Neuland Laboratories Ltd
NSE:NEULANDLAB
Neuland Laboratories Ltd
NSE:NEULANDLAB
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Earnings Call Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the Neuland Laboratories Limited Q4 and FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ravi Udeshi from Ernst & Young. Thank you, and over to you, sir.
Thank you, Maskan. Good morning, friends. We welcome you to the Q4 and FY '24 Earnings Conference Call of Neuland Laboratories Limited. To take us through the results and to answer your questions, we have with us today the top management from Neuland Laboratories, represented by Mr. Sucheth Davuluri, Vice Chairman and CEO; Mr. Sal Davuluri, Vice Chairman and Marine Director; Mr. Abhijit Majumdar, CFO; and Mr. Sajeev Emmanuel Medikonda, Head, Corporate Planning and Strategy. We will start the call with a brief overview of the financials by Mr. Abhijit Majumdar and then Sucheth will give you broad highlights of the business trends and what is above in the market. And post this, we will open up the call for the Q&A session.
As usual, the standard safe harbor clause applies as we start the call. With that said, I now hand over the floor to Abhijit. Over to you, Abhijit.
Thank you very much, Ravi, and good morning and a warm welcome to you all for joining our Q4 and FY '24 earnings. I'll septal about the financial. The total income for FY '24 was INR 1,511 crores as against of INR 1,209 crores in FY '23. This has been driven by high growth in the CMS business and better growth of the specialty PD business. Both of rates were in line with our plans and expectations.
Our EBITDA for FY '24 stands at INR 24.5 crores with a margin of 13.2%, an increase of 6.8% over. The total income of Q4 FY '24 was INR 29.4 crores as against INR 45.1 crores in Q4 of FY '18. Our EBITDA for Q4 FY '21 stands at INR 14.2 crores with a margin of 28.7%, a decrease of 2.2% over Q4.
I'd like to say that the overall operating environment continues to be unpredictable. However, we have made business stability in terms of input costs. We also continue to be mindful of managing our operational costs, resulting in financial revenue.
This also gives us the ability to grow without product cost sedation. Dedication to operational efficiency and cost optimization and aiming and main early as a partner so for the continued advancement of our organization.
As we have consistently said in our previous earning cost for steel measure of performance over a 3- to 4-year horizon as our revenues and EBITDA margin will fluctuate on a Q-on-Q basis or on a year-to-year basis based on those businesses, which is dependent on the order proven. Contango this petites.
Our gross margin was 15.8% of Q4 FY '24 as compared to 54.1% in Q4 of FY '23 and 69.8% in Q3 of FY '24. This gross margin presenting as always, includes direct drops pertaining to manufacturing and attribute to the product. The profit after tax was at INR 67.6 crores as compared to INR 84.5 crores in Q4 FY '23. This quarter, we INR 52.7 per share.
We have been strategically optimizing operations and report publication. Gross internal cash flow and thereby, in diverse in the face of potential fluctuations. We generated a key cash flow for FY '24 of INR 1.4 crores. We have made patisserie our debt by INR 79.4 crores. On security, our net debt position stands at negative INR 3.6 crores. We also reduced our working cap cycle to 12 billion at the end of March '24 compared to INR 1.1 million at the end of March last year quarter.
We continue to invest in upgrading our facilities and have invested INR 142.7 crores in CapEx in FY '24. I'd like to add that we continue to be mindful of balancing growth in profitability by continuously by continued growth in optimizing costs and processes, which will also make us fully substinate long term.
We will continue to be on the result of opportunities that will generate enable cash flows. We expect that FY '25 will be sure of normalized revenue and margin as we resume investment. We are opportunistically optimistic that nets to continue momentum in the subsequent year based on the current visibility of our project and portfolio core.
With that, I would like to hand over the call to Sucheth, thank you very much.
Thank you, Abhijit. Good morning, everyone. I'll add a few comments on the talk about -- we Fred, and then we just open it up for Q&A.
Given that we've completed another financial year, I'll share some of our thoughts on FY '24. Coming on top of FY '23, where we grew at 26%. We have been able to grow over 30% again this year. During the same 2 years, our EBITDA margins have also grown. They were actually 15% in FY '22. They grew to 23% in FY '23. And then further repair their 30%.
