Hikal Limited (NSE: HIKAL) Q1 2026 Earnings Call dated Aug. 07, 2025
Corporate Participants:
Unidentified Speaker
Sameer Hiremath — Managing Director
Vimal Kulshrestha — President, Crop Protection
Kuldeep Jain — Chief Finance Officer
Manoj Mehrotra — President, Pharmaceuticals
Anish Swadi — Senior President – Animal Health & Business Transformation
Analysts:
Unidentified Participant
Dhrumil Wani — Analyst
Henil Bagadia — Analyst
Ankit Gupta — Analyst
Rohit Sinha — Analyst
Rohan Mehta — Analyst
Manoj Bagadia — Analyst
Pranay Dhelia — Analyst
Sajal Kapoor — Analyst
Presentation:
operator
SA Foreign. Ladies and Gentlemen, good day and welcome to the Q1FY26 earning conference call of Hiker Limited. 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 the guarantees of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing Star then zero on your touchstone phone.
With this I now hand the conference over to Mr. Sameer Hiremat, Managing Director from Hill Limited. Thank you. And over to you sir.
Sameer Hiremath — Managing Director
Thank you ladies and gentlemen. Good afternoon and a warm welcome to all of you. I extend your gratitude to all of you for participating in our Q1 FY26 results conference call. We are pleased to provide you with an update on the progress made by our company. We trust that you have had the opportunity to review our comprehensive earnings release, investor presentation and the financial statements for the quarter ended 30 June 2025. These documents can be accessed on both HEICL’s official website and the stock exchanges websites. I am Sameer Hiremat, Vice Chairman and Managing director of HEICL Ltd.
And I’ll be leading the discussion and presenting the financial results on this call. With me I have Anish Swadi, our Senior President and Head of Business Transformation Kuldeep Jain, our Chief Financial Officer Manoj Barotra, our President Pharmaceutical Business Vimal Kulshetra, our President, Crop Protection Business and Strategic Growth Advisors, our Investor Relations Advisors. Q1 FY26 marks the continuation of the challenging industry environment characterized by global overcapacity, intensified price pressures and demand volatility across core markets. The chemical and life science sector continues to experience uneven recovery with pricing compression in select geographies especially from Chinese competition. Tariff shifts and procurement variations due to trade realignments further complicated the external landscape leading to a muted first quarter.
In this quarter, Title reported consolidated revenue of 380 crores and EBITDA of 25 crores. Our consolidated performance was impacted primarily due to the deferment of shipments in our pharmaceutical business. Our pharmaceutical business saw 11.7% revenue DE growth on a year on year basis on account of delayed offtake from key anchor customers during the quarter. The US FDA issued an Official Action indicated OAI status to our Bangalore facility following the inspection in February 2025. We want to assure all stakeholders that HEICL has taken this matter seriously and has already implemented comprehensive corrective and preventive actions in line with the Agency’s observations.
These observations were procedural in nature and did not include any issues on data integrity. We have submitted a detailed response update outlining these actions and remain in active communication with the US fda. We are working diligently to ensure full compliance and alignment with all regulatory expectations. We continue to uphold the highest standards of quality and remain committed to strengthening our regulatory systems and culture. We did have some positive news during the quarter GMP audits at our Bangalore API facility by two global regulatory authorities, N VISA in Brazil and PMDA in Japan was successfully concluded. This reinforces our regulatory credentials and positions us well for future growth in key Latin America and Japanese markets.
This is in line with our current strategy to de risk our market concentration in view of the uncertainty in the ongoing tariffs in the CDMO segment, the pipeline remains healthy and we engage in multiple projects with global innovator customers. Most of these are in the early to mid development stages. Commercial revenues is expected to happen towards the end of this financial year. The crop protection business continue to maintain a stable trajectory largely driven by sporadic global demand in specific segments and persist while having persistent pricing erosion from oversupplied markets. Revenue remained largely flat on a year on year basis.
Despite this, we maintain operational efficiency through tighter cost controls and process optimization. We anticipate a gradual volume recovery in the second half of the year as seasonal demand picks up across global agrochemical markets. In summary, while Q1FY26 reflects a slow start and a negative start to the financial year, we remain confident of delivering on our yearly guidance which we spoke about in the last investor call. We expect performance to improve meaningfully in the second half of the financial year with Q4 being the strongest quarter of the year led by enhanced plant utilization, increased offtakes and new product commercialization.
Now I will hand over to Kuldeep Jain, our CFO who will provide an overview of the financial performance.
Kuldeep Jain — Chief Finance Officer
Thanks Amir and good afternoon everybody. Let me now walk all of you through the financial performance hycal for the quarter first FY 2026 and share key updates on our financial trajectory, Capital allocation priorities and balance sheet strengthened for Q1 2026 our consolidated revenue stood at 2,380 crore compared to 407 crore in the corresponding quarter of the last year. This reflects the impact of continued softness in select product categories and deferred offtake from key anchor customers, particularly in the pharmaceutical industry division partially offset by stable performance over crop production.
EBITDA stood at 25 crore rupees with an EBITDA margin of 6.5% as against 14.3% in Q1FY 2025. The margin compression was largely driven by under absorption of fixed costs, less favorable product mix and lower capacity utilization in a few manufacturing blocks or on account of scheduled maintenance, shutdowns, depreciation and finance Costs for the quarter were rupees 39 crore and 17 crore respectively. The cash profit for the quarter stands at Rs. 16 crore. During the quarter we improved our working capital utilization resulting into a positive free cash flow of rupees 15 crore. Our capex for Q1FY 2026 was to be 31 crore primarily towards the debottlenecking, regulatory upgrades and CDMO capacity augmentation.
We are maintaining our full year capex guidance of rupees 200 crore and remain disciplined in allocating capital towards high ROI projects aligned with our long term growth strategy. Our debt equity ratio remains stable at 0.54. Our balance sheet and cash flow remain strong. Now I would like to hand over. To Bimal who will provide an overview of crop protection division performance. Over to you Bimal.
