RPG Life Sciences Limited

NSE:RPGLIFE

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to RPG Life Science Limited FY 2024 Earnings Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Systematix Institutional Equities. Thank you, and over to you, sir.

[Vishal Manchanda, analyst]

Thank you, Ria, and good afternoon, everyone. This is Vishal Manchanda and on behalf of Systematix Institutional Equities, I welcome you to the Q4 FY '24 Earnings Call of RPG Life Sciences.

We thank the RPG management for giving us an opportunity to host the call. Today, we have with us the senior management of the company represented by Mr. Yugal Sikri, Managing Director; Mr. Vishal Shah, Chief Financial Officer. I'll now hand over the call to the company management for the opening remarks. Over to you, sir.

[Yugal Sikri, executive]

Good afternoon. Thank you, Vishal. And good afternoon to everyone. I hope I'm audible. As always, it's my pleasure to share with you briefly RPGLS performance versus the market and brief highlights of our performance in Q4, full year FY '24 and since we strongly believe that hallmark and true test of a strategy its consistency and since FY '24 marks the fifth year of our transformation agenda, a quick panoramic view of the 5 years at a glance.

Therefore, first, the market. In the context of market, as per the database, IQVIA MAT march market is currently growing at sub-10%, 7.6%. [indiscernible] indicate the growth is ahead of 6% or less than 7%. But what is important for me to share with you is RPGLS or RPG Life Sciences is growing at 18.8% that is 2.5x the market growth.

In terms of volume, market growth is flat or 0.7% is what IQVIA data indicates for market. Whereas, RPG Life Sciences volume growth is solid 13%. I'm also pleased to share with you that RPG Life Sciences on MAT March '24 basis has emerged as the seventh fastest-growing company of pharma industry's top 75 companies.

And further important for me to share with you is, in Q4, our in-market growth, as reflected by IQVIA is 19% versus the industry growth of 5.7%, that is 3.3x the market growth.

Now let me move to the key highlights of Q4. Q4 revenue growth is 7.2%. It appears slightly muted due to a couple of transient factors, which has something to do with a couple of products and a couple of markets. One of our product got impacted because of seasonality.

Second one, because of 1 product discontinuation, which happened in the fourth quarter of the last year due to the government order. The third one is with respect to market where government has imposed some kind of restrictions on the release of import licenses due to the foreign exchange crunch in the country.

And I strongly believe that all of these factors are transient and are easily resolvable. Therefore, what is important for us to note is that the in-market growth has been robust 19% vis-à-vis the 5.7% market growth in quarter 4, which I mentioned earlier.

Coming to the other financial [ metrics ]. I'm happy to share with you, they continue to be as robust as they are on a full year basis. The growth for EBITDA, PBT and PAT has been solid, 26%, 29% and 28%, respectively, on Y-o-Y basis. Margin improvement also continues with the 5-year Q4 uptrend with a significant increase in the margins in Q4 indices.

EPS grew at 30%. With this, I'd like to move on quickly to the picture on full year FY '24. And I'm sure you had the opportunity to look at the investor presentation, which we uploaded in the -- in our website. But if not, just presenting you a few highlights.

The sales growth is 14%; EBITDA growth, 26%; PBT growth, 28%; PAT growth, 28%. Vis-a-vis the market, as mentioned earlier, market evolution index is 110%; our growth, 18.8%, which is 2.5x of the market growth; seventh fastest-growing company, as I mentioned earlier.

Pleased also to share with you market rank has been up by 5 positions or 5 notches. And I'm sure you all know, our market cap is up by 118%, significantly ahead of the BSE Healthcare Index growth.

On the margin front, the EBITDA margin moved from 21% to 23.3%, PBT 17.9% to 20.2%, PAT 13.2% to 15.1%, all of them reflecting a very healthy growth in the year FY '24.

Cash flow, INR 127 crore after paying record INR 51 crore CapEx, which we incurred on the plant modernization and significantly higher statutory payments.

Working capital management continued to be healthy. New product contribution reached closer to 30% of the sales. Productivity uptrend continued. The productivity moved from 5.4 lakh to 5.8 lakh per person. Brand building exercise continue to happen, which resulted in the newer milestones of our iconic or textbook brand, they happen also to the age-old products, Naprosyn, which we are aspiring to take it to INR 100 crore, made another milestone. It touched close to INR 74 crore turnover in FY '24.

And as I mentioned earlier, yet another portfolio, which we are aspiring to take it to 100%, again, which happens to the age-old portfolio is crossed around INR 70 crores. So both of them are quickly closing to the INR 100 crore aspirational target, which we have set for these products.

