Gujarat Themis Biosyn Limited (506879) Q3 FY23 Earnings Concall Transcript

Gujarat Themis Biosyn Limited (NSE:506879) Q3 FY23 Earnings Concall dated Feb. 06, 2023.

Corporate Participants:

Sachin Patel — Director

Rajneesh Anand — Consultant

Analysts:

Saloni Hemnani — Molecule Ventures PMS — Analyst

Gunit Singh — CCIPL — Analyst

Keshav Kumar — RakSan Investors — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Kalpesh Parekh — JSN Corporate Advisory Pvt Ltd. — Analyst

Abhilash Heren — — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Anand Shenoy — Individual Investor — Analyst

Jagdish Sharma — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Gujarat Themis Biosyn Limited Q3 FY ’23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on-date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Dr. Sachin Patel, Director, Gujarat Themis Biosyn Limited. Thank you and over to you, sir.

Sachin Patel — Director

Thanks very much. Good evening, everyone. I would like to wish you all a very warm welcome to GTBL’s earnings call for the third-quarter and nine months ended December 31, ’22. I would like to begin by expressing my gratitude to all of you for taking the time to join us today. We have on call with us Mr. Rajneesh Anand from GTBL and [Indecipherable] our Investor Relations team. Before we get into the business and financial performance, I would like to briefly share the company’s key recent developments and our strategic focus areas.

I would like to begin by directly stating recent development and its impact on sales volume for Q3 at GTBL. Our production volume during this quarter have been similar — have been at similar levels to previous quarters but the sales volume remained subdued. You are already aware that GTBL, the pure [Phonetic] product company producing Rifamycin-O and Rifamycin-S. The demand for Rifamycin-O continues to be strong in the market and we witnessed a sufficient offtake of this product. However, Rifa-S offtake remained on lower side during the quarter.

As you know, Rifa-S is an intermediate for anti-tuberculosis medicines. This is largely a tender-driven segment. Delays in government and global tenders have reflected in lower sales volume for the quarter. However, we expect the tenders to open over the next two quarters, which should result in significant increase in volumes. Hence, we have continued the production of Rifa-S to build inventory for this upcoming demand. Unlike the last two years, this year we have under — we have not undertaken a planned shutdown, so that we can continue to build inventory for the anticipated demand.

I’m happy to share that despite the challenges stated earlier, we have already surpassed our finance — our previous financial year’s revenue and profit levels within the nine months of this physical. The recently announced capex plan of INR200 crores spanning over the next two to three years is well on track. We have done about INR14 crores of capex so far, and another INR13 crores is in CWIP.

Our new API block is likely to start operations by June-July ’23. The R&D facility is also likely to commence operations by the same time. As stated in earlier calls these new facilities will be compliant with global international regulatory norms hence, we should be targeting export markets in addition to the domestic market that we already cater.

Now, turning to our financial performance, I hand it over to Mr. Rajneesh Anand, who will take us through the same. Thank you.

Operator

Mr. Anand, we are not able to hear you, sir. Please unmute your audio from your side.

Rajneesh Anand — Consultant

Sorry. Thank you, Sachin bhai. For the third quarter of financial year 2023, we reported INR28.2 crores in revenue during the third quarter of the financial year 2023 [Technical Issues] driven by higher volumes compared to the previous corresponding quarter. [Technical Issues].

Operator

Sorry to interrupt Mr. Anand, the audio is breaking from your line, sir.

Rajneesh Anand — Consultant

Is it breaking?

Operator

Yes, it’s better now, sir. Please go ahead.

Rajneesh Anand — Consultant

Okay, should I start from the beginning?

Operator

Sir, you may continue, sir.

Rajneesh Anand — Consultant

Okay. Our earnings before the interest, tax, depreciation and amortization for the quarters — at INR12.1 crores, 23.6% increase year-on year. EBITDA margin is 43%, down by 966 bps. R&D expenditure of about INR2.44 crores had a bearing on our profit margins. Out PAT during this quarter is INR9.8 crores as against INR7.1 crores in third quarter of financial year 2022. Net profit margins stood at 34.8%. Earnings per share for this quarter is at INR6.75. Now, coming to our nine months performance; we reported INR120.8 crores in revenue during nine months of financial year 2023, a 40.3% year-on-year rise [Indecipherable].

Growth was mainly driven by rise in volumes. Our EBITDA for the period [Indecipherable] at INR59.3 crores, increasing 31.9% year-on year, while EBITDA margin is 49.1%. Our PAT for these nine months is INR46.3 crores growing 36.7% year-on-year as against INR43.8 crores in nine months of financial year 2022. Net profit margin stood at 38.3%. Earnings per share for this period is INR31.5. In November ’22, the Board of Directors declared an interim dividend for the financial year ’22-’23 of INR4.4 per equity share of face value of INR5 subject to shareholders’ approval.

This is all from our side. We can now take questions. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Saloni Hemnani from Molecule Ventures PMS. Please go ahead.

Saloni Hemnani — Molecule Ventures PMS — Analyst

Yeah, hi, sir. My first question is regarding book capacity utilization, so what was it like this quarter?