As I mentioned in the past, this is in line with our long-term strategy and a imitative of the kind of business in the company that we want to build. Over many years, we've been consistently positioning Neuland as a top API service provider with broad complex capabilities, partnering with both innovative as well as generic part companies.
As we stand to assess Slide 24, there are a few things worth mentioning. We have, number one, we have seen the PMS business this year contributed close to 50% of our revenues, which already had grown 30% last year. Our CMS business saw its robust growth in FY '24 as some projects, as we mentioned before, are near launch, while key commercial products continue to scale.
Number two, we have added a number of projects across the clinical Phase I and Phase II. In light of the improving biotech environment in the U.S., we see the new business environment continuing to look favorable.
Number three, when it comes to the GDS business, we have seen some growth in specialty GDS business, driven by Paliperidone, and a few other molecules where there was a slight decline in Prime. This is actually in line with the composition of our product portfolio as different products go through different life type limits at various stages.
I expected that we are continuing to develop new products and seeing increasing traction for them even as CMS Leo. The past year has seen a reiteration of our regulatory track record as both Unit 3 and Unit 1 were inspected by the FDA.
Also lastly, we are actively investing in long-term growth CapEx, which has been announced during the course of the year. We continue to remain conservative on identification of avenues for these investments.
In terms of the quarter itself, while it was lower than some of the previous quarters, it's actually in line with our expectations and in line with our plans for FY '24. We have seen significant revenue from both commercial as well as development projects even as we continue to add new projects.
Key molecules driving specialty GDS performance of Paliperidone and Dorzolamide while mirtazapine and escitalopram were key contributors to the prime GDS business. As stated earlier, the business has seen increase in growth and profitability due to a favorable product mix as well as scale up of new molecules, and we expect this momentum to sustain bringing us healthy margins.
Looking at the pipeline, we are excited on the long-term potential of the business, which will be led by commercialization of molecules as well as addition of new business. We continue to invest in creation of additional capacities as well as capabilities for reaching scale in new as well as existing molecules.
In the short run, however, we expect moderation in revenue growth as well as normalization to some extent on margins due to the investments that we're making in the business and also input cost increases. We expect the business mix to remain steady and gradually improve.
As always, we maintain that variables such as the usual product performance, product fluctuations, raw material cost volatility and other business variables can have a bearing on our outlook. We remain vigilant of all the challenges and remain focused to capitalize on the new opportunities ensuring that there is sustained growth and profitability over the specified time frame.
The flexibility and agility will be the key in responding effectively to the evolving business environment. Also, I'd like to say that our growing reputation and the macro environment are ensuring that exciting opportunities come our way even as we work towards building a further differentiated customer experience.
We will continue to invest for the future by adding capacity and capabilities that I have already mentioned. By staying committed to our principles of customer tensility, agility and operational excellence, Neuland is well positioned to capitalize on opportunities and overcome challenges and well on the path of achieving its long-term objectives.
So having said that, maybe, Navia, request you to open it up for Q&A.
[Operator Instructions] The first question is from the line of San Kazi from Ambit Asset Management.
My first question is on our product pipeline. So as I see there's a great jump in the Phase II molecule pipeline this year. So if you could share some color on that. And additionally, now if I zoom out and look at our pipeline data since FY '18, so the total number of projects or molecules have not grown much from FY '20 to '24, like the total number was 76% in '20. Now it's 88%. So compared to the rise that we saw in the preceding 2 years.
Now I'm asking this in the context that as far as my limited understanding goes, the larger pipeline is important in terms of diversifying from a select molecules. And of course, chance of having many such high-value products in the commercialization phase. So if you could please throw some color on this?
Yes. Thank you for the question. I think with regards to the pipeline itself, I think the near-term pipeline, the molecules which have been contributing significantly, I think they have been continuing to do well.
I think the emphasis on new projects is there. And I think we are also seeing a steady inflow of new projects coming in now, which is what I had highlighted in my comments.
Your observation is absolutely right. I think the kind of increase we had 2 years ago versus the increase we've had in FY '24 is not the same. But having said that, I think we also went through that full biotech funding crunch and there was a little bit of a slowdown in terms of new project inflows about a year ago.
At the moment, as it stands, we're seeing a steady increase in flow of new opportunities, new RFPs are coming our way. So I would expect -- I would guess that in the next 12 months, there should be an increase in the total number of projects.