The legacy products put together contributed 67% of the sales of the domestic business with 15% growth. New product launches continue to be in the segment, which we had identified as well as the line extensions which we have identified in our 3-year New Product Grid. We did 2 launches, 2 line extension launches for our iconic brand, Naprosyn, 2 launches -- or 2 line extension launches for [ Tricaine ] tablet, and we launched new molecules in our Nephro segment.

We've also launched 2 molecules in the rhuema segment. And I think that continued to augment our portfolio significantly. In the segmental performance, I think the domestic formulation, as I mentioned earlier, continued to register robust growth, which is 15%. And the margins of domestic formulation business touched another record high, easily crossing 20%.

International Formulation also grew at 15%. And again, here again, the margins -- the revenue to a margin, I'm referring to the EBITDA margin, it also moved up to its own high so far achieved in the last 5 years. Similarly, API also registered significant improvement in the EBITDA margin and -- but grew at 7%.

Now the API growth is 7% is perhaps understandable because we are not being able to launch any new molecules since we started focusing on API as the third engine of growth recently after we thought our plant upgradation takes place, and we are able to invite the regulators to visit the plant. Now we have the strategy in place, we have a product in place, we have the R&D setup in place and I'm sure going forward, API growth will also be a similar double-digit growth what we have been mentioning earlier.

So on all the key segments, the revenues were double-digit increase of domestic formulations and international formulations. And in case of API it was 7%. The EBITDA growth in all the segments have been healthy double digit and that's what gives us the confidence for going forward.

I'm sure you've seen the investor presentation. I've given highlights about the 5 pillars or 5 growth drivers of Domestic Formulation business, which are product portfolio rejuvenation, strategic asset building, customer coverage enhancement, productivity enhancement and cost optimization, significant strides have been made in each of these 5 pillars, which is what has resulted in the growth that you have seen.

Similarly, both on the COGS front and the OpEx front, all the initiatives continue to be as robust as they could be and all the 6 or 7 initiatives which we have on margin improvement continue to result the improvement in the margins, as I described to you earlier.

Similarly coming to IFs and API, we have 2 growth drivers, 2 basic prerequisites. Considerable progress has been made. One was the plant modernization and capacity expansion. I'm happy to share with you both the projects have made extremely significant progress. The API almost complete, and we are expecting the results of the regulators visit and similarly, in case of the formulation and glacier plant, again, it is WIP, and we expect that by the end of the third quarter we have invited the regulator and the regulator visit the plant and then we will have that facility also ready for the export of plant modernization over simultaneously we have also beefed up the R&D.

We have created a bench strength for chemists and the scientists. We have identified the products both for API and the formulations, which are currently under development. As we mentioned earlier, our portfolio strategy is a niche strategy, so that we are able to have good margins and global business because it does not attract the attention of the big players. So that's about the 3 business segments.

I just mentioned to you about the -- this happens to be the fifth year of our transformation agenda. And therefore, I'm very proud to share with you that if you look at the financial indices, almost all the financial indices are at the benchmark if we compare ourselves to companies in the INR 1,000 crore turnover category.

Revenue is up significantly year after year ahead of market, touch INR 583 crores. EBITDA, we last year crossed INR 100 crores; this year, we touched on 135 crore from [ INR 34.4 ] crores and INR 135.4 crore in 5 years has been a significant achievement.

Similarly, PBT from INR 15 crores 5 years back, it is INR 117 crore a multiple jump. Similarly, PAT just INR 10.8 crore to INR 87.7 crore is very significant jump, almost close to 8x what we could -- what we can see in the last 5 years. In terms of margins also, we have EBITDA margin, which was 10%-or-so, is now 23%-plus. PBT which was 4.6%, now it is 20% up.

PAT, which was 3.3% is now 15.1% up. And the EPS, which was INR 6.5, is now INR 53. What is critical and what is important is not even a single year in the last 5 years if any of the financial metrics, there has been a blip It has been consistent upwards trajectory year after year.

Similar story was in terms of margin, which I mentioned to you already. Now that's about the 5-year trajectory. Going forward, you would have noticed in our website, we have in the investor presentation, we indicated there are 7 pillars of growth. The first pillar of growth is to have State-of-Art plants.

Second is the targeted R&D pipeline. I think these 2 will take care of the business of the 3 segments, all of them together. We have identified 70 products for 3-year product grid, and we are on to launch the products in the domestic formulation business, the international formulations business Also, we have close to about 10 products. In case of new APIs, we are close to about 10 products.