Sachin Patel — Director

So in terms of production, capacity utilization is really related to production, right, so our production levels have been pretty much identical the last couple of quarters. So there has been no reduction in what we have produced and we plan to continue the trend. The sales have obviously being down for the reasons that I explained during the introduction. Essentially, that Rifa-S sales were significantly low because the tuberculosis standard is not just in India but globally have been delayed and that is the major reason why the offtake of Rifa-S has not been in line with the production for the previous quarters.

Saloni Hemnani — Molecule Ventures PMS — Analyst

But we are expecting in the next two quarters, the tuberculosis market will stabilize itself.

Sachin Patel — Director

What we are looking at is the following, data points that there is no indication to state that there has been a significant reduction in this particular disease globally. And considering that, and what is in the pipeline with regards to the tenders, it is natural for us to expect that the same requirements will open up in the near future.

Saloni Hemnani — Molecule Ventures PMS — Analyst

Alright. Sir my next question is regarding the capex that we’ve been talking about. So, last quarter, it was mentioned that we had already spent INR22 crores in CWIP and this quarter as discussing in your — you mentioned INR14 crores is spent and INR13 crores is in CWIP. So additional would be INR4 crores has been spent in the last three months.

Sachin Patel — Director

In terms of CWIP, yes.

Saloni Hemnani — Molecule Ventures PMS — Analyst

Okay, so I was asking this because we had a timeline of July when we start the trials. We were expecting, basically the trials to happen, but.

Sachin Patel — Director

We are still sticking to the timeline. We are anticipating that our API block will be up and running by June-July, and also our R&D labs will be up and running in June-July. In terms of our R&D labs we have two sections; one section will start running in June-July. And the other section will probably be about November, but that should not impact us from our timelines in terms of development, and whatever else that we plan to do.

Saloni Hemnani — Molecule Ventures PMS — Analyst

So you were mentioning the amount for API block to be INR40 crores out of INR80 crores in the previous calls. So are we expecting the money — are we expecting INR40 crores to be spent till the trials or the entire INR80 crores of Phase 1 will be spent?

Sachin Patel — Director

I would request Mr. Rajneesh Anand to comment on this please.

Rajneesh Anand — Consultant

Yeah, yeah, so we will be spending all the INR40 crores by July. So right now, a lot of money has gone out as advances to various capital equipment suppliers. So that would not reflect as CWIP right now, but as time passes the deliveries will begin, and then we will have. Strong fund flow out.

Saloni Hemnani — Molecule Ventures PMS — Analyst

Okay, okay. Just last question, sir, on the acceptance of our products to the new customers that we have recently onboarded, so has there been any addition or any recent development with the new customers where we were just trying to set up new bases?

Sachin Patel — Director

There has been progress. Unfortunately a lot of it is — stood still because of these tenders getting delayed. The tenders are out, but the finalization of it has been delayed, so I think once the same is done there’ll be a lot more clarity in terms of who require how much quantity, because that is what we are really now looking at. [Technical Issues] Sorry, I missed that last bit.

Operator

Ms. Hemnani, does that answer your questions?

Saloni Hemnani — Molecule Ventures PMS — Analyst

Yeah, yeah. That does.

Operator

Thank you. The next question is from the line of Gunit Singh from CCIPL. Please go ahead.

Gunit Singh — CCIPL — Analyst

Hi, thank you for this opportunity. So if we looked at the revenue numbers for this quarter, coming in at INR28 crores, if you look at the December 2019 quarter, which is three years the third quarter of F ’20 then our revenues for the quarter were INR31 crores but after three years our revenue are standing at INR28 crores. And if we look at quarter-on-quarter also our revenue have almost fallen down to half. And also looking at the margins — if we look at the margins right now we’re at 42% margins versus around 52% in the last quarter and around 50% in the same for the three years back. So can you just elaborate why do we see such numbers?

Sachin Patel — Director

Sorry, I’m not following the question. Can you can you repeat that please?

Gunit Singh — CCIPL — Analyst

Yes, so what I’m saying is that in Q3, FY ’20 the third quarter our revenue numbers were at INR30 crores. However, despite three years passing by we do not see any growth in the revenue numbers. They are coming in at INR28 crores for this quarter. And also looking at the margin profile, the margins over the last three years, if we compare the quarter three they’ve gone down from around 50% to 43%. And also looking at quarter-on-quarter last quarter the revenues have almost dropped to half. And even the margins have dropped from around 51% to 43%. So I mean, what is driving this? So there is actually no growth if you look at the quarter three of FY ’20 and compare it with the current quarter so I mean.

Sachin Patel — Director

So yeah. I got it. I think there are a couple of points that I would like to highlight over here. You are — so as I mentioned in the introduction there is one product that we produce, which is almost 50% of the business, which is really a tender-driven market, so there will be fluctuations from quarter-to-quarter in terms of the numbers that you’ll see. Now I think that the right parameter or yardstick to see would be either annual numbers are in this particular case, nine month numbers. So if we look at the nine month numbers, which are there that we have achieved this year vis-a-vis last year or even the year before, I think there is a reasonable growth both in terms of the topline and the bottom line.