Vimal Kulshrestha — President, Crop Protection
Thank you Kuldeep Good afternoon. All the participants of this evening call the global crop protection industry continue to face uneven recovery in Q1 FY26. This is LED by persistent overcapacity and aggressive price competition from China. Despite these market challenges, we at HECAL have remained focused on disciplined execution, prioritizing operation efficiency, product mix optimization and its strategic customer engagements. During the quarter our crop production revenue stood at 178 crore with EBIT at 17 crore largely flat on year on year basis margin remain under pressure as pricing pressure continues due to oversupply in the global system. The performance expected to remain stable during the year on annual basis adding to the industry level pressures.
Global innovator customers in the crop protection segments are undergoing significant strategic shifts. These include portfolio realignment, business segment restructuring and a pivot towards next generation innovation platforms. This alignment is influencing procurement patterns, contract timelines and in some cases impacting commercial decisions across the value chain. While this presents near term volatility, it also opens up longer term opportunities for differentiated partnerships, co development programs and supply chain localization. In addition to crop production, we are also making measured progress in personal care and especially chemical space. In line with our broader diversification strategy. During the quarter we continued to deepen engagement with global customers for innovation driven cosmetic and personal care ingredients supported by our capabilities in complex chemistries and sustainable manufacturing.
The response has been encouraging from customers with early success as we have received multiple RFPs. This segment remain an emerging growth lever and we are focused on building a differentiated product portfolio aligned with evolving customer and regulatory expectations. Accordingly, we have intensified engagement with strategic accounts, realigning our technology pipeline to reflect customer prioritization and focus R and D efforts on developmental molecules that align with innovation led demand. We continue to maintain a healthy development pipeline of eight projects. Our identity team continue to play a pivotal role in accelerating these projects and delivering with innovation. In terms of cost control, we have implemented several initiatives across procurement, energy optimization and yield improvements.
Helping us protect contribution margin is an aggressive pricing in an aggressive pricing environment. In summary, while near term market dynamics remain fluid, our fundamentals in crop protection business remain intact. We are confident that the strategic choices we are making today both in terms of portfolio and operational excellence will enable us to deliver profitable sustainable growth as the industry rebalances. Now I would like to hand over to Manoj who will provide an overview of pharmaceutical division performance over to you Manoj.
Manoj Mehrotra — President, Pharmaceuticals
Thank you Vimal and good afternoon ladies and gentlemen. Let me now walk you through the performance of our pharmaceutical division for quarter one FY26. During the quarter the pharmaceutical segment recorded revenue of rupees 203 crores, an EBIT loss of rupees 27 crore. Customer offtake patterns were impacted in part due to the recent USFD OAI status at our Bangalore facility. This has led to a degree of volume deferral from the first half to the second half of the fiscal year. Margin realization was impacted by lower volumes and changed production mix. Our profitability was affected by lower operating leverage.
However, based on our current visibility and the pace of engagement with customers, we do not anticipate an impact on overall revenue and margin performance for FY26. Now I would like to give an update on our regulatory compliance. A major milestone this quarter was the successful completion of CGMP audits at our Bangalore facility by two global regulatory agencies, NVISA Brazil and PMDA Japan. This reaffirms our regulatory credibility and significantly enhances our access to key Latin America markets and the strategic Japanese markets. I would like to reaffirm our unwavering commitment to compliance and quality excellence. As Sameer mentioned earlier, the OAI status received by our facility post the US FD inspection is being addressed through a structured time bound remediation program.
We are working closely with regulatory experts to ensure that the corrective and preventive action which is CAPA’s meet the highest standards of global regulatory expectations. We have till date completed majority of the corrective actions and we expect the remaining balance to be closed out before end of this quarter. We have kept the US FDA appraised of the progress on a regular basis for our API business. We demonstrated volume de growth on a Y on y basis driven by shift in offtake patterns from anchor customers and product mix. We have seen particular traction in certain markets where a long standing portfolio is complemented by growing market share in select molecules.
Our product development pipeline remains strong with eight to nine molecules currently under development and we remain on track to launch two to three new products annually in line with a medium term roadmap. As part of our risk mitigation strategy, we are progressing towards dual site validation for all our critical APIs. Our CDMO business continues to benefit from the structural momentum driven by the China plus one strategy which is reshaping the global outsourcing landscape. We are observing a sharp uptake in our early stage RFPs particularly in high value, small volume molecule and advanced intermediate. This demand is being driven by global innovators and emerging biotech firms who are looking to diversify their development and manufacturing away from single region dependencies.
While commercial scale up timelines remain staggered, the volume and quality of engagements have significantly improved. We are currently working on various CDMO projects of which a few are transitioning from early development into pilot scale in the food and nutraceutical ingredients. We are on track to gain scale and expected to reach peak output over the next 18 to 24 months. We are working towards further expanding our product portfolio in this segment. Our initiatives in this segment are progressing well separately. The key starting materials being manufactured for global innovators have advanced into phase 3 clinical trials and we expect these to translate into commercial launch by FY27.
To support this momentum we are investing in enhancing pilot scale capacities and dedicated project management teams for CDMO clients. These enablers will allow us to better serve early stage programs and establish ourselves as a long term strategic partner on the overall pharma business outlook. The API volumes are expected to improve supported by regulatory approvals coming through across geographies and increased penetration in semi regulated markets in cdmo. While near term visibility remains tight, the pipeline is robust and diversified with engagements growing in both volume and technical complexity. We have completed several customer audits during this quarter.
Our near term focus remains on improving contribution margins through cost productivity, scaling differentiated API projects in both segments, strengthening customer partnerships to compliance, quality and responsiveness as well as enhancing regulatory readiness for new markets and molecules. Now I would hand over to Anish who will provide an overview of our business strategy.
