Hikal Limited (NSE: HIKAL) Q4 FY22 Earnings Concall dated Jun. 03, 2022
Corporate Participants:
Anish Swadi — Senior President of Animal Health and Business Transformation
Manoj Mehrotra — President of Pharmaceuticals
Vimal Kulshrestha — President of Crop Protection
Kuldeep Jain — Chief Finance Officer
Analysts:
Rahul Jain — Credence Wealth Management — Analyst
Ankit Gupta — Bamboo Capital — Analyst
Dhwanil Desai — Turtle Capital — Analyst
Shravan Vora — Premier Capital — Analyst
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Pankaj Jain — Mahavir Investments — Analyst
Pranay Dhelia — Panchatantra Advisors — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Hikal Limited Q4 FY ’22 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.
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 [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anish Swadi, Business Transformation. Thank you, and over to you, sir.
Anish Swadi — Senior President of Animal Health and Business Transformation
Thank you. Ladies and gentlemen, a very good afternoon to all of you, and thank you very much for joining us today for our Q4 2022 FY Earnings Call. I am Anish Swadi, Senior President of Business Transformation and Head of the Management Committee. With me, I have Mr. Kuldeep Jain, our Chief Financial Officer; Mr. Manoj Mehrotra, our President, Pharmaceuticals business; Mr. Vimal Kulshrestha, our President, Crop Protection Business and Strategic Growth Advisors, our Investor Relations Advisors.
We hope you and your family members are safe and healthy. I am pleased to interact with all of you on our Q4 FY ’22 earnings call. I hope you have gone through our earnings release presentation and financial results for the quarter. You can find these on the stock exchanges and on our website too.
I would like to start this call with an update on the unfortunate incident which occurred at Sachin GIDC, Surat on 6th January 2022. Allegations were made that the tanker involved was carrying a byproduct which allegedly came from Hikal’s Taloja factory. We would like to reiterate the fact that the tanker reported as allegedly disposing chemicals into the stream was not the same tanker that left the Company’s promises in Taloja. The Company has provided all documentary evidence to this effect. All relevant employees of Hikal have voluntarily cooperated in the ongoing investigation. Since then there has been a judicial recognition of the non-existent role of Hikal and its employees in the entire incident as elucidated by the Honorable Gujarat High Court in its order. As on date, none of the Hikal employees are in judicial custody and all have resumed work. This matter is still sub-judice and as things stand, Hikal is in a very strong legal position. As a result of the Sachin GIDC incident, the MPCB had also given us a closure notice to the Taloja factory. We have provided all the relevant documents to MPCB and we are taking appropriate measures under the cause of law to remedy the situation swiftly. We are confident of resolving the issue on the closure notice at the earliest, having filed a writ petition to that effect, which will be heard in the coming week once the regular bench convenes. Upon reopening the plant, we will begin executing the pending order book which has been built up over the course of this quarter despite these testing times and only further illustrates the fact that our order book is strong. However, owing to the nature of the business, we will have to gradually ramp-up the scale of operations, which could have some short-term impact on our Crop Protection business. We have been transparent about the matter and have actively communicated with all our internal and external stakeholders, including customers. We appreciate the fact that they have continued to demonstrate a high level of confidence in our Company.
In order to ensure such an unfortunate incident does not repeat in the future, we are taking stringent and proactive steps towards further strengthening our compliance policies and standard operating procedures. We have already onboarded a reputed audit firm, Mahajan & Aibara for our internal audit. We have also partnered with the reputed ESG firm and initiated focused third-party audits for our entire plant network to identify and fill in gaps for further areas of improvement. We’re also working closely with our customers to ensure a best-in-class operating model.
Now I’d like to just give you an overview of our FY ’22 performance. From a market perspective, we all know the latter half of FY ’22 has been extremely challenging for the life-sciences industry, especially due to the uncertainty arising from Ukraine-Russia war, geopolitical tensions and the reemergence of COVID cases in China. This has led to significant headwinds in the availability and pricing of key raw materials and solvents. Also, huge rise in crude oil prices have significantly impacted freight as well as logistics costs. Despite multiple challenges and disruptions, Hikal has been able to maintain to a large extent supply continuity and fulfilled a large majority of its customer commitments. The agility shown by Hikal team in such a challenging scenario has been very positive.