And also, one thing to bear in mind is that it's also important for us to track the quality of the profits coming in, right? So it's also important to make sure that we're getting good opportunities, which are high value and rather just focus on the number alone. So that has some of the team is becoming more selective and careful in soliciting the kind of projects that we want.
Do you want to add something to this?
No, I think the starts have already catered because we need to keep in mind...
Not audible. Can you speak a little louder, sir?
Yes. I think one thing we need to keep in mind is the fact that we are looking at the number of active projects. So this is not a cumulative number of costs. So even as we are adding profit we find that there is attributable projects in Phase I patients, 3 vesicle, which is therefore the number is at 90. So 89. We keep an active racino assets the variety of these projects in antedate build up.
That's very helpful. And just in continuation to this. It's interesting that you mentioned that about biotech funding and all. So you have said that FY '25 will be a year in terms of normalized revenue. But if I see our exceptional performance in FY '23 as well as '24, this was in light of severe biotech funding pressure, which, of course, forms a major part of our client cohort.
Now that is kind of picking up at least over the last 3 months from publicly-available data. That plus the noise around the biosecurity bill, so early stage projects would be much easier to shift.
And the third point is our new -- one of our CSM product received a label extension. So don't you think all these increase from these would be able to kind of add to the revenue for FY '25 and kind of shorted much further?
See, I think our estimates for FY '25 and the kind of indication is given is based on what we are seeing as concrete in terms of order book in terms of visibility, production plans, et cetera. What comes out in terms of new business, we call it blue styles, is something that we cannot really model or predict in to our revenues. There's always an estimate of how much new business will come each year.
If you see the growth that we have achieved in FY '23 and '24 was actually a lot of -- as a result of the new projects we added in FY '19 and FY '20. So therefore, we would appreciate that there's always going to be a lag between the performance of the year versus the effort of getting a new business.
So if we see all the new projects in the next 12 months because of this whole biotech funding, I think it will probably add more significantly to the business 2, 3 years down the line, given the kind of projects that we will pursue. It may not necessarily add significantly for FY '25 itself.
So we kind of stand by what kind of indications we had given because those indications are based on the order book and the firmness of the more commercialized molecules we have.
The next question is from the line of Ankit Pania from Inked Asset Management. Yes, Ankit, please go over the questions. We'll move onto the next. Question is from the line of Sudarshan Panama from JM Financial.
My question is to understand the revenue segment. So we have seen a very favorable movement with the high-margin business increasing and the low-margin business coming down. One is, as you have alluded, the order book is getting stronger. So even from here, I mean, where do we see the mix between, say, a high-margin prime vis-a-vis somewhat a low margin -- I mean, low margin prime, high-margin specialty.
The second is when I'm actually coming to the working capital. So it was quite good to see the working capital also improving on a year-on-year basis. I mean, where do we see -- should we also continue to see the improvement in the working cap?
Yes, I think there has been a steady increase in the contribution of specialty vis-a-vis trying. And I think that's something that we expect to happen. I think it's hard for us to put a finger on whether this will continue to increase further or it will stabilize at the current level because it really also depends on how our prime products will do.
For example, this year, I think mitigating is really when it grew a lot. And if some of the prime products continue to grow that well hand in hand with the specialty products then maybe the proportions will remain the same.
With regards to the working capital, I'll give you, do you want to answer?
So at the end of month, we manage working capital etinostat around 122 days...
So your voice is not audible. Do you want me to reconnect you, sir? We can't hear you, sir.
Okay. So I can share mouse -- so at the end of March, we were at on a and we do we calculate working capital days externally, and we give it out also as part of our debt. Okay. SP689734278 So we have been striving to kind of. Were -- can you want the brief answer you on this just tell me maybe okay -- so we strive to was 120 days.
So our target is 120 in terms of working cap, and we are very confident that we can get there. I think there's been a little bit of a drop in this quarter. But that's also probably connected with the quarter itself. So that's it. Yes. So maybe we can move on to the next question.
One final question before I joined the queue is just taking cue from the earlier participant. I mean when I'm looking at the CMS revenue, I mean, there has been a very sharp jump on the commercial and development side. We also know that some of the products, which have just hit commercial and typically is expected to gather momentum. So in that aspect, are you being a little bit more cautious? Or do you think that with whatever the visibility that is in hand, probably, you still believe that there will be -- whatever that is being built for we'd see a more visible or a sharper jump to say 2 years down the line.