They are all under development. And therefore, that all are going on at the moment. In case of the plant, as I mentioned to you, we are in the modernization journey quite advanced stages and we expect the developed markets regulators to come for approval during this year. And in case of the API, the visit has already happened. We expect [ repot delivery ] from them.

The third pillar is the innovation. Innovation is not a buzzword. It's actually the necessity for us being an old company. They have done institutionalization adoption, institutionalization of the innovation and every single -- you see that in HOD in -- 70 HODs have a targeted innovation agenda.

We are working in technology, digitalization front end to back end, and I'm also happy to share with you that GenAI has also formed a significant traction in our front-end operations. We have completed 13 initiatives last year and a 3-year road map we have 9 projects being implemented now.

Since we have cash on our books, you have a very targeted M&A agenda going on, quite a diligent work is going on. And this space is a little more cluttered as many people want to grow through M&As. We are also into the base, but we will do something which is value-accretive. But on this agenda, we are active.

We also identified certain other area of growth like can we have -- other than medicines, the med tax to get the synergy from the doctors who we have a strong leadership that growth also is going on. And last but not the least is the capability building and talent development, particularly in the area of sales and marketing, digital quality manufacturing.

So that's in a nutshell I wanted to give you a background and before I start with the questions. So thank you so much for your patience listening and I'm all ears to your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from JM PMS.

[Sudarshan Padmanabhan, analyst]

Congrats on not only this quarter, but consistently performing for the last 3 to 4 years, I think it's been quite transformational to say the least. Sir, my question is we have also been investing quite a bit in the chronic business. While I'm happy to see certain brands reaching a scale. If you can talk a little bit more about the aspiration of, one, having more than INR 50 crores and INR 100 crores brand as you touch the INR 1,000 crore mark -- aspirational mark?

And second is the proportional chronic as a percentage of what you expect from the overall domestic business. The second question is on the margin. I think as you said, from FY '20, FY '19, you've seen consistently margins across all heads improving, I mean, cost improving, given that we have some kind of a near-term war-like situation and issues in the sense the Red Sea, et cetera. How do we see the margin in the near term? And also from a longer term, as you test the INR 1,000 crores, where do you see the EBITDA margin? These are the 2 things from my end.

[Yugal Sikri, executive]

Okay. Thank you for the question. And I think both are very important questions. As I mentioned to you earlier, that product portfolio rejuvenation in domestic business is targeted towards two specific action agendas. One is since we have very strong and much recorded textbook or iconic brands how do we convert those brands where I see or where we see price income in our brands.

So that's one. Second is, as you rightly pointed out, about chronic. How do we maximize or enter even the chronic part of the business. Traditionally, Historically, we have not been strong in chronic. So the chronic as well as specialty. So first, as I mentioned, is the is the textbook iconic brands maximization through a very diligent life-cycle management strategy.

And the second is entering the chronic and specialty businesses, the chronic area which you identified new therapy of rheumatology, dermatology, gastroenterology and on the mass side, urology and cardiovascular metabolic disorders segment. So now the actions have happened.

One action is, do we have the targeted doctor. We didn't have the target doctors and [ customer list ] We have made sure that almost 90% of this particular segment doctors are covered. So we have put that in place, number one. Number two, we should have products. So we have identified the products. We have 70 product grid related in which quite a number of products are other than the line extensions for the iconic brands, which comes under life cycle management quite a number of products have been identified in the chronic and the specialty segments. So that's the second part.

The third part is the field force training. We have worked on the field force training so that they are equipped to launch such products in their respective segments. So these are the actions which we have taken. So on the -- as far as the INR 100 crore or INR 50 crore aspiration, which you talked about, the aspiration, we did it for the Naprosyn as one brand, as we mentioned, which was INR 18 crore in 5 years back is now almost INR 74 crores this year. And we think in a couple of years, we should be able to touch INR 100 crores.

So aspirationally, that's one brand, we should be INR 100 crores. And second is the portfolio, which is immunosuppressant portfolio. We're very strong in 1 molecule called Azathioprine. Now we are focused on the 4 molecules in that segment. Apart from Azathioprine, the other 3 ar Mycophenolate, Tacrolimus and Cyclosporine, put together, we are wanting that portfolio to also cross INR 100 crores. So that's on the textbook product or the legacy products.

Now in terms of the chronic. We have products launched in the -- in a number of the subtherapy segments in cardiovascular and metabolic disorders, which includes antidiabetic products, which includes gliptins, which includes gluflozins and their combinations. We have launched some products. We are in the process of launching of the product.

