prices, I don't know whether it is coming down, so that way this should be the new base for our gross margin?

— Naresh Suthar

I asked this question because I just wanted to understand whether the raw material pressure was seen in CDMO business as well?

— Naresh Suthar

Satyanarayana Chava: We expect the solvent prices and raw material prices will soften further, but currently the weaker gross margin what we reported in Q4 is because of several factors including solvent prices and raw material prices and we expect that will soften further and we will improve our margins from the 52% higher.

— Tushar Bohra

So we may see that challenge for only Q1, then onwards we don't see any energy cost escalation and the other factors, freight costs are higher for not just pharma business for any other business as well and we have no visibility on how and when the logistics will be improved.

— Tushar Bohra

In non-ARVs we haven't seen pricing pressure, as we increase our non-ARV revenues, not just synthesis, but also non-ARV APIs, non-ARV formulation sales goes up so our margins level will improve further, so we are at a new base in ARVs and ARV price reduction is the major contributor to drop in gross margins and then solvent prices, these are the two major reasons for dropping gross margins.

— Dipen Sheth

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Q&A — 9 exchanges

Thanks for the opportunity, so just on these selling prices of ARV, if you could just throw some light in terms of on a relative basis over past six months, how much the prices have fallen and what has triggered this price? Dr. Satyanarayana Chava: The FY 22 sales for most companies which were in the ARV space were significantly lower and everybody has significant inventory, that led to the price decrease both in APIs as well as in the formulations. I can't give you a specific number, but the API prices and ARV prices both were down, around 10%, I would say, I can't give you a specific number,

Tushar Manudhane

Sure, that helps, but with this inventory now getting normalizing business or rather limited scope of these prices recovering, so whatever 10% fall, that is how we probably continue in the going forward basis as well? Dr. Satyanarayana Chava: Some improvement will come from softening of the raw material prices and solvent prices, but we don't foresee the API prices and formulary prices going up, I think this could be the new base. So we haven't seen any significant price drops from FY 2021 remain constant, FY 22 was the year where we saw a drop, but I don't think FY 23 will have further drop,

Good morning, thank you for the opportunity. My first question is on Laurus Bio, so the INR 35 crore revenue for the quarter, so very impressive ramp up there, trying to understand how much of the 180 kiloliter capacities are being used now, so what is the utilization of the new capacities that we have added as of the fourth quarter and then slightly from a long term perspective, from biotech ingredients that we are making now and as we aspire to do fermentation based drugs and maybe therapeutic proteins in the future, the current capacities that we have at Laurus Bio, can we use those capacit

Harith Ahmed

Okay and then the same fermenters, including the 1 million capacity that we are adding can the same fermenters be used for drugs like statins or therapeutic proteins when we enter those businesses or those are totally different types of reactors that's needed for those kind of products? Dr. Satyanarayana Chava: The 1 million litre large fermentation capacity what we are creating is for CMO of food proteins. Okay. Dr. Satyanarayana Chava: The fermenters for other pharmaceutical intermediates is under discussion with our bio team at Bangalore and that capacity has to be created separately to thi

Sure, so I was just thinking that Pfizer has mentioned in its presentation that they're going to do $22 billion Paxlovid sales in CY22. Consider 3% to 4% of our total opportunity size for us, can throw some direction on that, like is it is $100 million opportunity or is it much bigger? Dr. Satyanarayana Chava: Unfortunately, we can't give any details on our contract product, our pricing, and the quantum of the order also, see we gave what we can give and what we are supposed to give.

Rahul Veera

Okay, fair point, sir, thank you.

Hi, am I audible?

Management

So, so my first question was with regards to CapEx. So I wanted to understand that with huge cost inflation going on right now, so are we seeing that our cost of CapEx what we had guided for is, are we seeing any inflation on that side. So that was my first question. Dr. Satyanarayana Chava: See, if you look at our several quarter investor calls, the one where we are increasing is our CapEx number. So we were giving lower guidance and increasing it because of the opportunities. So in the last year we were saying for 2 years, our CapEx will be between INR 1500 to 1700 crore and now for next 2 y

Hussain Kagzi

Okay, understood, and, sir on the CDMO side I just wanted one clarification is that as far as my limited understanding goes, the innovator contract so our revenue is dependent on how the molecule progresses from one stage to the another and on the success of the molecule at the innovator’s end. So referring to the large contract that we announced at the end of Q2, so how is that structured as in, does it include a manufacturing component as well for which we'll be supplying or has the molecule already been commercialized? This is with regards to what we announced in Q2. Dr. Satyanarayana Chava

Yes. Hi, sir, the CDMO contract, would we start contributing from 1Q FY 23 in a normalized way or it would slowly ramp up over FY 23? Dr. Satyanarayana Chava: It's already supply started and we supply as per the partner demand. We can't give you any more details on that.