Anish Swadi — Senior President – Animal Health & Business Transformation
Thanks Manoj and good afternoon ladies and gentlemen. First I’d like to discuss our animal health business. Our animal health business continues to make steady strides both operationally and strategically under our long term supply agreement with a global animal health innovator. The development and validation of the APIs API portfolio is progressing as planned. Several more products are currently in the validation pipeline and commercial filings are underway for multiple markets. We expect commercial launches in FY26 and beyond. We are also taking a step further with two complex chemistry molecules that are moving to the development phase. Our relationships with several global innovators spread across the US and Europe in the animal health segment have been built over the last several years based on reliable delivery technical collaboration which continues to strengthen.
Further, we are increasingly positioned beyond just a manufacturing partner driven by innovation and a proven track record in complex synthesis, compliance and agility in process development. We are now focusing on expanding our footprint with Tier 2 innovator customers, the biotech segment and the own product portfolio focused on several key geographies. This will further provide diversification to the animal health business and act as one of the key growth levers in the long run. Turning to our Project Pinnacle, which is our Enterprise Wide Transformation initiative, we continue to make disciplined progress in reorienting HEICL for the long term sustainable value creation well into its execution phase.
The program is delivering measurable outcomes across critical levers including supply chain resilience, digital modernization, operational excellence and ESG integration. A corporal of our strategy under Project Pinnacle is the diversification of our businesses across multiple dimensions spanning end markets, customer segments, geographies and product portfolios. We are actively expanding our footprint in high growth regions such as Latin America among others, and increasing our presence in differentiated chemistries and deepening our participation in adjacent verticals such as the animal health business and specialty chemicals. This multi pronged diversification approach is designed to structurally de risk the business by reducing reliance on any single market or segment while enhancing our ability to navigate external volatility whether regulatory, geopolitical such as tariffs or macroeconomic.
Project Pinnacle is central to our ambition of building HECL into a more resilient, innovation led and and globally competitive platform well positioned to capitalize on emerging opportunities across the life sciences value chain. In summary, although we have hit a slight hurdle in our pharmaceutical business, it is expected to recover in the second half of the year. Global prospects for all our businesses remain strong. We remain optimistic about the road ahead. We have focused initiatives on reducing costs and streamlining operational efficiency. Our geographic and product diversification is reducing concentration, risk and reinforcing our ability to navigate global headwinds.
Now I would like to open the floor to Q and A.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two participants are requested to use handsets by asking a question. Ladies and gentlemen will wait for a moment while the question queue assembles. The first question comes from the line of Dhrumil Vani from Girig Capital. Please go ahead.
Anish Swadi
Hello.
operator
Yes sir, you are audible. Please go ahead.
Dhrumil Wani
Yeah, yeah. Thank you for the opportunity. So, couple of questions. First on the agrochemical. Recently there are some media reports suggesting some increase in the prices of the agrochemical by Chinese supplier and and also the Chinese policy of not operating at such lower margins across various industries. With this in mind, do you see any positivity and would like to change your outlook for the year which you had. So last quarter you had a flattish growth outlook for agrochem but given this scenario, for example Mancos prices has been increased and couple of other molecules also. So any comments on that and on pharmaceutical.
It has mentioned in the press release that there has been some deferment of orders. The lifting of the orders by client in CDMO and API division and you expect recovery in Q2 and then going forward. So what are the actions the customers are taking? Are they sending their team to check the plant and be satisfied and by when and how will they increase the uptake? And also what is the deadline for us to submit the report to the US fda? I think in last conversation or some September, October if you can just revisit the deadline that you know by which we as investors can be, you know, we find that beyond this there would not be any negative surprises coming.
These are my two questions.
Sameer Hiremath
Sure. So I’ll let Vimal take the crop section and Manoj, you can answer the pharma part.
Vimal Kulshrestha
Yeah. So in China though, I mean there are news that some products slight price increase is there but by and large prices are flat. And we based on that we anticipate the flattish revenue growth for the crop production division.
Dhrumil Wani
Okay. And what about the inventory situation at the end client level? Is that easing off? Because the numbers that the other companies are reporting are good so far.
Vimal Kulshrestha
So in some pockets it is improving. In some pockets still customers are holding high. Inventories and they expect rationalized inventory in second half of this year.
Dhrumil Wani
And what’s their exposure to Brazil? Sorry, what is the exposure to the Brazilian market for us?
Vimal Kulshrestha
I mean it is not very high.
Dhrumil Wani
It’s okay. Yeah, understood. Yeah, thanks. And the pharma bit?
Vimal Kulshrestha
Yeah, on the pharma part, we received the OAS status from US FDA towards the end of May. That does mean that the customers do their own risk assessment. So many of them did it virtually. Some of them decided to come over to Bangalore and see for themselves. That process takes around six to eight weeks. And most of our customers have completed their own risk assessment and they found that everything is in order. Whatever corrective actions we are taking does not give any risk to their products. Shipments have restarted now and over the next two quarters we’ll be able to cover up the setback.
What we had in Q1 coming to the corrective action, we have corrected almost 75 to 80% of the Kappas which we have taken in our first response followed by the updated response. By end of September we’ll be finishing all our corrective actions and we are in regular touch with US FDA and giving them a monthly progress update. The last one was given as recent as July 31, which is just a week back. We hope to hear from them by end of August on our responses.
Dhrumil Wani
Okay. And the entire cost of these corrective measures, has it been expensed completely on the PNL this quarter?
Vimal Kulshrestha
Many of it is a little ongoing. That is on facility upgradation and quality control upgradation. So that is ongoing. And there is some bit of capital expense, not much of PNL impacting.
Dhrumil Wani
Okay, so there’s no PNL impact of this because I think in last conversation There was a 1012 crore. 1012 crore.
Vimal Kulshrestha
Let me introduce, let me introduce. Yes. We have hired these consultants so that we expect a 10 to 12 crore impact for this year. Almost 50% has come in in the first quarter and we expect it to continue for Q2 and Q3 as well. Okay, so that. So around 5 crores is on the P L for this quarter. That’s right, yeah. It expensed on the pnl. That’s right. In the other expenses.