We are mindful of the fact that we are a late entrant in this market. Therefore, it would take time for us to establish ourselves and take away the share the existing players who are hugely invested in that field. We're mindful of that, and we are also okay for hockey stick kind of growth and -- but we are committed and we think that chronic would also be able to give us the business because it's important for us to be in the chronic business, that's long term, that's also more profitable.

And that's where all the new products which are -- new molecules which are identified are largely belong to chronic and the speciality segment. Now Specialty segment, nephro are strong. So we are continuing to launch new products in nephro. For example, this year, we launched Ferric carboxymaltose Fc-Iro as a brand which we've launch and rheuma which we entered as a life cycle management strategy for immunosuppressant, we have launched rheuma speciality product.

This year, we launched Teriparatide as one of the product and [ Iguratimod ] is another molecule, which we've launch in the rheuma basket. And similarly, the gastro and derma are in incubation, we are covering almost 40%, 50% of the targeted doctors already that's also part of the life cycle management for immunosuppressant as we get established in the segment through our immunosuppressant basket then we launch derma-specific and the gastro-specific products. That's where we are -- this is where our status is on the 2 segments of growth driver, if I put it that way.

One is the existing product life cycle management. And second is the maximization or entry into the chronic and specialty segment. Now second question was with respect to margin.

Yes, the margin you would have seen the margin uptrend trajectory in RPG Life Sciences has been very indicative of the fact that what is leading to margin improvement. As I've been saying every time, our margin improvement story is structural, which means we are addressing the basic elements, basic cost elements, whether they come in the COGS or OpEx and doing some fundamental changes there, which is why the margin improvements are happening year after year after year.

And I understand there are issues which are relevant to us also, whether it is Red Sea or Middle East conflict, they are impacting us as well. But I think since our structural agenda is so strong, it is not only able to overcome the negatives of coming out of those external factors but also is able to improve our margin. That's why, you will see the gross margins improving and so also the EBITDA, PBT and PAT are improving. I hope I've been able to answer your question.

[Sudarshan Padmanabhan, analyst]

Sure, sir. So we should basically see an improvement in the near term as well? I mean, apart from the long-term operating leverage in terms of the margin?

[Yugal Sikri, executive]

Yes. The only rider I'll add there is that the -- if you see the slope of our margin improvement is quite steep in the last 5 years. Going forward in that slope is going to be not as deep, it's going to be obtuse, that's the only point I need to put across.

[Sudarshan Padmanabhan, analyst]

Sure, sir. And 1 final question before I join the queue is, one is on an absolute cost basis, also, we've seen a significant improvement. So I mean how much more is left? I mean, apart from the structural changes that you talked about, -- and what interestingly has been happening is we have basically seen a phenomenal utilization of our field force in terms of launching products in terms of line extension. So can you talk a little bit more about your field force has the field force already been created for the chronic, so which means that every unit of sales, you will have an operating average on margin, I'm talking about more from a structure and on a longer-term basis on this side?

[Yugal Sikri, executive]

Yes, yes. So you know in Pharma, very important is the prescriptions and second important is your relationship or the engagement you have been able to do with the customer. Now you know well that chronic part for example, is something which is already well entrenched by very age-old players, whether it happens to be Sun or USV or Sanofi, they are all very well entrenched in the cardiovascular area.

What we have done at our end is, we have identified products, as I mentioned to earlier which we are launching in a very professional way. And we are training our field force. Another important thing I should mention at this juncture is that we made use of digital in a very, very interesting and productive manner.

We have launched initiative called Rpgserv, the name itself is Rpgserv. We have onboarded close to about 90,000 doctors in the portal Rpgserv. And this portal is providing the -- close to about 34, 35 services to the doctor. And what is important is that we keep on changing those services so that there is the newness factor. And that is working out a very good tool for us to increase the share of voice.

Otherwise, in physically maximum time, rep can get the doctor is maybe 24 times a year. But in this case, we are able to reach the doctor through this portal N number of time, 10, 15, 20, 30 in a month, depending upon the services, which the doctor asks us.

So these are the areas, these are the things which we are working on which has given us dividend in the entire legacy portfolio of ours I said, growing at 15%, but I'm sure it will also help us to establish in the new segment, which we entered called chronic and that is particularly CVM.

Having said there's some traction I see in the euro. Our euro business is growing at 20%-or-so, though it is small business contribute only 3% to our business, but it's growing strong. Rheuma business, which we entered just about 3, 3.5 years back is also doing pretty well, contribute close to about 5% to our sales at the moment. And I'm sure similarly, derma and gastro will also contribute, as I elaborated earlier.