And with regards to increase in costs or perhaps a decrease in percentage margins, vis-a-vis the sales turnover is concerned, there are matters that we need to consider be it increased utility costs, increase in other fixed costs and at the same time our endeavors to develop products for the future and hence the R&D costs. So both these things combine together in terms of percentage has indeed increased our expenses, but I think if you compare more than a quarter over the last three years you would find that there has been increase in the in the sales revenues, and at the same time the bottom line.

Gunit Singh — CCIPL — Analyst

So I’m actually new to the company. So are we looking to diversify to other products, per se, because if we were to move away from such fluctuations or if you were to rely on such tenders the numbers might vary, I mean quarter-on-quarter like we discussed. But are planning to diversify to any new products to ensure that we have to see a clear visibility or maybe I mean a clear revenue coming in quarter-on-quarter? Are we looking to do that? And also another question that I have is that we said that our production has been same while the sales have declined, so I mean, do we have visibility of state tenders or orders going forward that will make up for the lost quarter? And what kind of growth are we looking at for the next financial year?

Sachin Patel — Director

So again, I’d like to start with the fact that I think we have a pretty good product that we are producing right now. So I wouldn’t say that we have any intention of moving away from this product and that is clear from the kind of margins that we have at this particular moment. So I don’t think there are too many products which would have this kind of EBITDA margins and PAT. So even though there would be a fluctuation from quarter-to-quarter I think as a business, it’s a pretty solid and pretty good business to be in.

That said, that doesn’t mean that we are only going to produce this and only going to develop this product. So we have, in fact, in previous calls and at the same time in Analyst Meets clearly stated that we are working on our capex plan at the moment of about INR200 crores, including a CGMP R&D center and also an API facility. And of course, increase our fermentation capacity that we have currently from 450 cubic meters by another 550 cubic meters. So we are in the process of developing and adding to our current product basket that is there in terms of in terms of APIs. Sorry these were the two questions. Was there another one besides this?

Gunit Singh — CCIPL — Analyst

So we have — we are maintaining our production levels despite the sales going down, so do we like have visibility of making up for the lost number this quarter and what kind of growth should we — looking at the yearly numbers, we see that the company has been growing quite significantly so by INR91 crores in FY ’21 year at around INR150 crores for the trailing 12 months. So I mean, what kind of growth numbers can we expect for the next financial year, financial year ’24.

Sachin Patel — Director

So the company is into the business of producing fermentation-based products. So typically a fermentation manufacturing site is, although it’s the batch-wise production is almost practically continuous because you can’t run it on half capacity per se. So and looking at the data points that we have right now in front of us we continue to produce. We are not stopping our production because we anticipate that as the tuberculosis tenders open up, the demand is going to be there, quite a significant demand is going to be there, that is the first part.

The second — so whether this will happen in the current quarter or the quarter after it’s something which we will not speculate, but it should happen in the near future. And the fact that we are not stopping production is an indicator that we believe this is very realistic. And coming to growth in terms of how it is going to go about in the future without speculating in terms of what the numbers are going to come in, I can only state that for the last two years we’ve been running our capacity on 75%, which we are not doing. Right now our plan for this particular year is to run the capacity — production capacity at 100%.

Gunit Singh — CCIPL — Analyst

All right, thank you for taking my questions. Thanks a lot.

Sachin Patel — Director

Thank you.

Operator

Thank you. The next question is from the line of Keshav from RakSan Investors. Please go ahead.

Keshav Kumar — RakSan Investors — Analyst

Hi, good evening, sir. Sir so one of our peers in this fermentation cum chemical synthesis space has been struggling to scale and meet their cost for the APIs they manufacture and they have a pretty reputed parentage. So I would like to have your [Indecipherable] on whether fermentation API space with mature molecules sort of could be a riskier bet from price erosion point-of-view compared to intermediates or should it not be looked at this way and it’s rather on a case-to-case basis?

Sachin Patel — Director

I would honestly say that it’s a case-to-case basis because if we feel that we can produce anything in fermentation just because we do fermentation I think it could be at tall task. It would be incorrect for us to state that we can produce everything under the earth. So I think for that particular reason even in our portfolio we have — we are working on half a dozen, if not more now because not all of them will find the markets because it is a technically challenging place to be in. I think there is a fair bit of experience, which is required at the same time there is a fair bit of risk for failure too. So I wouldn’t put it down on a particular company or X, Y, Z. I think it has its challenges which one has to take time and effort.

Keshav Kumar — RakSan Investors — Analyst

Understood, sir. And sir, secondly sort of building on that so currently bulk of our costs are power and fuel basically the energy cost to run our fermenters. So I guess, in fermentation, taking the overheads constant your yield would be the single most important variable to have good gross margins. And currently, our margins are phenomenal for the current products. So when we are convinced to take a product from bench to pilot, are we building on such high I mean appreciably higher gross margins, which we currently enjoy? Is that the approach?