Dhrumil Wani
Yeah, in the other expenses. Okay. Okay. So this year over year fall of around 20 crore, 23 crore in our pharma business. So. So this gap is. Is of this low uptake and then growth also has been. Has been postponed. Right, that bridge. Right, the revenue bridge. Yeah.
Vimal Kulshrestha
Shipments have been deferred. So that will be recovered in the next two quarters.
Dhrumil Wani
Okay, okay. So they would be adjusting the inventory at the customer end by purchasing purchasing it from some other customer. Or they have a buffer and they can. They are okay with this.
Vimal Kulshrestha
The big ones have a buffer. So no orders have been canceled for us.
Dhrumil Wani
Okay. Okay. Okay. Okay. So. So. And can you just reiterate your guidance for the year? What. What was it.
Sameer Hiremath
We had given it last time? It was as a crop protection was flat and pharma we expected low teens growth.
Vimal Kulshrestha
Yeah. 12 to 4. 12 to 14%. Revenue growth. Yeah. And margins. Margins EBITDA margins will improve slightly more or less in the pharma business crop will be about flattish.
Dhrumil Wani
Okay, noted sir. Thank you very much.
operator
Thank you. Then before we move to the next participant, I request to all the participants please limit your questions to two questions per participant and join the queue for a follow up question. Thank you. The next question comes from the line of Henil Bagadia from Equicorp. Please go ahead.
Henil Bagadia
Thank you for the opportunity, sir. I hope I’m audible. That’s some clarification based on the previous participant. So what is the revenue loss that we see due to the deferment of orders? And once you said that the orders are fine and the shipments have started. So we haven’t taken any one time inventory markdowns due to any quality or any possible suspect from the end of customers, right? No. And what would be the. I mean the revenue loss? Because I mean there, there’s been 20.
Sameer Hiremath
Yeah, I’ll take that. So revenue. It’s not a revenue loss, it’s a revenue deferment which is about 50 odd crores in the first quarter which is getting deferred to Q2 and Q3.
Henil Bagadia
Okay sir, so I actually had a question related to the plant. Animal. Plant, animal health plant.
Anish Swadi
So we have commercialized the plant in FY24, I guess the third quarter of FY24. So usually the pharma and chemical industries, I mean the, the sooner we commercialize the plant, the better it is. And usually people have three, four or a max to max or five year cycle to which they actually get it to optimum utilization for good pay and IRR and returns. So we have not commercialized it in, I mean it’s almost two years and we have not commercialized it still and we are still waiting for more validation.
So I mean when do we actually expect the commercial runs and how has been the returns since we have not commercialized for the next two years? And also is that how do you see the situation on the SpectM plan that you just recently capitalized. I mean, what kind of payback you see there how fast you want to commercialize and get into actually commercial batch orders and ramp up digitalization.
Sameer Hiremath
Yeah, so I’ll take the first time when we say commercialize the plant. We had a portfolio of products. So when we started in late FY24, we started with validating a few products. And all through this last 12, 14 months we’ve been validating the products once the first original products have been validated. Now they’re going through commercialization. So it’s not correct to say that the plant is not commercialized. It’s not for a single product. As we finish the last validation that we have coming up in the next quarter, all products will be validated through the plant and commercial quantities will thereafter start between 12 to 14 months post validation.
So we are supplying small commercial quantities already for the, for the products that we had validated originally in late 2024. Right.
Henil Bagadia
So that quantities that will be test batch quantities and it won’t be a significant part of the revenue, right?
Sameer Hiremath
No, they’re starting out small where they change, basically they have some inventory on hand from their original suppliers. So that inventory they’re going to stop and then from 2080 it’s going to become 80% US and 20% the second source supplier. Okay. Yeah. And your second question regarding the specialty chemicals. So what we’ve done is basically the growth rate that we see in pharma is surpassing that what we see currently in the, in the crop protection business. So what we’ve done is we’ve taken that spec chem plant and we’ve converted partly into pharma and or an animal health for future business that we have backed by contracts. So we expect that currently what we’re doing is we’re undergoing some refitment in terms of equipment, clean rooms, closing out some of the plant. And we expect that in the next six to nine months we’ll be able to start commercial production, at least validation and then commercial products production for some of these products.
Henil Bagadia
So just a clarification. So when you said you’re converting some part of the Specchem plant to pharma use, so what will be our investment that we would be doing in terms of clean room and additional some reactors or so and would we be, would we have to go to the end up as of getting approvals from I mean the regulatory authorities or the markets where we plan to supply these quantities and how much longer take?
Vimal Kulshrestha
So mostly what will happen is since the plant is already on the US FDA property. Right. So it’s also considered to be US FDA approved per se because of the quality standards and the procedures are all following global regulatory standards. So from that perspective, we’re fine. Individual customers may or may not come and do their own audits per se. And obviously when you commercialize a new plant, especially for pharma and for potentially animal health, those products will be validated and then commercial supplies will start thereafter. So it’s going to be a mix of products that we already have in the pipeline.
So for example, we have some commercial products in the pipeline that we’re already manufacturing. So as a de risking measure, we may put some of those products in this new asset to meet capacity that we have that we want. And in addition to which, we’ll have a diversified range of new products that are coming from pharma and animal health. And of course, we have our SPECTM business also.
Henil Bagadia
That continues to happen on the payback and the, I mean the return metrics for both the animal plant and the spectrum plant. When do you see optimal utilization and update even and then your peak turn utilization? Yeah.
Vimal Kulshrestha
So you know, it’s the same as he mentioned, we follow the same metrics. It’s anywhere between five to six years. As you said earlier, we follow the same metrics, you know.