[Operator]

Next question is from the line of [ Sajal Kapoor ], an individual investor.

[Unknown Attendee]

I have 2 questions. What's our net cash position currently and what organic-inorganic plans we have? Given the trend that is emerging on the acquisition side in the Indian markets, I've seen companies acquiring assets at 7x, 8x sales. I mean is that something that you would be prepared to go for or what's the overall plan? Because the cash will continue to increase year-over-year or quarter-over-quarter actually.

[Yugal Sikri, executive]

Yes. Thank you so much, Mr. Kapoor for a very relevant cash question. As you have yourself rightly pointed out, because the operating performance is improving, margins are improving. Therefore, profit volume is improving. And despite the fact that -- we have invested this cash, which we are generating for our future growth by investing in the 2 plants, which we have, API plant and the and formulation plant, which needed modernization so that we can use both the plants for exports, we had only 10% contributing plant in the formulation, which were being used for exports.

Now we have the entire 100% plant refurbished for -- and waiting for a regulatory approval to happen, and that would be used for the expanding the export business and similar thing for API now what we did more since in our business, 67% comes from the Domestic Formulation and 18% comes from the International Formulation, 15% come in API, obviously, our priority was the Domestic Formulation, we actually worked on Domestic Formulation and I've described 5 pillars already.

Now we're trying for International Formulations API and prerequisite was that we must have modern plants. I'm very happy to share with you that both plants are modernized. The plant, which was -- 55-year-old plant, now you can see it is totally refurbished, ready for approval. I dare say even U.S. FDA readiness has also been considered when we had created a new plant for API and similar thing is formulation.

So that will help us for the organic growth to make the International Formulation API at the second and third engines of growth. So that's on the organic part. In the [ DS ], it is more OpEx-driven because we have -- we have to expand field force, we have launch new products, we have got very, very good CDMOs in the country.

And I think we use them to get new product supplies fast and we are launching those new products. So that's the organic part. Inorganic part, as you very rightly mentioned, since we have close about INR 127 crores in our books now, and after investing, as I mentioned, huge amount of CapEx, close to about INR 140 crores in the last 3, 4 years on the plant modernization, including our office modernization, I should say that.

Now we are looking at the acquisitions, and you rightly mentioned the market is crazy. There are crazy valuations. And we are also -- I can only tell you that we have created our framework, what kind of molecules, what are kind of therapies, what kind of [indiscernible] these products which we are going to acquire, which I likely to acquire should have all that diligence is going on.

We have actually just to share with you our 23 proposals reviewed in the last 1, 1.5, 2 years. And we also submitted nonbinding bid, but the market is a bit crazy. We don't want to do any acquisition unless it makes sense, value accretive, but we are hopeful.

We have also added into our M&A list of APIs as well. Earlier, we were looking only in formulation, including API because I think that space is also presenting very good opportunities. So that's where our net cash is being planned to be utilized. I hope I could answer your question, Mr. Kapoor.

[Unknown Attendee]

Yes, Mr. Sikri. And as a follow-on question. So the market -- the Indian pharmaceutical market is highly fragmented, right? So if we exclude the top 15, 20, maybe let's say, top 50 players, there are hundreds of small micro nano-sized companies. How does that landscape look like in the ecosystem or the emerging ecosystem of this government and generic-generic rollout with Jan Aushadhi.

And so currently, I understand that the back end of EU not -- EU GMP, the WHO GMP infrastructure. So there are close to 10,000 CMOs in India and most of them, more than 90%, I believe, are not in WHO GMP-compliant. So there is a guidance, but not the law.

So let's say, over the -- hypothetical scenario, of course, let's say, over the next 2 to 3 years, majority of these CMOs either they disappear, they go down under or the upgrade to become GMP compliant. And that the government will be in a better position to roll out the generic-generic push. So in that context, assuming that, that scenario plays out, how will branded generic space perform?

And what does that mean for a company like RPG Life Sciences? In that kind of a scenario where we have a real push coming on the Jan Aushadhi or generic-generic rollout?

[Yugal Sikri, executive]

Yes, I think it's a very pertinent question, Mr. Kapoor. Yes, looking at the way our market characteristics are, it is a very highly fragmented market. We have many, many players generic-generic is getting a push from the government there are Jan Aushadhi Kendras coming up.

The government is also introducing directives to the doctor -- government doctors to prescribe generic-generic. And you rightly described there are large number of CMOs, CDMOs and then the GMP is an issue. I think you've laid out the landscape pretty well.