Sachin Patel — Director

Yeah, we have to. We have to look at gross margins very carefully. The reason is that for instance, the facility that we are producing right now from is essentially depreciated, right, it’s an old facility. But now we are talking about creating new facilities and depreciation has become quite a significant part of this cost. So we need to be very, very careful in terms of the products that we select, so as to make sure that we have healthy bottom-lines which are much required to sustain this kind of business.

Keshav Kumar — RakSan Investors — Analyst

So sir is the domestic raw material availability one of the factors like, for instance, certain fermentation molecules are use vegetable waste oil as raw material, which does not cost much. And the price is not very volatile as well. So is that one of the factors that we’d sort of choose to built on our products?

Sachin Patel — Director

So at this particular time, so I think from country-to-country, one must look at materials which are locally available in order to do fermentation. But I think at this time, we don’t see raw material prices as a major challenge. It’s not something that is of a major concern as we see it right now.

Keshav Kumar — RakSan Investors — Analyst

Sure and sir, lastly, so of the two products at least for Rifa-S we historically had a single customer arrangement and we went from toll to market pricing, but we haven’t had — so basically, we haven’t had the demand-side risk per because offtake was there. So for the newer molecules, we plan to make. Is there a pull factor also coming in from the clients we are in touch with that they require certain products so we could utilize the capacities quicker than seeding the market and growing from there.

Sachin Patel — Director

As with investors we have really not disclosed the molecules that we are working on and what we intend to take to the market. I think at the right time, we will do so. I think we have selected products, whereby we don’t foresee a major challenge in terms of commercializing them.

Keshav Kumar — RakSan Investors — Analyst

Sure sir, that’s all from me. Thank you.

Operator

The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital — Analyst

Yeah, thanks for the opportunity. Sir, can you talk about when do we expect to complete the capex for the six new molecules that we plan to manufacture that are in the R&D stage? And when do you expect the commercialization of at least one molecule.

Sachin Patel — Director

So our capex plans are divided into three. One is the R&D. The second is our API block and the third is our fermentation block. As I mentioned in the introduction the R&D capex and the API block should come through like June-July of this year. Six to nine months after that we should be able to commercialize some products from our API block. And the fermentation block the additional capacity that we’re putting in will come through by June-July of next financial year. We’re talking about ’24, so from then we start trial batches in production of the additional fermentation products which are there.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure, and sir I know you will not talk about the molecules that we’ve been manufacturing. But can you broadly talk about the market size that we’ll be targeting because in the existing two molecules we are a big player in the global markets. So, but how big will be the opportunity for some of the molecules that we plan to manufacture, let’s say in when we complete the R&D and start manufacturing them?

Sachin Patel — Director

So from the API block the R&D for producing the same has already completed. So we shouldn’t be spending too much time on the R&D, we should be spending more time on taking the trial batches and the exhibit batches which are required over here. I believe that one, at least one product would have a significant potential in the very near future because it is something that is expected to change the current therapy, and we’ll be one of the first few of the companies to launch this particular product in India and elsewhere too. So we are counting on that.

Ankit Gupta — Bamboo Capital — Analyst

Sure. And the other set of fermented products that you’re working on — how big can be the opportunity size for them.

Sachin Patel — Director

I wouldn’t comment on that particular question right now, because as I said, we are working on multiple projects in R&D. We still need to be very clear in terms of which is the one that — which are the ones that are first going to come out from R&D, the fermentation and we are still some time away because our fermentation block comes up by next June-July, not this June-July, but next June-July. Nothing to speculate that far ahead would be a bit [Indecipherable].

Ankit Gupta — Bamboo Capital — Analyst

Sure, sir, sure, okay. Wish you all the best, sir. Thank you so much.

Sachin Patel — Director

Thank you.

Operator

Thank you. The next question is from the line of Kalpesh from JSN Advisory. Please go ahead.

Kalpesh Parekh — JSN Corporate Advisory Pvt Ltd. — Analyst

Yeah, good evening, sir. Sir, I have couple of questions, you mentioned on your capex plans that we are planning to invest INR200 crore over the next few years. So can we have a broad understanding of what type of turnover we can generate post this entire capex plan.

Sachin Patel — Director

So the principle that we are really using for what products we go in and the business strategy which is there is more based on ROI rather than turnovers. So we are trying to — our objective would be to minimize the number of years in terms of ROI for projects, the capex that we are taking up rather than say that INR200 crore capex we are expecting so many INR100 crore turnover. I think that would that — that would not be the best possible way of looking at the subject, considering the kind of industry that we are in.

Kalpesh Parekh — JSN Corporate Advisory Pvt Ltd. — Analyst

No, fair enough. Then probably any ROI that you would like to have it in your mind, probably for the entire things that — that you are stable with the next two years, three years type of things, will the current ROI is a good indicator that you would be comfortable or you would be targeting a better ROI from the new businesses as such?

Sachin Patel — Director

I think the current ROI is pretty, pretty healthy, so I think it would be — for a new facility. This is for old facility. For new facility if we can get something like would be pretty — we would be pretty satisfied with that.

Kalpesh Parekh — JSN Corporate Advisory Pvt Ltd. — Analyst

Okay. And when we move for the forward integration or anything the margins would remain in this band or sir or can we expect margins to also expand with the current — the new product streams as such?