Henil Bagadia
Okay, thanks a lot. Size.
operator
Thank you. The next question comes from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Ankit Gupta
Thanks for the opportunity. So first on, first question is on the pharma side, you know, on the OAI being issued by the US fda. So you know, like given how the OAI works, so what happens to our existing pipeline of products that will be doing for the, on the CDMO side for our innovator partners? So, you know, are we trying to shift it to the Panoli plant or you know, what kind of corrective action are we taking? And are the innovator partners shifting this, shifting this products that they plan to launch to other CDMO companies.
Sameer Hiremath
So what we’ve done is that after this OAI status, all our customers obviously reached out to us and came and checked out all our systems and all the projects that were awarded to us. And irrespective even before this, many of our products as part of our risk mitigation were already being filed from an oli. For example, almost 80% or 90% of our animal health new portfolio is being filed from Panoli, irrespective of this OAI status. So that continues as is on the API side, on the human API side, on both the generics and the CDMO space, all the new filings we’re doing from Panoli, the existing products which are in Bangalore which we were launching, we’ve given the customer the option of either keeping it in Kidney and Bangalore or to moving it to Panoli.
So far they’re comfortable with keeping it in Bangalore based on the orders and the quality satisfaction that they’ve done post the orders that have been carried in the last two, three months. But there is a move to de risk as Manoj mentioned, all our critical APIs and we are proactively doing the filings from Panoli and also giving this customer the offerings to move the products to Panoli if they need. But very few have said that they want to actually move. Most of them are comfortable with keeping it in Bangalore itself and they expect us. The reason is that they are comfortable as of now with the corrective action which we have taken. So and their audits have also shown that. But there’s definitely possibilities in next few months or maybe early next year we can reverse this OAS status. But given hiker’s track record and you know, your focus on the regulatory compliance, this over here comes as a big surprise. You know, you have also, you have always been harping on, you know, spending a lot on fixed assets. It keeps a, you know, asset turnover low because you have been guiding for a very good compliance track record. So can you talk about the nature of observations which have been issued and you know, what corrective actions are we taking to reverse this and you know, any update on when is the inspection for the Panoli plant also due now.
First of all, none of the observations were to do with data integrity and they were procedure in nature. So that’s where we are on the, on the observations regarding the Panoli plant. The last audit was in 2023 with 0483 observations and they’re ready for inspection. They come every two, three years for an inspection. So we’re due for an inspection maybe next year or if not earlier. The same facility was approved by nvisa Brazil and Japan PMD which are equally stringent. So okay, it has been a bit of aberration the way US fda but we are sure confident that we’ll get back record.
Ankit Gupta
Sure. But do we have sufficient capacities available in the Panoli plant over the next year or two to fulfill the kind of demand that can come from the new product launches which are planned for this year and exponentially?
Sameer Hiremath
Yes, we have as part of anyway part of our risk mitigation and a project Pinnacle Paloli site was being expanded and most of the new capex that Kuldeep spoke about is being done in Panoli and the Panoli plant is building up new plants and new assets. So this is part of the plan and we’ll be moving all our new launches to Panoli. And this was done before the fda. We are status as well. So we’re just intensifying that now.
Ankit Gupta
Thank you and wish you all the best.
operator
Thank you. The next question comes from the line of Rohit Sinha from Sunidi Securities. Please go ahead.
Rohit Sinha
Yeah, thank you. Thank you for taking my question, sir. So one question on this department side only. I know you already have answered so many same similar questions. But one thing on this department earlier actually, I mean people are thinking about because of the CUS tariff issues, people are differing on the shipments or ordering. So now although we know that these are deferments and may completing second and third quarter, but given the kind of rate hikes came into picture, are we seeing any change in these orders or rates given the kind of tariff is there?
Sameer Hiremath
Anu, you want to take that?
Anish Swadi
Yeah. When you say rate hike means tariffs.
Rohit Sinha
Yeah. Yeah.
Anish Swadi
As of now, tariffs are not impacting the farmer business at all. And we believe that these deferred sales, as we mentioned earlier, will be recovered in quarter two and quarter three. And I explained in our opening session as well as Sameer mentioned that yes, there’s a process. Customers do their own audits and risk assessment post FDA and we have maintained the full transparency with all customers that there’s nothing systemically wrong with hycle facilities or practices. Observations were mostly procedural and we are confident of resolving them by end of September. We’ll complete all the actions and then wait for the US FDA to respond.
And we are actively engaging with the agency to come out of it at the earliest.
Rohit Sinha
Okay. Okay. And secondly, on the personal care segment, I know it’s too early, but just if you can give some color on this opportunity which we are looking at and how much time definitely it would be to get the final approval from the customers and how big revenue contribution could be there from this side.
Sameer Hiremath
Vimal, can you take that?
Vimal Kulshrestha
Yeah. So you’re right, this is really early for us to comment fully on this. But just to give you perspective that these RFPs normal timelines of approval is around 111-1-2 year and once you get this, then you get into the development of that molecule and then commercialization timelines which is typically one and a half to three years. Margins are good in this.
Rohit Sinha
Okay. Okay. Got it got it. And. And these are largely for export customers or domestic? We also will be looking at.
Vimal Kulshrestha
So both but largely for export.
operator
Do you have any other question? As there is no response from the participant, we’ll move to the next participant. The next question comes from the line of Rohit Mehta from Nexus Capital. Please go ahead.
Rohan Mehta
Yes, thank you for your opportunity. So apologies, I joined the call a little later. So apologies if you already covered this, can you highlight reasons for, you know there’s this deferment of revenue. So just wanted to know some reasons for the system and what is the process that you know, customer would follow generally after this for this?
Sameer Hiremath
No problem Rohit. So what’s happened is that which I covered in my opening speech in Mano’s book is that the deferment happened due to the OAI status and customers came to recheck and reorder the facilities which takes about six to eight weeks by the time they give us approval. And all this has been completed as of end of July and shipments have started from July itself onwards. And we expect the ramp up to happen in August, September, October, November. So we expect this deferment to the tune of approximately 50 crores from quarter one to be made out in quarter two and quarter three.