I have some observations and some thoughts. Of course, as the things play out when we see, the -- ours is a branded generic market. Almost 90% to 93% in the planted generics. Was generic-generic, not there earlier, generic-generics have been there earlier for decades now.

Were Jan Aushadhi Kendra not there earlier? I think somewhere in the early 2000s, the Jan Aushadhi Kendra were launched by the earlier government. And are they underemphasis by the government? Yes. How many they have launched? They have launched somewhere around some 6,000, 7,000. They plan to take it to 10,000 or 20,000.

And those 10,000 or 20,000, which they plan to launch on go to 30,000, 40,000, they compared to some 700,000, 800,000 pharmacies of chemists we have in the country, they will still be much less in terms of percentage, number one.

Number two, the performance of current Jan Aushadhi Kendra is lackluster because they have insisted that they should get the supplies from certain authorized manufacturers and if you visit them, you'll find paucity of the brand of products available from there, though they are available at 70%, 80% cheaper compared to branded generics one.

And the second one is the -- you would have seen the kind of the news which we get when some children died elsewhere. We see large number of CDMOs, which are -- CMOs, which are not CGMP-compliant. We also see the government regulatory infrastructure is just not sufficient enough to manage and regulate such a burgeoning pharmaceutical manufacturing setup in this country.

So yes, is it the threat to branded generics? Yes, in a way, it is. But will it impact so strongly going forward in the foreseeable future? Not to the extent that it becomes alarming. Now the current regulators realized this, that quality is critical. It's just not the cost the quality is also critical.

And therefore, Schedule M, GMP, et cetera, is being talked about and implemented. So all in all, I think all these points that you have mentioned, yes, on the macro environment, they are concerning. But on the ground, Will it make an impact in the next 5, 10 years, not to that extent. That's what is my personal assessment or take.

[Unknown Attendee]

Yes. No, that's helpful, Mr. Sikri. I think my assessment was in line with yours that because you are industry veteran, I thought, I'll just double-check my understanding with yours. You mentioned quality and not just cost. The thing is if you start upgrading these noncompliant CMOs in the country, because [indiscernible] will force their operating expenses to go up.

And then in that scenario, they will be forced to price raise and products higher, right? So then the economics that will likely play out will look different from what the cost economics and that is currently present because -- and they're not investing in the compliance, the quality is for. It's not reliable and therefore, the products are cheaper. Is that a fair assessment?

[Yugal Sikri, executive]

Absolutely. I agree with you. Yes, with this, if the regulators continue to push these reforms, I think it will reset the manufacturing landscape. There are some people who will have to opt out because the quality has definite cost. And it will reset the manufacturing landscape, i.e., very strongly. It just -- It all depends upon how strongly government pushes that agenda.

Currently, if you look at the government infrastructure or inspection infrastructure, their ratios are extremely pathetic. And they'll have to beef-up their own regulatory infrastructure. And if they do that, I think the resest of the manufacturing landscape will happen and what you just mentioned is most likely to happen.

[Unknown Attendee]

That's helpful, Mr. Sikri. We have been invested in RPG Life Sciences for 10 years now and thank you for increasing the dividend yet again.

[Yugal Sikri, executive]

My pleasure. Thank you.

[Operator]

[Operator Instructions] Next question is from the line of [ Himesh K. ] from JM Financial.

[Unknown Analyst]

Sir, you have answered my colleague's question, so I'll not take much time. Only 1 suggestion, sir. The new product launch, sir, we have been tracking since FY '19 and I understand that's a transformation program that we had. But going forward, if you can change it to last 2, 3 years, that will be helpful for us to track how they are doing. So all the best for a great performance and not more any questions.

[Yugal Sikri, executive]

Thanks for the suggestion. I generally have a little long-term perspective because I know in -- somehow selling and marketing, once you launch the product people forget the product. And then it comes to you later as expiries. There's a very common thing. Therefore, I include the new products. And as this product helps -- this tracking helps us to see that everything going in the right way.

[Unknown Analyst]

Sure sir, maybe 3 years and 5 years maybe a clarification as an analyst, we like to see last 2, 3 years, how has it been done? So this is a suggestion.

[Yugal Sikri, executive]

Sure, sure. Thank you.

[Operator]

Next question is from the line of Nimish Mehta from Research Delta Advisors.

[Nimish Mehta, analyst]

Heartiest congratulations on a consistent performance. A lot of the questions related to generics has already been answered. Just one thing. Sir, how do you look at overall capacity management? So one, are we likely to outsource more or are we likely to also less, given that the manufacturing environment, as you rightly pointed out, is becoming stricter by the day?