Sachin Patel — Director

If we are moving into forward integration I don’t believe that the margins would be as healthy as they are in fermentation, because the minute you are moving into forward integration there is significant number — there are significant number of companies that are doing the same thing. So the real value of what we’re doing over here is — comes from the fact that there are limited number of companies, there is a limited amount of capacities [Indecipherable]. And I think that is the differentiation. But that does not mean that we won’t forward integrate. We do forward integrate because that just ensures that the business is pretty much in our hand.

Kalpesh Parekh — JSN Corporate Advisory Pvt Ltd. — Analyst

No, fair enough. Then probably we would be aiming or targeting a better or higher turnover from the new forward integrated part? And the margins will get compensated over through the volume part.

Sachin Patel — Director

That’s right.

Kalpesh Parekh — JSN Corporate Advisory Pvt Ltd. — Analyst

Okay, fair enough. Wish you all the best for the same. Thank you, sir.

Sachin Patel — Director

Thank you.

Operator

Thank you. The next question is from the line of Abhilash Heren [Phonetic], an Individual Investor. Please go ahead.

Abhilash Heren — — Analyst

Hello? Sir, can you explain the tender [Technical Issues].

Operator

Sorry to interrupt you, Mr. Heren [Phonetic]. Dr. Patel, there’s some echo coming from your line. Sir, still we are getting an echo.

Sachin Patel — Director

Well I am on mute. So it’s not coming from my end.

Operator

Mr. Heren [Phonetic] please go ahead with your question.

Abhilash Heren — — Analyst

So can you explain the tender processes for the?

Sachin Patel — Director

Sorry, I’m not able to hear. I’m not able to hear, Mr. Heren.

Abhilash Heren — — Analyst

Sir, is this better now?

Operator

Mr. Heren, please use the handset mode.

Abhilash Heren — — Analyst

Yeah, I am on the handset. Am I clear right now?

Sachin Patel — Director

I’m unable to hear, I’m afraid.

Operator

Dr. Patel, I’ll reconnect your line, sir. [Operator Instructions] Ladies and gentlemen, thank you for patiently waiting. The line for Dr. Patel is reconnected. Mr. Heren, please repeat your question.

Abhilash Heren — — Analyst

Sir, am I audible now?

Sachin Patel — Director

I’m afraid, not very clearly.

Abhilash Heren — — Analyst

Sir, is this better now?

Sachin Patel — Director

Let’s try, let’s try.

Abhilash Heren — — Analyst

Yeah. Sir, can you explain the tender processes for Rifa-S? When are they released and how is it different in the global market, vis-a-vis the Indian market?

Sachin Patel — Director

Sorry, I could not hear the question.

Operator

Mr. Heren, request you to please rejoin the conference. We’ll move on to the next question from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital — Analyst

Sure sir, thanks for the opportunity again. The API growth that we are commercializing or that for which the construction will be completed by June-July of this year what kind of acceptance can this year — what kind of revenues can we generate from our API block once we reach optimal capacity utilization?

Sachin Patel — Director

Was the question that what kind of revenue can we generate from the new API block once?

Ankit Gupta — Bamboo Capital — Analyst

Yes, sir.

Sachin Patel — Director

Yeah. So I think it’s something that we’ve really not come out and given those numbers, but what we are looking at is 25% to 30% growth in terms of where we are this year in the next financial year. So this particular API lock should help us attain that kind of growth level.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure. And how many products will be manufactured from this API block?

Sachin Patel — Director

One high value product but multiple small product which will be produced wherever we feel that the margins are very healthy.

Ankit Gupta — Bamboo Capital — Analyst

Okay. Okay, sir. Thanks so much.

Operator

Thank you. The next question is from the line of Abhilash Heren, an Individual Investor. Please go ahead.

Abhilash Heren — — Analyst

Hello, sir. Am I audible now?

Sachin Patel — Director

Yes.

Abhilash Heren — — Analyst

Sir, can you explain the tender process for Rifa-S, when are they released and how is it different for the Indian market, vis-a-vis the global market?

Sachin Patel — Director

So, the tender is not for Rifa-S, obviously the tender is for tuberculosis medication in which one particular API that is Rifamycin is used abundantly and to manufacturer Rifamycin you need Rifa-S. So the Government of India comes out with tenders, not just once in a year, multiple times a year to procure tuberculosis medication because treatment of tuberculosis is under our national program. And similarly in the world, you have multiple funds like the Global Funds and many others who provide the funding for treatment of tuberculosis all over the country.

So again, they come out with tenders for procurement on regular basis. So what we are in the midst of right now is for a lot of agencies to come out and declare the final [Indecipherable] regards to the tenders so that the procurement can start. Right now things have been delayed a bit. But as I mentioned again during the first question, I think the number of patients in terms of tuberculosis still remain at a similar level. So, sooner or later the demand for these tablets and hence Rifamycin and hence our intermediate should be coming through.

Abhilash Heren — — Analyst

So, sir the [Indecipherable] rate in which Rifa-O is used that is not under tender process, sir?