I’d like to reiterate again that no orders have been canceled and all contracts are in place and customers reaffirmed their commitment to pick up the product from us within quarter two and quarter three. So we are quite relatively confident that this will be made up within the next two quarters itself.
Rohan Mehta
Right. So that was very helpful sir. So just to follow up on that, if you could just highlight status of our response that we would have filed to the US fda. Is it all been cleared or is it still pending?
Sameer Hiremath
So there were a few observations that were given to us based on that we had corrective actions, preventive actions called CAPAs. A large majority of them have been already implemented and updated to the fda. We are in constant touch with the FDA on a regular basis. The last update went in end of July, just a week ago. The remaining Kapas, which is a small percentage is remaining and that will be completed by September so that by end of September we will complete all the Kapas and we are expecting to hear back from the FDA in the next few weeks, by next month or so regarding the next steps.
We are actively engaging with them and we have also quite confident that we should be able to resolve the issue at the earliest.
Rohan Mehta
Sure, sure sir, that was very helpful. That from my answer, wishing you all the best. Thank you.
operator
Thank you. The next question comes from the line of Paz Vasani from KK Advisors. Please go ahead.
Unidentified Participant
Yeah, hi. Thank you and good evening. Just excuse me if there’s any repetition. I got disconnected in the program. So I had just one question if you could highlight. What are the measures that you have taken to address the oai?
Sameer Hiremath
Yeah, so we’ve obviously this OAI status has, you know, come as a bit of a surprise for us because as you know, for the last 25 years hikers had a stellar record with the regulatory authorities. And you know, immediately after this inspection we had two inspections from Brazil and PMDA Japan, which is equally stringent and those went off successfully. So that being said, when we got to know this OAI status in end of May, we were, we knew the observation, we started working on this post, the observations which were given to us in February. And we have onboarded external global regulatory consultants who are helping us to close out the observations and the CAPAs on an urgent basis.
We’ve also collaborated with some of our global customers whose quality teams are working with our quality teams to ensure that all this responses are done properly and all the systems which are needed. Some course corrections are being done. We have onboarded several new industry experts into the quality organization, created a quality excellence team in the company and provided more and more digitization and automation has been implemented in the organization. In addition to that, we have also started moving more and more products to our Panoli site and we’re validating several products at our Panoli site which was anyway part of our program, but that has only been intensified and speeded up.
Most of our new molecule launches were planned anyway for Paloli and the existing business which is remaining in Bangalore. We’ve offered our customers the option of dual sources, dual sites and as of now they’re comfortable with the site in Bangalore based on the audits and the visits that they have undertaken physically at our sites in the last couple of months.
Unidentified Participant
Got it. Got it. That was really helpful and thank you very much for the detailed answer.
operator
Thank you. The next question comes from the line of Manoj Bagadia from Equicorp. Please go ahead.
Manoj Bagadia
Hi Sameer. Hi. Just one question about the FY26 guidance. Do you see any other risk to the FY26 guidance apart from the deferrals? What we have seen in pharma.
Sameer Hiremath
Well, I mean regulatory tariffs is. I mean global tariffs are. Regulatory tariffs is a question mark. Right. As of now, pharma is not covered by tariffs. But you know, it’s anybody’s guess. Right. Things are so fluid and changing if there’s any. But that will affect the entire industry, not only affect us, so. Right. Okay. So Terry is the only thing that. You are worried about in case. If it comes. Yeah, yeah.
Manoj Bagadia
And my second question is from. In last four years we have spent almost 900 crores in capex. Right. Investments in businesses. And somehow because of the situation, whatever has happened, we have not been able to generate much return on that. And it’s what happened with the US FDA again that is probably differing to an extent. And apart from that one plant we are converting into pharma and agro.
Sameer Hiremath
Right. So whatever has happened now do you see that FY28 will have the best return from the capex we have invested instead of FY27 or you feel FY27 will capture significant upside from this investment? Well, that’s the plan. I mean. Yes, you’re right. I mean the capex has been spent in the last three, four years. Some of it has gone towards growth capex. A large part of it has also gone towards infrastructure capex. We spent a lot of money on our R and D center in Pune. We have upgraded our Panoli facilities in the last two, three years to get us FDA inspected in 23. And a lot of infrastructure was spent in Panoli on the Capex as well. That being said, yes, the plan is on FY 28 29. All the capex should surely start returning the return that is expected to give.
So FY26 would not be as per your expectation, right? Original expectation, it would be probably somewhat lower than what you would have expected earlier. Yeah, more or less. I mean we had planned because the crop is underway. A lot of stress as of now. The pharma business will grow. Can we grow faster? For sure. But it will definitely grow compared to last year the pharma business. And we’re quite optimistic with the new NCE’s that we’re launching in human and in animal health. The future is extremely bright for the pharma business. And even with the crop business with the volumes coming back which Vimat spoke about by end of this financial year and volume recovery is already beginning, we have also onboarded some new customers and run some new RFPs which will start coming into play by 2728.
So then Prop business capacity utilization will also grow up significantly and that is about operating leverage. So returns will look far healthier than where we are today.
Manoj Bagadia
All the best for the future. And just one suggestion, request. Whatever you say. Been invested in this company for almost 12, 15 years. I don’t know how long. Right. And last few years the return as an investor has not been much because of whatever factors have happened. But hope we catch up in next two, three years. We catch up for the returns of last five, seven, eight years.
Sameer Hiremath
I hope, I hope we can meet your expectations. Yeah, thanks. Thanks a lot. Appreciate that.
operator
Thank you. The next question comes from the line of Prana Dhalia from Panch Tantra Advisors llp. Please go ahead.