Ritesh Rathod

But it won't be like initial stage it would be very low and then eventually second or third stage you'll supply the full quantity, it would be evenly spread out, right? Dr. Satyanarayana Chava: It’ll be spread out, Yes. Okay, and on the CapEx side, have you increased the guidance from what you were talking of last quarter? Dr. Satyanarayana Chava: Yes. We have increased our CapEx guidance by almost about INR 500 to 600 crore than what we were saying earlier because of the opportunities what we are seeing and we want to be ready with capacities to take on those opportunities. Okay, thanks, that

Yes, hi, thank you for taking my question, my question is again on margins. If I look at the gross margins, this will be a new base for FY 23 open for quarter four margins? Dr. Satyanarayana Chava: Quarter four margins were down when compared to the previous quarter or the corresponding quarter for multiple reasons. One is the challenges in solvent pricing, raw material pricing, logistics cost, product mix changes, energy and fuel cost. All those contributed to lower gross margins there.

Naresh Suthar

Like you said ARV the price pressure, which is new base, even solvent prices, I don't know whether it is coming down, so that way this should be the new base for our gross margin? Dr. Satyanarayana Chava: See the ARV, API sale and formulation sale ARV, we expect little growth, but mostly flattish, so as we increase our revenues from non-ARV, both APIs and formulations, we expect these gross margins to slightly go up from the current base. Okay, one more question. Can I say quarter to quarter the CDMO business the margins were similar to quarter 3, not asking for actual numbers, but was the mar

Sure, thanks.

Management

Hi, sir, good afternoon, and thank you for taking my question, just with respect to what the earlier participant was asking with respect to $1 billion revenue target. So, I do believe that we're expecting the two formulations that were to be launched in Europe to contribute. Is it possible to say, are we expecting that in H2 or will we start seeing some of the contribution from H1? And what is the opportunity size that we are targeting? Dr. Satyanarayana Chava: I can't give you the size of opportunity, but those products will be commercially launched in Q3

Alisha Mahawla

In Q3? Dr. Satyanarayana Chava: Yes. And apart from that on the CDMO side also, apart from the one contract that did start some marginal contribution in Q4, the other one for which we're doing the fast track CapEx, is that also expected to start contributing from FY23? Dr. Satyanarayana Chava: The capacity what we're adding currently is also about 15% of API capacity we're adding, but that will not contribute to revenue in FY 23, see, we have to grow in FY 24 as well for which we need to create capacity. See, unless we create capacity, how the pharma company will grow, either we have to do acq

Speaking time

Moderator

Alisha Mahawla

Tushar Bohra

Harith Ahmed

Pratik Gupta

Ranvir Singh

Tushar Manudhane

Rahul Veera

Naresh Suthar

V. V. Ravi Kumar

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Opening remarks

Monish Shah

Ladies and gentlemen, good day and welcome to the Q4 FY 22 earnings Conference Call of Laurus Labs, hosted by Antique Stock Broking. 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. Should you need assistance during the Conference Call, please signal an operator by “*”, then “0” on your touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you and over to you, sir. Thank you, Steven. Good morning and a warm welcome to everyone to Laurus’ Q4 FY 22 results Conference Call. We thank the management for giving us the opportunity to host this call. Today, we have with us Dr. Satyanarayana Chava, Founder and CEO, Mr. V. V. Ravi Kumar, Executive Director and CFO, and Mr. Vivek Kumar from the Investor Relations Team. I would like to hand the call over to Dr. Satya for his opening commen

V. V. Ravi Kumar

projects in the late stage clinical programs and commercial supplies ongoing for core products. On our multiyear supply contract, we executed in quarter two FY 22 the Capex work is on fast track. Additionally, our proposed Greenfield investment to set up a dedicated R&D center for our CDMO division at Hyderabad and three manufacturing units in Vizag under Laurus Synthesis is progressing as per our expectations. New sites for this division will have the capabilities to handle steroids, hormones, high potent molecules apart from large scale products. The last division on the Bio Segment, the revenues have improved over 40% quarter on quarter to INR 35 crore mainly led by new capacities getting operational. For the full year FY 22 the sales was INR 100 crore, which is a very significant growth, almost 70% compared to preacquisition annualized data of INR 58 crore as we brought more operational synergies and added more capacities to this division. We're also gradually ramping up on the 180

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