Operator

The audio is getting muffled so please use the handset mode.

Abhilash Heren — — Analyst

Is this better now? Hello?

Sachin Patel — Director

It’s not very, but I think I got the question. So Rifa-O is not a tender-based product. It goes into the manufacturing of another API, which is used for gut infection. So we don’t run the risk of that particular product in the tender area.

Abhilash Heren — — Analyst

Okay. Sir, can you explain on the sourcing of our raw materials which are the agri-based products that we need to procure for the purpose of manufacturing Rifa-S and Rifa-O. More on the sourcing front, if you could explain in detail?

Sachin Patel — Director

So the sourcing, the only thing I could really comment on is that the sourcing is all domestic. We source all our raw materials domestically, we are very — if I do think there is anything that is import-dependent. And otherwise, I cannot comment anything specific that is really a matter of concern or deterrence in our manufacturing supply chain.

Abhilash Heren — — Analyst

So in the sense do we have long-term contracts on sourcing? And so, just from that front?

Sachin Patel — Director

Not really, we don’t work on long-term contracts but we know — like in all pharma companies, all pharmaceutical companies, you need to have your respective approved vendors. But that’s all about it because that is a part of our quality compliance systems that are there, but there is nothing more specific to it than that.

Abhilash Heren — — Analyst

Sir, can you explain considering that we are a highly power-driven business, cost is very high. So can you explain what are the alternatives if there is any power shortage, the company faces how would we transition, if there is any power shortage might happen?

Sachin Patel — Director

To be frank, we are continuously exploring what are the alternatives which are there. And if any alternative source of power would indeed have a significant impact on the costing of our products, so it’s a continuous exercise. I don’t think we have a very clear picture in terms if there is going to be any change in the near future that we are going to make, but as I mentioned, we continuously keep on exploring possibilities and re-looking at numbers to see what is looking interesting.

Abhilash Heren — — Analyst

Okay. And sir just two last questions, can you give us any differentiation in the pricing of our products towards our Chinese counterpart? Generally what would be the pricing differential that we might enjoy vis-a-vis our Chinese counterpart?

Operator

Sorry to interrupt you Mr. Heren. The audio is unclear from your line, sir. Please use the handset or speak a little bit louder, sir. The audio is unclear.

Abhilash Heren — — Analyst

So sir, can you explain the cost differential between our products vis-a-vis Chinese counterparts?

Sachin Patel — Director

You mean the cost difference or the selling price difference?

Abhilash Heren — — Analyst

Yeah, on the selling price, what would be a big differential in the prices, if someone has to import from China, vis-a-vis buy it from you?

Sachin Patel — Director

To me, we honestly our sales and our contract not related to the Chinese prices. We have our own contracts on the basis of our costing, our margin expectations at the same time margin expectations of our partners. So we don’t really benchmark in terms of what we have been doing for the last few years vis-a-vis what the Chinese prices are. And I think the Chinese companies would perhaps do the same thing. They would also look at their contracts and not benchmark against what we are doing because it’s a very different set up in both the places. And with regards to costs, I’m really not in a position to comment in terms of what’s happening in terms of costs in China. I think it’s not just for us to say, but even for other industries where you have manufacturing in India also happening in China is happening, it’s difficult to benchmark the two because there is a significant variation in people costs, in energy and finances. So I think it’s becoming more-and-more difficult to benchmark how we compare with them.

Abhilash Heren — — Analyst

Sir, one last question. Can you give the units, just the absolute units of power consumption that we’ve done for nine months and FY ’22.

Sachin Patel — Director

Maybe Mr. Rajneesh Anand can respond to that.

Rajneesh Anand — Consultant

Can you please repeat? You want to know what is the power cost for nine months, is it?

Abhilash Heren — — Analyst

No, no, the units that we have used, not the power cost number, but the units that we have used of power.

Rajneesh Anand — Consultant

Units, well on an average, we have about 3 megawatt of power consumption.

Abhilash Heren — — Analyst

3 megawatt of power consumption and this — and as for FY ’22?

Rajneesh Anand — Consultant

The current — I’m talking about the peak load that we have is about 3 megawatts, which is uniformly used.

Abhilash Heren — — Analyst

Okay, thank you so much and all the best.

Rajneesh Anand — Consultant

Thank you.

Operator

Thank you. The next question is from the line of Keshav from RakSan Investors. Please go ahead.

Keshav Kumar — RakSan Investors — Analyst

Yeah, so, sir, as we would be moving to a multi-product structure and in four to five years from now you should have other products scaled too. And our expertise in fermentation is in scaling the processes so are we looking at certain logical extensions such as R&D link ups with academia or companies in the strain improvement or strain engineering space or is it too ambitious to think on those lines right now?

Sachin Patel — Director

I think this is something that everyone in fermentation has been doing even in the past. So I think it’s a continuous process, right, to be able to survive in this industry. We cannot say that we are right there because we need to continuously work upon what the technology is. So strain is one part of it. There are other aspects also, in terms of technology that continuously needs improvement. So I think for all processes it is the same thing and fermentation is no different.