No. I think, Subash, one over the commentary we are making, we don't necessarily look at it as being conservative or aggressive. I think we just kind of giving our outlook the way it is. I think maybe every management or every company has a different degree of tolerance.
So I think maybe I would just say if you want to understand what we are indicating, if you just look back at our last 2, 3 years commentary versus -- and then trying to take it with the performance, you will see that there is consistency whether it is conservative or not is something I leave it to you.
I think everything we are making in terms of commentary about FY '25 and the year beyond, is we are being very realistic. We don't necessarily intend to downplay anything.
The next question is from the line of Anke tone from Ingo Asset Management.
Congratulation on a great set of number. Sir, two questions. So firstly, on the -- for the quarterly result, so that expenses have increased by almost 21% on a year-on-year and even sequentially by 23%. So is there any one-off over here? Or is it because of the investments that we are doing as a result of that? Hello.
Can you hear me?
Yes. Now, we can hear you.
Thank you. So actually, our operating expenses has gone as per our plans as per our plan. But having said that, our operating expenses has gone up by around 18% because the rest of it is variable. And that is predominantly because of manpower costs, right, and other expenses, which is on account of professional fees, right, and some amount because of manufacturing expenses.
But I must tell you, Anke, that this is as per our plan. So it's not something that we were not aware of based on actuals.
Fair. And sir, another thing on the last quarter con call, you had mentioned that we have purchased an additional land next to the Unit 1. So any update on that? How are we looking at or will we start investing for that right now? Or as and when we get more clarity on new projects coming in?
So I think the largest primary is secure od to make way for the future expansion for the product that's been made in those facilities. So we have a 5-year plan was and looking at the needs of the plan, we are adding improve capacity and integrating it in line with the protections and that's pretty much it.
Okay. And what can -- what would be the CapEx guidance for FY '24 and FY '25 -- FY '25 and '26.
Abiding to end...
So our CapEx guidance continues to be the same as we have traded earlier. The baseline would be always INR 100-plus crores but we will be opportunistic. If we find something, which meets those plans. We would have growth back to you and obviously have to inform the stoping.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one is on the outlook as we look forward, right? You've talked about fiscal '25 being like a consolidation year. I remember in your earlier calls, you talked about like a medium-term growth CAGR of 20% and look at not a quarterly, but more at a more medium-term level.
So I just want to get some of the key milestones that we need to keep in mind in fiscal '25 and '26. I'm just calling out a few things. I'm not sure whether I'm capturing everything like, for example, the corona molecules. Do we have to look at the PDUFA dates coming up for the bempedoic asset label expansion.
So if you could help us qualitative sense on some of the products that are in the public domain in terms of what are the things we need to look forward to? Take the point that there could be consolidation. But I just want to understand what are some of the catalysts that we can see in the next 12, 18 months?
Yes. Thanks for the question. I think -- try to answer that as best as possible. I think what we have always indicated is that over a 4-, 5-year period, we will be able to target a 20% kind of growth. And I think that's something that we are comfortable. And our plans are all kind of built around that.
Again, having said that, the growth is not going to be linear even on a year-on-year basis. So that is also something that we are seeing kind of play out.
With regards to the milestones that one should look out for. I think we have to just kind of qualitatively visualize this for you. We talked about FY '25 being more of a modest growth and a growth in '26 and '27 being far better.
And I think the reason why we have also kind of given this kind of outlook is just based on how we see the current pipeline of products and their projections as we layer them out. A lot of the 3-year outlook that we have talked about is based on all the molecules that are already in the bank, so to speak. So these are not based on any assumptions of some new molecule, some Phase III molecule getting commercialized, et cetera.
I think anything that happens at that level will perhaps enhance the business, but that is unlikely to happen in the next 1 year. It could happen beyond the 1-year time frame.
Unfortunately, as we have mentioned in the past, we won't comment on specific molecules in the CMS portfolio because of the confidential nature of the business. But I think whatever molecules we are kind of commercialized already, I think we're seeing a sustained growth for those molecules.
I think the molecules, which are perhaps stepped away from commercialization in the launch phase. I think we're seeing good traction with that also. So I think, yes, that's kind of what I -- do you want to add something?
So the other point is respective of the news that we see in the market will be expect molecules in the margin. It's very difficult to or the 2 kinds of projections because sometimes we really unintended that our customers are not warranties molecule slightly had we have realities possible to take that in the future. And one of the comments is little dispenser.