Pranay Dhelia
Yeah, I hope I’m audible. See another very disappointing set of numbers. If we just go back by three months. Last phone call we were promised that growth has returned and you’ll see better days ahead. And we always talk of the long term whenever we have a shattering quarter. But as the previous person gentleman asking the question said, if you look at the last 10 years data, I think that is good enough to judge long term. Our profit growth has been 8% last five years it has been 1% negative. Sales growth has been 4%. So when does this long term actually translate into the present term? Or do we just hear long term for the grandchildren?
Sameer Hiremath
No, I don’t think that’s going to be the case. I think we have a detailed plan called Pinnacle which is very detailed out, a very structured plan and we’re going as for that. Despite the quarter one being even. The quarter one last year was a very low quarter but as we said we grew substantially in quarter two and by quarter four we ended the year very positively. So this quarter yes, there was a setback because of deferment which was not anticipated three, four months ago. But that has happened. It is what it is. But we haven’t elaborate plan which is put into place to ensure that the growth comes back this year.
And we have plans to redisk our portfolios and the crop business once it comes back to steady state of what it was in FY23. The crop division had grown till FY23. Yes, pharma went up and down but it will come back to those levels and then the company will start firing on all cylinders. It’s a matter of two more years. I think pharma will come back this year and crop will come back in a year after that.
Pranay Dhelia
So what you’re trying to imply for two years we’ll be having these swings here and there and we don’t see any constructive growth.
Sameer Hiremath
I didn’t say that. I said we will still grow next year as I’ve given my guidance.
Pranay Dhelia
With all due respect, sir, as a shareholder, we would be happy if the company does well. But you’ll have to have some kind of limit on our patience wherein you’ve been invested in the company. Forget the share price. That is always going to follow the fundamentals. The fundamentals refuse to improve. You would be agreeing to me if I say last five years we had flat sales and no profit growth at all. Rather degrowth.
Sameer Hiremath
Yeah, okay, the numbers are there. I mean, what do you want me to say? We must find some way to improve on it. I mean even on the pharma side, we are having industry bottom margins. We look at all other pharma companies, they’ve improved. There’s something which we are doing wrong which needs to be corrected. The long term word just does not hold good anymore. No point is noted. I think we appreciate your long term investment and your patience in the company. And I just would reiterate you to remain invested as we’re turning the corner and the future is bright.
Pranay Dhelia
I hope so too. Best of luck. Thank you.
operator
Thank you. The next question comes from the line of Sajal from Anti Fragile Thinking. Please go ahead.
Sajal Kapoor
Yeah, many thanks for taking my questions. Am I audible?
operator
Yes sir, you’re audible. Please go ahead. Thank you.
Sajal Kapoor
Thank you. So Sameer and Manoj, question is directed to both of you if you can please. So my sense is PMDA visited many weeks after US FDA visited and raised those critical observations. So the CAPA must have been largely completed by the time the Japanese regulators visited. Right. And so while customers may have been reassured following this CAPA implementation, it kind of unequivocally indicates that Bangalore plant was non compliant prior to this corrective action. And this breach likely undermined customers confidence putting future projects still pending award to Heicl at significant risk being awarded to our competitors now.
Sameer Hiremath
Right. So how will Heicl convince both the existing as well as the new customers to award fresh contracts in light of what has happened with this? Oai. Manoj, all yours. Yeah.
Manoj Mehrotra
See the US FDA audit happened in early February. This was followed by NVITA in April, NVITA Brazil. Followed by May, pmda. So every agency or every auditor who comes to the site has a different way of looking at the same thing. So yes, USFDB got six observations and we gave them a response and we corrected and we are in the process of correcting. But both NVISA and PMD of the same facility gave only a few minor observations. So it may not be 100% true. Right. To say that we were non compliant in the period February, March.
We have always been compliant. Yes, There are some procedural observations which we are correcting. And even USFD has not kind of put any embargo on our products or production or shipments. It is more for a future that we have to correct. And customers, when they came to audit us also, they have been satisfied with the progress. And even before this US FDI inspection, customers do come regularly and visit and audit. So things where have been good. Okay. There was a mine liberation which we’ll correct. Now, I don’t think this OST status reflects any fundamental non compliance at the Bangalore site.
And as recent as 2019, we had just a single observation in Bangalore. Panoli was done in 2023 and that was with 048. We have had a good history for the last 20, 25 years. And. And we are confident that we’ll bounce back after this. OS theta. Sure.
Sajal Kapoor
Manoj. In the country as well. Yeah. Things do go wrong and you have to take it in your stride and correct it. No, of course, of course. I mean, all of us appreciate that. I mean, science is a moving target and, you know, new regulations keep coming our way and we got to be on your toes. And Heikal has. Yeah, yeah, no, no, that’s fine.
Sameer Hiremath
And typically, you know, customers face a. Penalty for canceling contracts and the CDMO contracts in particular, which likely explains why they are still honoring their, you know, current agreements. However, this may lead to. And it’s a maze is the keyword here. This may lead to. Lead them to kind of, you know, and reevaluate their options for future agreements. Is that a possibility? Continue to engage with us. And they’ve audited and they’re confident that they will. That we’ll come out of it very soon and. Right. There’s no risk to product quality or any impact of that kind. So we don’t see that much of a risk. Yes, there’s an OAI status we will correct. There was no concerns. People would have gone to cancel orders or cancel contact, but fortunately that has not happened.
Sajal Kapoor
Okay, sure. And finally they know that these things happen and they work with you. I’ll say the other way because they have approved you. So they also believe that things are correctable and they work with you to joint. They work with us jointly to ensure that.
Sameer Hiremath
I agree that point, Manoj. For sure. Because we have seen that with dbs who got us FDA very. You know, even there was an import alert, if I’m not mistaken, back in 2017, all the way from us. And they worked and shoulder to shoulder with these guys and they sorted everything out and within a matter of the top of my head, I think six to eight months. No, that partnership. Yeah, yeah, absolutely. And Suneed, you mentioned that H2 will outperform H1 this year. But isn’t that typically the case for heical anyway and many of the other CDMO companies? I mean you look at Piramal, you look at Laura’s, I mean you name any.