So if you can just give me a sense of what is our current outsourcing percentage and what do you think is likely to happen when it comes to investing in the capacity?

[Yugal Sikri, executive]

Okay. Okay. Thanks, Nimish, for that question, very pertinent question. As I mentioned earlier, we are -- we have modernized our plant modernizing our plant that I mentioned earlier. At the same time, we are also adding to the capacities, capacities which are being added close to about 25% to 30%, if I refer to the 2 plants formulation and API.

And with respect to the decision to source the product from the third party or from outsource or internal. I think it's very, very -- our startegy is extremely clear. When it comes to new products, in [ drastic ] business, I think we have very good CDMOs available in the country and being in the industry for a long time, I have my personal connects with those large CDMOs.

Whom I observe -- I know that they have not only a good development lab, development scientists and development plan, but they also have the manufacturing operations with good CGMP being implemented. So almost entire new product in the domestic business are being outsourced.

And the -- as far as the existing business is concerned, existing products are concerned, we take a very prudent decision. We see what is gross margin accretive to us. We take a decision on that count and accordingly, we either manufacture the products in-house or we manufacture product outside.

Broadly, it's about 30%, 35%-plus is the domestic formulations business, which we are outsourcing. And new products I've already mentioned to you, almost entire new product we outsource. We also have plan that if -- and I think that's a smart strategy. When the volumes pick up for the new products, we do consider to bring those products in-house because that adds up to a few percentage gross margin for our case.

A, we don't have a risk because the product might fail. We only do it when enough volumes, our threshold volumes are created and then we bring the product in-house. Overall, broadly speaking, we will like to use our facility for the exports going forward and more and more outsourcing we'll do. But before we do the outsourcing, our outsourcing partner selection is very, very robust, because we are mindful of the fact that GMP is critical. And in our growth journey, we would like our product to be seen as quality products. So I hope that answers your question.

[Nimish Mehta, analyst]

Yes, pretty much. It's Just that, so now that we are increasing the number of products -- new products, a percentage of new -- I mean, outsourced products will also increase, right? So essentially, to that extent, there might be some margin impact of that. Is that the right way to look at it?

[Yugal Sikri, executive]

I should mention -- I think margin is also important for us because upward trajectory of margins for the last 5 years has been our aspiration and which drives us. So what we are doing is the products which are the chronic products, specialty products. We focus on core products, which have good margins, which are relatively good margin.

It should not become margin dilutive for us at least. So selection of the product takes care of the margin part from the CDMOs, plus the relationship with the CDMO and the assurance to them that we will source the product from you, so all that broad arrangement also helps us to have a good margin situation even with the CDMOs.

[Operator]

Next question is from the line of from Ankeet Pandya from InCred Asset Management Company.

[Ankeet Pandya, analyst]

Congratulations, sir, on the great set of numbers. Sir Just 1 or 2 questions. So in the initial comments, you mentioned that there has been some -- government has imposed some restrictions from the point of view of the international Formulation business. So can you give some more clarity on that part?

[Yugal Sikri, executive]

Yes. See, it's largely in emerging market, Ankeet, aren't there are countries where the foreign exchange is being conserved by the government. So their issuing of import licenses is being regulated by the government. Even though the fact is that we have very good customers and the partners there, but that situation is what -- some hiccups it creates during the year.

That's what happened perhaps in last year. That's what I mentioned in that context, whether that market is a market of Myanmar, some such restrictions in Iran where the governments are wanting to conserve the foreign exchange for their own priority areas.

Now is pharmaceutical a priority area? Yes, priority area. And that's why I'm confident that these are transient. And since we have very good customers, connected customers there, we think we should be able to tide over these hiccups also because the government cannot put embargo on the medicines for a long time, particularly when they do not have a large manufacturing base of their own.

[Ankeet Pandya, analyst]

Okay. Fair enough. Sir, so another point related to international formulations was given that for the past few quarters, we have been seeing strong growth. And Q4, current quarter has been largely flattish for the international formulation. So is there any like impact of even the Red Sea like there's been a delay in supply chain issue anything regarding that?

[Yugal Sikri, executive]

No, I think just one happened because, as I mentioned, we are having a plant modernization going on simultaneously. So for which we had to shut down our plants -- our not plant, 1 or 2 blocks because we were modernizing this was moved -- new facility, new block. So there was some supply issue for 1 -- particularly 1 product. And that's what I just mentioned. But I think that's all over because the plant is ready, the new plant, the production has actually started, and we also started deliveries in the quarter 1.