Can you come closer to the mic, sir?
No. That's all from me.
Okay. Just the second question is on the generics side of things, right? Was there any -- any comments on either pricing or volume trends for the quarter? Again, we're not looking quarter-to-quarter, but just trying to understand because that's where, say, prime was like down 16% Y-o-Y. So just trying to understand, is this some form of pricing pressure? Or do you think this is just phasing of supplies? Any color there will be helpful.
I think Prime, although by nature has that kind of challenges, we've not really had any kind of issue.
And also, Sam, is that trying products because of the nature of housing. There's a lot of market share volatility that happened as well, especially in light of the new mats regulation and other guidelines that we've seen. We've seen some of the Prime products being affected by based on how our customers are choosing to hand in them.
Therefore, we don't see any significant long-term impact of that, but there are short to medium-term corrections. But the business segment is as was saying earlier, whether it's Prime, specialty or CMS, they continue to be.
And I think there's no particular challenges on pricing also in this regard.
The next question is from the line of Jill Kapur, from Individual Investor.
Before I ask my question, I want to make a small comment on our balance sheet. Actually, I've been very lucky with Neuland Lab. From a debt-heavy balance sheet into 2010, to net cash on books with the Nanakramgu transaction is still pending. It has been an amazing journey of transformation and solid execution.
And coming to my question, over the next 4 years, we will likely generate an additional INR 2,000 crores of cumulative operating cash. So can you scratch out the capital allocation and dividend payout policy for the next 4 years because we are hardly paying any dividend today, which means that we are conserving cash and we have some capacity strong capability plans. That's my first question.
And my second question is there was a recent news article in Financial Times that U.S. FDA has been denied access to several Chinese sites in recent years, and a large number of auditors from Germany are diffusing to visit China for this year of rest. And we can add Biosecure bill that has been tabled in the U.S. funded to this mix, and this becomes a very potent combo for an alternative supply chain. You would imagine, no?
So a couple of things, Sasan, on the CapEx side, as Ajit was saying on the baseline CapEx is going to be in the vicinity of INR 100 crores. And on top of that, we have a program for specialty or growth CapEx. So based on specific projects in the need for those projects and opportunities and the operating cash that we are generating, we allocate whatever CapEx is required, so that we don't lose out on the opportunity without taking on to next risk.
So that's the overall policy that we have on the CapEx. We also try to maintain an internal benchmark where we don't want to allocate more than 60% of our operating cash to CapEx. But we're willing to breach this benchmark based on the opportunities that come available to us as well.
Now as far as the dividend policy is concerned, a couple of years ago, we had actually benchmarked against other growing companies in the market to see how much is repeat dividend to be paid out for growth in the over-rented company, and companies which have a similar financial help as we do and growth plans will we do.
Apart from that, we've also taken input from advisers and consultants on what should be a healthy dividend policy. Today, we use those guidelines, and we debate in the Board meeting every year based on the profitability and in line with our dividend policy to declare that dividend for a specific care and this practice will continue.
I think the last comment about the Biosecure Act and what we are seeing in China and the impact of that, I think we're taking things as we come because there's 2 things. One, there is this overall in about the Biosecure Act, which hasn't been passed yet. The second thing is about how that will actually get operationalized and the impact of that we will see for India and other countries.
Therefore, right now, what we're doing is what we consume, which is to be intact with our existing customers, potential customers. We're also doing business with China and other countries, matching our capabilities to their needs and seeing how we can put our best foot forward because that is what we can control as new and other things are beyond our control.
And I think how the future plays out is something that we will wait and see. Notwithstanding that, as you've noticed, we are taking aggressive bets on investing in technology, are buying the plan, adding this capacity so that we are ready to take care of the opportunities in the future. That's how as an organization is thinking about it right now.
The next question is from the line of Joe Valia from Clock wine Capital.
So are there any dedicated plants that are part of your CapEx plan for FY '25 with regard to the customs into business?
I think the plans that are being designed or build are always identified with 1, 2 or 3 products. But by design, it always made to be multiproduct facility. So I think similarly, as we mentioned earlier, we tend to be a little conservative that way. So whatever plans we're building right now are also identified with specific products, but it doesn't necessarily mean that they are dedicated.