Typically what we find is that H2 is heavier because in Q3 customers don’t want to take shipment because it’s their year end December quarter. So they don’t want to put inventory on their balance sheet. So Q4 anyway is very strong for the industry. So how does this Q4 this year is exceptional. That we need to call it out separately that H2 will be stronger than H1. I mean that’s anyway has been. If you look at the history of ICL over many years, I said that. Was because of the loss of quarter one, this additional taking place, which was not anticipated in a regular year in the past. So that that is going to have an additional upside on the H2 numbers beyond H1. So there’s that differential between H2 and H1 will be greater than what it historically used to be for us. Yeah.
Sajal Kapoor
Okay, understood. Thank you. Thank you. And all the very best. Thank you.
operator
Thank you. The last question comes from the line of Henil Bagadia from Equicorp. Please go ahead.
Henil Bagadia
Thanks a lot for the opportunity. Again, sir, for the last 10 to 12 quarters we’ve seen a massive slowdown in the crop protection side. We actually refocused the strategy more towards the CDMO part. So I mean, we did plan to get into complex generics and we also plan to do the CDMA part for the inpatient molecules for the customers. So I mean, where are we out there and what, how are we seeing that move in the last 10 to 12 quarters in terms of our revenue contribution? And also, if you could also allude, what’s your aspirational target for the CDMO part across all the three verticals, animal health, pharma and crop 10?
Sameer Hiremath
Well, we are moving, getting involved in more and more complex products as a percentage of our business. We’re getting involved more and more on patent chemistry, I would say rather than complex on the generic side, yes, the products are more complex which we’re launching compared to the commodity portfolio that we probably had about four or five years ago. All the new launches we’re doing is more on niche chemistry, niche molecules that we will be launching in the next few calendar years. So that’s a big change on the pharma side on the. The second question was regarding what is the split between OWN and cdmo? Right, that was the question that you had.
Henil Bagadia
No, no, yeah. Was the split and what’s your aspirational target? Where do you see going about three, four years down the line?
Sameer Hiremath
Well CDMO has already overtaken even in this quarter significantly the OWN products and as a revenue it will be almost historically it needs to be about 50, 50 as a company if you look at historical last 3, 4 years. Yeah historically we are moving towards 60, 40, 60 CDMO, 41 and very soon we’ll get to about 70 CDMO and 31 in the next couple of years. Okay so and since a lot of our crop chem capacity is not completely utilized so is it possible to convert it into other spectrum as we’ve done in spec chem we have converted into part farmer and part we are going to do on the spectrum side because as we get into the HPC and the BPC that is the beauty and personal care products and household personal care products. I mean one of our peers they have guided for about two times volumes and even more EBITDA growth. So I mean because they have seen a lot of traction out there and since we also there in the sulfur chemistry.
So I mean do you see some kind of fungible shift happening? No, I think so. The industry looking quite promising and we’re retooling some of our crop production lines to make personal care products and the launches are being done in from quarter three onwards from our so only the capex there marginal just retooling few very very negligible. Okay. Because our crop finishing areas are built at very high standards for multinational companies. So we’ve been audited by the personal care global companies they’ve come and visited our proposal sites and they’ve approved them for postal care products with some documentation, upgradation etc etc which is easily repurposable and done which we’re doing and lastly. On the CDMO part so if you see the industry a lot of companies actually get contracts because they’ve got a crdmo, they’ve got a research vertical also. So for us I mean we were masters in process chemistry where we could produce probably cheaper than most of the other CRDMO players. So I mean we’ve invested significantly on the research side in the last five, six years. So I mean do you see going forward we can monetize this kind of vertical where we provide outsourced resource services or probably get a CRDM vertical too. In order to increase our traction on this, I need the CDMO to CRDMOSE.
As you said rightly said earlier, we have 50, 50 and probably aspirationally we can go to 70, 30 also. I mean it helps us also make the research as a cash tower cash generating unit?
Henil Bagadia
No, that’s a very good question. And that’s actually the strategy. Our R and D center has moved more towards CRDO and that builds into our CDMO engine and all the new projects. Most of the new projects are winning, is starting in R and D in development, making a few kilograms and then scaling it up and then moving into a CMO model. So it’s always contract development first which is a CD part and the MO part is coming subsequent. Because we have a good strong R and D, we’re winning more CDMO projects and the R D center in Pune is being looked at more as a profitability center.
It is generating revenue and it will generate business for us also for our CDMO business.
Sameer Hiremath
So is it right to aspirationally assume going down, I mean three, four, five years down the line other than the crop chem and the pharma segment we see right now, we probably see animal pharma, crop chem research as a separate division and the spec chem division. I mean targeting hpc, BPC as of now and probably some other industries also. Yeah, I think four verticals for sure. But the R and D will feed. All the four verticals because it’s a really state of the art R and D center and it is built on innovation and technology because eventually once you. Scale up the product and do the. Launches on a commercial scale, that’s when the big volumes and the revenues come. R and D, every project value is. Very small, but it gets a stickiness with the customers because they’re involved early on in phase two, phase three with the customers and then they don’t change once they’re in the supply chains.
Henil Bagadia
Okay, thanks a lot for the answer sir and wish you best of luck. Thank you.
operator
Thank you ladies and gentlemen. That was the last question. I would now like to hand the conference over to Mr. Sameer Hezemat for closing comments.
Sameer Hiremath
Thank you everyone for joining our quarterly earnings call and for your continued interest in our company. We appreciate your support as we navigate through the challenges of the global business environment. As we conclude this call, we want to assure you that we are here to address any further questions or concerns. Please feel free to reach out to us on our investor relations partner, Strategic Growth Advisors. Once again, thank you for your participation. And have a good evening.
operator
Thank you. On behalf of ICL Limited, that concludes this conference. Thank you all for joining us. And you may now disconnect your lines.