So that was the only point as I don't see an issue. Further capacity expansion is also -- capacity expansion, I think we have the capacities available to produce the products, plus we have done the expansion now that takes away that [indiscernible] absolutely from our minds of supply being constrained.

[Ankeet Pandya, analyst]

Okay. Sir, lastly, just on the API, given that you mentioned that due to about plant modernization and there has been no new launches and that has been largely completed. So can we expect like from the second half of FY '25 onwards, the growth in API should pick up given that we'll be launching new molecules and for the API business?

And another question on the CapEx front. So like last year, we have done around INR 60 crores, INR 65 crores of CapEx, so largely believe that it is -- majority of the CapEx is done. So how much can we expect going forward for the next 1 to 2 years?

[Yugal Sikri, executive]

Okay. So Ankeet, you have been -- you are very knowledgeable about pharma. Therefore, First question on API, you mentioned, we have identified -- first of all, we had created the new state-of-art API R&D. We have hired the scientists. This was always a [ skeleton ] earlier. We have hired, and we have identified new APIs and the work is now going on. It takes about 1, 1.5 years for a new molecule to be out in the market. That's the development time. And then you have the regulatory approvals required for those products. So last year, we did all of that.

We created API R&D state-of-art. We hired the scientists. We identified the molecule. Badge work has started, and they are at various stages of the new product development. So next year -- this year, second half, we'll get the products. That was too ambitious.

But I think we should start getting the product from the FY '26 because I see good progress happening. There's very strong reviews happening on all the new products. So I feel that, that should start getting reflected properly till FY '26 instead of FY '25 because all these products are under various stages of development.

Regarding the CapEx. I think you asked about CapEx. The large part of the CapEx is done, frankly speaking. And now the CapEx which will come will be more situational. See, if we get a very good opportunity and for which we have to create a facility or create a particular manufacturing set of whether it is something to do with granulation, compression, whatever and we are prepared to do this, and that might have a CapEx.

Otherwise, we will have the routine CapEx. We will have the CapEx which gets included in the new product development and also the CapEx, which I said could be when we have an opportunity. Now for example, we were approached by a customer from the developed market, Australia, and they wanted us to develop the product -- to have a product which was niche products. So we gave them the niche product, we impressed them, then they came up and told us that they want to get the product delivered or manufactured by us in a very little bit span of time, we created additional facility because we saw that this promising business.

And we spent CapEx on that. And finally, I'm happy to share with you that actually the deliveries from the new site, newly created facility has started. So such kind of situation, yes, we will have being spent. So more or less, I think this is how it is. Plus, some digitalization agenda some kind of robotics, et cetera, when we are improving our manufacturing infrastructure that would entail some kind of CapEx.

[Ankeet Pandya, analyst]

Okay. Sir, just a clarification, the new capacity that you set for the Australian customer, so this is apart from the capacity expansion that you have done, this is over and above that you have done CapEx or you will be doing CapEx?

[Yugal Sikri, executive]

No, it is included. It is -- now since the facility is created and the manufacturing started, deliveries have started, it is included in the CapEx which you have spent already.

[Operator]

As there are no further questions, I would now like to hand the conference over to management for closing comments.

[Yugal Sikri, executive]

Okay. So I must be grateful to everyone who is on the call today and who is being with us for a number of questions. Net-net, I can tell you that the results, which we have got in the last 5 years into the last year are the result of a very clearly established transmission agenda, which is focusing on 6 or 7 tenets.

And those 6 or 7 tenets will drive the growth further. That's point number one. Point number 2 is the growth engine, which used to be Domestic Formulation alone will be added by growth engines, which are International Formulations in API and the works are in full swing in that direction.

Number 3 is with solid performance improvement happening and the cash flow being generated, we are also wanting to defer the progress by inorganic growth. And when it happens, we can't predict that, but there are very sincere diligent efforts going on in that direction that should be able to drive the growth. Overall put together, we want this company to move to INR 1,000 crore mark. This is the well conceptualized strategy, which we have in place.

The kind of the recognitions we have got from the industry are really overwhelming. We had we featured [ internet brand 500 value creators ] is very humbling, company of our size got placed there. And so this is all of this, I think that gives us renewed confidence that we will be able to achieve not only the target of INR 1,000 crores, but also create brands -- solid brands, which will become multi-hundred crore brands going forward to get us our due place in the committee of the pharmaceutical industry companies. Thank you so much for coming over and your patient hearing.

[Operator]

Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.