The next question is from the line of Harsh Bhatia from Bandon AMC.
First 1 or 2 quick clarifications, a bit of micro and macro at least on a peptide level. I think so 1 or 2 quarters back, you made a comment that we expect to file 1 molecule in this year, calendar year and then 2 molecules in CY '26, at the GTS level. And then there are a couple of molecules at the CMS level as desired. So if you could help us understand where are we at least for the CV '24 filing.
And I think so you also made a passing comment that the potential for the GDS molecules could be much higher than the CMS ones. I understand that there could be some volume-based growth from the petite space. But if you could just refresh our memory for that, please.
Yes, sure. Thanks for that question. We had 2 active projects in DDS, which we are working on right now with the first one, which we expect to file DMF later this year is at pace, which is something that is still on track and that is something that we are excited about. There's another one which is a GLP-1, which we are working on, so which the GMFMs maybe filed perhaps in 2026.
And that's obviously a very big opportunity, not for the generic side than the CDMO side. And I think both the projects among a few other GDS projects are progressing. We actually continue to even see increased interest from the generic customers, and our facilities and our infrastructure is also kind of gearing up for these molecules.
But as I had indicated previously, it's premature to factor in financial impact or benefit from these projects until we actually see some indications of commercialization. So I think that's something that is not really reflected in our short- to medium-term revenue outlook.
Sure. But just to clarify, CY '26 is the GLP1 asset, CY '24 is also a GLP-1 asset?
No. It's technical limit. It's not a GLP. And I think the names out there in the public domain. We can just look it up.
Sure, sure, sure. And lastly, more of a macro view. In terms of this entire GLP-1 space, since you are a lot more closer to the customers, whether generate or innovators at both spaces. Since there are many moving parts to this. If you could help us understand maybe the top 2 or 3 points that are like material for us to keep in mind maybe at the patent level scenario, geography, how the innovators are thinking about it because they are obviously consolidating it a lot more than what was anticipated particularly for this space. So maybe just 2 or 3 points like something that we should keep in mind for the next 2, 3 year period.
Sure. I think, again, just our own opinions may not be true. I think one, GLP-1, CDMO opportunity is really limited because all the companies who are the innovators are securing their own API supply change by building -- making them in-house.
Number two, the generic opportunity for GLP-1 is huge. And the -- but of the GLP-1 is that we don't necessarily have to focus on the "regulated" markets. The market is global. I think there can be a demand in India, there could be a demand in any other place because these are difficult to make that. So developing at GLP-1 generic is not necessarily for the regulated market. It could be for the local markets as well.
Number three, these are relatively higher volume peptide. So you will have to make tens API, if you are really successful, which means that infrastructure could be a challenge. You'll have to kind of foresee the need, the capacities and build accordingly because just having the process and the BMS may not be enough. We have to be able to confirm the volumes also.
Yes. And also, yes, so in terms of the launch, there is some unpredictability. We don't know exactly how the IP landscape will be, and innovators are constantly looking out for their own input. So I think these are some of the high-level insights and I think -- but we are very excited about this space.
Maybe the last point I'd also make is the -- I think GLP-1s, they're going to be more GLP-1. It's not just going to be the 2, 3 we have already seen commercial success there. Maybe there's also a CDMO opportunity for fragments and building blocks for some of these GLP-1s, and that's maybe another input we can share at this point.
[Operator Instructions] The next question is from the line of Lirich from White Oak Capital.
So I just want to understand that if you reflect on the last 2 years where you had significant scale up in the CMS revenue versus what you thought that you will achieve at the beginning of the year and then what you ended up achieving. How much deviation was there? I just want to get a sense of how much visibility and how much dispersion you have from the visibility from the beginning of the year versus what you achieved at the end of the year?
I think -- thanks for the question, Ritesh. I think if we look back at FY '24, we've seen that we had achieved what we had pursued at the beginning of the financial year. I think even in terms of our budgets, internal numbers, et cetera, I think we've been kind of more or less on point.
There are obviously some things, which go better than expected and something which may not go as well as expected. And I think mostly, it kind of evens out. But bottom line I think we're pleased. And I think now our teams have also kind of gotten more scientific and really on top of the whole planning process.
So now we feel that while there is volatility, lumpiness in the nature of our business, the growing size of the business and the better visibility we get from our customers and the improvement in our own planning process is at least helping us to visualize our business and end the year more or less as planned.