Keshav Kumar — RakSan Investors — Analyst

So sir, the R&D expenses should also instead of going forward is that right assumption as a percentage of sales?

Sachin Patel — Director

Right. R&D expenses going forward?

Keshav Kumar — RakSan Investors — Analyst

As a percentage of sales should inch up as we go in scale to maintain our competitive advantage that is?

Sachin Patel — Director

Very frankly speaking at this particular stage, very difficult. Very difficult to comment on that particular path, how we anticipate the R&D expenses to go. The reason being that typically in fermentation we don’t expect very high material cost. So the variable is people. So we will have to — and we are increasing our team, so I think only probably as it happens, which we will really get an idea in terms of how expensive R&D is going to be. But our intention is to have quality people with us working on the same.

Keshav Kumar — RakSan Investors — Analyst

Sure sir, thank you. Thanks a lot.

Operator

Thank you. The next question is from the line of to Dhwanil Desai from Turtle Capital. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

Hi. So, first question is related to the [Technical Issues].

Operator

Mr. Desai, sorry to interrupt. The audio is not clear from your line. Please use the handset mode.

Dhwanil Desai — Turtle Capital — Analyst

Is it better?

Operator

Hello sir. The audio is very low.

Dhwanil Desai — Turtle Capital — Analyst

Hello. You’re able to hear me?

Operator

Yes. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

Yeah. Sir the first question is regarding the API plant that is going to be operational in June-July. So is this in a way of forward integration of the fermentation products that we are making? And kind of are we building the plants for that in the future whatever product that we’ll do on the fermentation will also be forward integrated or can be forward integrated into the API plant?

Sachin Patel — Director

The API plant that we are making is a multipurpose facility, which can most certainly be used for APIs that we produced in the future in terms of fermentation. So, no question about it. We don’t want to just produce intermediates for all our future products. We would also like to produce APIs. But at the same time, we also see a fair bit of opportunity of doing some API production products, product developments in the near future. So hence, we decided that the right way to go about it would be to start the API blocks at the earliest and that’s what we have done.

Dhwanil Desai — Turtle Capital — Analyst

Okay, if I understand you correctly, it will be a combination of the fermentation products, APIs plus other independent APIs. That’s the way to look at it?

Sachin Patel — Director

That’s right, that’s right.

Dhwanil Desai — Turtle Capital — Analyst

And generally, Sachin, what we have observed is that most of the API players kind of get the margin around 17%, so I assume that we also will be in the similar ballpark. Is that the right way, right understanding?

Sachin Patel — Director

Not necessarily. Not necessarily. I think on the basis of the pipeline that we see on the synthetic API part right now, we should be able to get better margins in that.

Dhwanil Desai — Turtle Capital — Analyst

Got it. And the last question on the fermentation block that is going to be operational in FY ’25, so from there incomes of validation and stability and everything I mean, I assume that those kind of processes are also relevant for fermentation product. So what is the timeline for actually doing the commercial production after the bloc is in play?

Sachin Patel — Director

It’s a very good question. Now the most — that is for that particular reason the most important basis was to start our R&D. And our R&D is quite significant as a strategy, because that is not just the R&D from a lab perspective, but we also have a CGMP pilot facility over there, which means that we can scale up our R&D products to a significant level from where at least we can do our basic filing, regulatory filings and at the same time put our products on stability. That said, it does not mean that we would not have to do the same when we move to the commercial block, because it would be larger capacities if you would have to boost stability again. But at the same time, even after you do the same you still have to wait for a significant amount of time to do the filing, which we should be able to curtail by filing from our R&D.

Operator

Thank you, Mr. Desai. May we request that you return to the question queue for follow-up questions. The next question is from the line of Anand Shenoy [Phonetic], an Individual Investor. Please go ahead.

Anand Shenoy — Individual Investor — Analyst

Good evening. Am I audible? Sir, my first question is about in the API block, do we do fermentation in that fermentation process?

Sachin Patel — Director

No. API block is essentially synthetic chemistry. It’s not fermentation at all.

Anand Shenoy — Individual Investor — Analyst

Okay. And the intermediates required for the API block we’ll be sourcing from outside? That is either the correct understanding like when we start off?

Sachin Patel — Director

Not necessarily. For some products being made but for some product we may — so it’s not just the final powder processing area. There is a fair bit of synthetic chemistry that you can do over there, that is the way it has been designed and planned. So we should be able to do some — a fair amount of chemistry as such.

Anand Shenoy — Individual Investor — Analyst

Okay. Thank you. And next question is about we had mentioned in the last call about getting FDA approval for this U.S.-FDA approval and all that. So given that it will take nine months, like you have mentioned six to nine months, do we expect any API sales to happen next year or it will be all mostly in FY ’25 onwards?

Sachin Patel — Director

For the API synthetic block with most certainly undergo if not U.S. at least some regulated markets, orders in the next financial year because we would be filing in the respective areas from there.

Anand Shenoy — Individual Investor — Analyst

Okay. And my last question is about our parent company Themis Medicare also has a subsidiary which does API. So I just wanted to understand what are the like — like why we are doing API in two companies separately from the promoter perspective?