The next question is from the line of Suraj from East Land Capital.
I just have a question on -- just to get an understanding on how the margins would be going directionally over the next 2, 3 years, if you can guide on that?
Yes. I think, Suri, that we've -- I think had mentioned a couple of things, right? One is that the margins have improved significantly over the last 3 years from 15% to 23% to 30%.
Also mentioned that the margins will normalize in some sense. And I think the other thing I will just bring back into context is that we see that the business mix continuing to evolve or improve. So I think if you look at all these factors into consideration, one thing you would appreciate is that there are some unknown that we have to deal with, whether it is the exchange rate, whether it is input prices or it is the individual product mix.
And considering these things, we think that normalization would be kind of in some ways, we would think that FY '24 margins were very good. They were better than expected. And therefore, we say that FY '25, we expect some sort of normalization.
But we have decided not to quantify anything further, but we think that because the business mix is continuing to evolve and improve, we see no reason for the fundamental potential of the business to actually reduce. But these individual parameters like sovereign prices, exchange rates, et cetera, would have an effect on the overall margins.
So that's kind of what I would say just to answer. And I think even going forward, we continue to see the trend of the business mix change the way it is and the margins continue to be healthy. But we will not be able to give guidance on whether it will be at 20%, how much will it come down, et cetera. But yes, so that's what I would say.
The next question is from the line of Digi Agarwal from Scomadi office.
Congratulations on the great set of numbers. So I had a couple of questions. First is on the biosecure law. So can you give us the current status of the basic law. And the second question is on the continuation. What will be the impact if and when the biosecular comes in? What will be the impact on the company?
Repeat your question and if you could just speak a little slowly.
Okay. Sure, sir. So I just had a couple of questions. So first is on the current status on the Biosector law. And second is on the -- as and when the accelacomes into the place, what would be the impact on our company of the law coming in?
Yes. I think Sukita already answered the question. For us, we have to wait and watch what will happen. I think, obviously, the narrative is very favorable. I think a lot of American companies are talking to Neuland and other CDMOs about opportunity, about projects and perhaps these conversations would have been fewer if this whole Biosecure act was not being discussed.
So that way, I think it's a positive thing. We have to see whether it will translate to actual business. So that is something that we are going to wait and watch.
And what was the second question?
The current status, I mean, you have answered that, so yes.
The next question is from the line of Sanjay Cole from Goldstone Capital.
So a couple of the previous speakers have again got up the biosecure Act. And in this backdrop, you -- is it safe to assume that there are a lot of visits now taking place from innovator companies and other companies who are now looking towards alternative sources? Are you seeing this happen? Did you see this happen?
We could see a lot of requests. A lot of requests for information request of proposals. There are definitely a lot of conversations. I think is this something that I think post pandemic have become more precious. People don't -- this kind of come and visit facilities unless there is a quality order or a product or something like that.
So I would not say that we have seen a surge in business. But definitely, we are seeing surge in RFI, RFP kind of activity.
Right. Okay. And just to understand the company better. I want to draw your attention to your Slide # 12 of the presentation. And in terms of the commercial CMS projects, which are total #18, 8 plus 10. So I just wanted to understand that the '18, how many of these involve biologics?
None of them. We are essentially a simplifica organic ministry company, so we do not make any biologics. They're all small molecules at a pandemic products.
Okay. And I think you've already talked about...
I'm sorry to interrupt, please follow back the queue. The next question is from the line of Athira, an Individual Investor.
So my first question is considering 3 points, we have not lost any customer in the past. Our custom manufacturing customers patent will not expire till 2030. It is difficult to switch the supplier after the molecule gets commercialized. Will it be fair to assume that our commercialized API and intermediate count will increase quarter-on-quarter for at least 2 years?
I think -- yes, I think the first 3 points, I think is just kind of reiterating what we have mentioned.
And yes, the thing we want to clarify is that -- as you know, we grow projects in 1 Phase I and II in conti -- and in the great projects in the state is the secretion of these molecules can be very high. That means the molecule where the bolus going to the not projects to the next stage. Therefore, meeting the customer at a project is not necessarily a bad thing. It's just the nature of the business that we are in.
And as saying earlier, I think it's hard to predict what will happen at a molecule level in terms of the market share as well as the growth. So we always look at the consolidated picture, and we pay a capacity in such a way that if the molecule will grow, we have the capacity to expand in some fall, then we have the molecules that can take the place of the other and that's plan it.
Yes, I was talking about commercialized API, not amount ministration and Phase I fallen. So will our commercialized API count in this quarter-on-quarter.
So Abhishek, I just want to take a 1 is that even though we have 8 molecules or 18, which are there as a -- this is evident of the business that we have built up over the years. But what we have mentioned in the past is that the key molecules, which constitutes a substantive portion of our commercial revenues are around 4 to 5. And we -- even as these processes, we will keep talking about our other entity additions, and I think that is what we need to keep in commercial projects.
The next question is from the line of Anirudh Shetty from Solid Advice Private Limited.
I had 2 large...
Sorry, you're not audible.
Just repeat my question. So you sit about the China plus 1 opportunity for a lot of questions. I just wondered some of your thoughts on there would be manufacturing of API of the CSM in the West as well in Europe. So with all the cost challenges that are happening there or some of them might have abated, but are you also seeing a lot of opportunity come your way because of an unwillingness to invest further so more of a West plus 1 Europe plus 1. So I just wanted your thoughts around that.
Yes. I think we come across a lot of customers who have different strategies with customers who are looking at India as an alternative to China now and therefore, that whole China plus 1 concept became very evident.
There are also some companies who would rather get their API cases manufactured in Europe. And China is not working out rather tepid in Europe. And I think there are cases of that as well.
We do see time and again in our CDMO business and even in our generics business that most of our competitors outside India are actually in Europe. We actually see less competition for us in China. And in that sense, the European CDMOs, European API makers are always a credible set. And there is also capacity creation in these regions.
So we see some of the largest CDMOs actively create capacity, maybe not necessarily for KSMs but for API for sure. And that is something that we have to be mindful of.
Our costs are something that, obviously, I think they worked to our advantage. But again, depending on the customer, if they have the willingness to pay the premium for getting the drug substance manufactured in Europe, then they would not necessarily compare our pricing with the European CDMO pricing. They would just choose whatever is a strategically good fit for them.
Perhaps when it comes to China versus India, it's more a pricing comparison. But when it comes to Europe versus India or Neuland in particular, it's maybe more of a strategic decision rather than just a pricing compression. I'm not sure if that answers your question.
No, it answers my question. Just one follow-up here. Are you -- basis your track record of good quality? Are you seeing customers looking at you differently because now the respective capabilities has gone up. So the willingness to start comparing your products, which is a player in Europe is now something that they're considering more seriously today than what say they would have in the past.
Are you seeing that change in customer -- are you seeing that customers might be looking at or differently today?
Yes, yes, Sania. I think what speaks for our credibility is 2 things. One is 25-year track record with the FDA, a very strong quality culture, I think which becomes a prerequisite for a lot of our CDMO clients.
Second is, we've also -- in the last 15 years been a part of a lot of IND, clinical trial, manufacturing and also a lot of NDAs. We've been part of a lot of PAI inspection. So that richness that comes out of having taken NCE through the clinic into the commercial helps the elevators kind of rely on a company like PLN and that has helped us obviously differentiate ourselves.
We used to be also limited by our infrastructure, the size of our plant and maybe even the modern -- the lack of maybe modernization of our plants 4, 5 years ago. But those are things that we've addressed recently as well.
So I think all these factors are definitely favoring Neuland. The decision of working in India versus keeping a molecule in the West is more of a -- I've seen that it's more of a Board decision of the innovator company. It's got less to do with whether the outsourcing managers or the CMS groups have faith in Neuland or not. It becomes more of a strategic prerogative for the Board.
And that's why we see sometimes, although we may be a better fit than a European CDMO for a particular project, they decide to keep the molecule in Europe because we feel like from a geo diversity point of view, that's what they prefer. And those are situations which unfortunately, we cannot come back -- but we still try to try to do our best to get those kind of projects. So yes, so that's kind of what I would say to the follow-up question.
That was the last question for today. I now hand the conference over to the management for closing comments. Sir, over to you.
Yes. I'd like to thank everyone for joining the call answer the questions. As always, they have been tolerant product as name business. We appreciate your interest in Neuland. And we may not have a Beacon 1. Please talk to you have further questions. Have a good day, everyone.
Thank you. On behalf of Neuland Laboratories, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.