Sachin Patel — Director

I think we have a Themis Medicare earnings call in a couple of days.

Anand Shenoy — Individual Investor — Analyst

Okay. Okay, I’ll ask there then. Thank you.

Sachin Patel — Director

Thank you.

Operator

Thank you. The next question is from the line of Jagdish Sharma [Phonetic], an Individual Investor. Please go ahead.

Jagdish Sharma — — Analyst

Sir, good evening. My question is that when we looked into the sales of ours, especially December sales other than — other quarter sales are good, but December sales are falling. Why is it, sir? Only December sales. 2019, ’20, ’21, ’22 the December sales are falling and this year was better. Why is that, sir, when compared to other quarters?

Sachin Patel — Director

Are you referring to Q3 sales?

Jagdish Sharma — — Analyst

Yes, sir, Q3 of last four years, four financial years.

Sachin Patel — Director

I think if you see year-on-year, the sales for us at least compared to last year, the sales have increased. But overall, you’re right. We have seen some kind of a trend whereby in Q3 the sales go down. Perhaps it is just the cycling of the tender which is there in case of [Technical Issues]. But I think when they start opening up, you have a lot of requirement that comes in.

Jagdish Sharma — — Analyst

Because year-on-year we are beating year-on-year. Like we beat the result of previous financial year like 50% to 40% every year, we have that growth, but December — it’s like December is lagging for every year, that’s why I want to ask that question. And second is, what is our margin for the API, sir, [Indecipherable] block which is about to come?

Sachin Patel — Director

First of all I can answer your first question. I would not read too much into the pattern of two years or three years with regards to December requirements or Q3 requirements, because we have been producing this particular product for I think about 10 years albeit on other business models before that. And we have not been able to get a pattern, which is very clear in terms of which quarter is high and which quarter is low, so we might have seen this pattern for the last two quarters — last two years, but I wouldn’t still be convinced that there is some kind of a pattern, which is being created. We are not sure it is. But to simply state that it is the timing of the tenders. In terms of APIs that we are producing — that we’re going to produce in the future. Now, unlike fermentation APIs, the overhead costs or other energy costs are not so high. So we would aim that at least at the gross margin [Technical Issues] material costs should be in the region of 50% to 60%, not more than that.

Jagdish Sharma — — Analyst

No, sir. Come again please [Indecipherable] gross margin we will acquire, like we will cope up.

Sachin Patel — Director

Sorry, I’m not able to hear you.

Jagdish Sharma — — Analyst

No, what is the gross margin which you just mentioned, sir, and the power cost?

Sachin Patel — Director

Well, I would put it this way that the gross margin over material cost should be anywhere between 40% to 50%.

Jagdish Sharma — — Analyst

Okay, and power cost will be.

Sachin Patel — Director

Not possibly to state, because it depends upon product-to-product and process, the process, so that will be to — it would be too speculative at the moment.

Jagdish Sharma — — Analyst

Okay, so can you give guidance for next year and next year after that, like ’24 and ’25?

Sachin Patel — Director

I mentioned in the previous question that we are looking at increasing our business by about 25% next year, but anything beyond that again would not — we would not like to speculate anything beyond that.

Jagdish Sharma — — Analyst

[Technical Issues]

Sachin Patel — Director

Sorry, I’m not able to hear you very clearly.

Jagdish Sharma — — Analyst

Like do you have any revenue target, sir?

Sachin Patel — Director

I mentioned, we are looking at a 25% growth for next.

Jagdish Sharma — — Analyst

25%. Okay, okay, okay, thanks, sir. Have a good day. Thank you.

Operator

Thank you. The next question is from the line of Saloni Hemnani from Molecule Ventures PMS. Please go ahead.

Saloni Hemnani — Molecule Ventures PMS — Analyst

Yeah. Sir, I just had a follow-up question on the R&D part, so you mentioned earlier that we are increasing our team for R&D. So, can you let me know currently what is the size of our R&D team and how much team members are we going to add into that?

Sachin Patel — Director

Mr. Rajneesh Anand can answer that.

Rajneesh Anand — Consultant

Yes. You see right now one, we have hired one foreign consultant who is working full-time in the plant in R&D. And at the same time, we have got two more foreign consultants who are advising us offline. And similarly, we have one Indian consultant who is very senior in the field, in which we are going endeavoring to go into in future. Plus we have about 10 employees full-time with us, who are working under their guidance at the moment. But as soon as the R&D — the new R&D is ready we are also trying to find suitable people for those positions. Does that answer your question?

Operator

Thank you. Ms. Hemnani, may we request that you return to the question queue for follow-up questions. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Dr. Sachin Patel for closing comments. The remaining participants get in touch with IR for follow-up questions. Thank you and over to you sir.

Sachin Patel — Director

Thanks. So finally I would like to thank the entire team of GTBL for their untiring efforts, hard work and dedication. This is what drives the company forward through various market conditions also. I appreciate all of you for participating in our conference calls. Please do get in touch with our Investor Relations team for any further questions that you may have. Thanks very much and have a lovely evening.

Operator

[Operator Closing Remarks]