From a financial update perspective, for the year ended FY ’22, Hikal has achieved a consolidated total revenue of INR1,943 crores for the year, witnessing a total growth of 13% over the previous year. Profit before tax was INR341 crores, a growth of 5%. Our EBITDA margin for the year came in at 17.6%. Hikal was witnessing robust growth from Q1 to Q3 of FY ’22 with 21% growth for the nine months FY ’21 versus FY ’22 with a 19.6% EBITDA margin versus 18% in the corresponding year prior to that. This was on the back of industry tailwinds with supply chain management and strong business growth across both our segments. However, the global slowdown in the generics business due to channel inventory and lower demand offtake led to muted growth in the last quarter. Also a lag in passing on increased prices, supply chain disruption and significant rise in input costs affected our business further.
Our balance sheet and return ratios. In addition to growing the top line and bottom line, we have also been making focused efforts to strengthen our balance sheet and return ratios of the Company. As a result, our debt-to equity ratio now stands at 0.59 times as compared to 0.61 times at the end of the previous financial year, and 0.73 times in the year before that. We have also negotiated with our bankers to bring down our average borrowing cost from 6.99% in March 2021 to a blended rate of 6.11% in March 2022. Our return on equity has also improved to 16.2% in FY ’22 from 15.2% in FY ’21, and 10.7% in the year preceding that.
These numbers indicate a healthy condition of our business considering the nature of operations, along with the ongoing and planned capacity expansions. On the dividend, the Company has declared a final dividend of 20%, or INR0.40, and the total dividend for FY ’22 is 80%, or INR1.60.
Now I’d like to hand over to our President, Pharmaceuticals, Mr. Manoj Mehrotra to take us through the performance of the Pharmaceuticals division.
Manoj Mehrotra — President of Pharmaceuticals
Thank you, Anish, and good afternoon, ladies and gentlemen.
On the financial side, the Pharma business has experienced muted revenue growth of 6.6% with INR1,130 crore total revenue in FY ’22 versus INR1,060 crore in FY ’21. The EBIT of the division was at INR151 crore at 13.4% margin in FY ’22. This muted trend was primarily due to one, always talking with customers; two, pass through underway; three, rise in input costs of raw materials, solvents, utility and freight cost. On price pass through, we are in discussion with customers, the impact of which we will see in the upcoming fiscal year.
As we all know, we have two verticals within the Pharma business, API and CDMO. On the API business, over the year, we have added several new customers and strengthened presence in new geographies like Latin America and Japan. Our new product launches in anti-diabetic have been witnessing increased traction from customers. We have 10 plus products in development pipeline and are planning to launch four to five products in FY ’23. The CDMO side, our CDMO business has witnessed increased traction with 20% increase in overall inquiries with increase in win rate as well. We have converted two opportunities this year, two KSMs for new drugs with global innovator, and one intermediate opportunity with another innovator. Several customers have done plant visits in FY ’22. Our future pipeline for CDMO business remains robust with working going on in multiple upcoming opportunities.
On the Animal Health side, our Animal Health business continued to witness growth on back of existing relationships with majority of key AH companies. We have also commenced process development work for several active ingredients which are part of the multi-year Animal Health Project with a global innovator. We plan to finish the commissioning of plant by FY ’23 and start revenue accrual from FY ’24.
While our business pipeline continues to be strong, we have also undertaken multiple initiatives to improve our margins. To ensure right raw material availability and pricing of our PRMs, we are working on one, strategic vendor relationship with long-term contracts; two, derisking supply chain from China; and three, backward integration in it. In addition to this, we’re working on multiple manufacturing excellence or cost improvement programs to improve yield and solvent recovery for our key products.
With all these initiatives, we foresee future pressures to persist in FY ’23. Q1 will face more pressure followed by gradual uptake starting in quarter two FY ’23.
With that, I invite our President of Crop Protection Business, Vimal Kulshrestha.
Vimal Kulshrestha — President of Crop Protection
Thank you, Manoj. Good afternoon all participants in the earning call.
The Crop business had recorded revenue growth of 23% year-on-year with INR813 crore total revenue in FY ’22 versus INR661 crore in FY ’21. The EBIT of division was at INR116 crore at 14.3% margin in FY ’22. The revenue growth was mainly achieved on the back of higher demand from our leading CDMO customers, new contracts with key US and Japanese customers, sale of our Own Products slowed down due to raw material availability issues.
In Crop business, we have two business verticals. In Own Products, demand from our existing product remains intact from our key customers. We are also planning to complete the plant commissioning of our new fungicide by end of third quarter of current calendar year, and start revenue by end of FY ’23. We are planning to launch one more fungicide with the combined potential of INR400 crore to INR500 crore. We will also continue to explore new product opportunities in the business and five to six products are under development as well. In CDMO business, our CDMO just continue to receive inquiries from all new customers. Several new customers have done plant visits in FY ’22. We’re increasing efforts to build and strengthen relationships with our US and Japanese customer.
To ensure stable availability and pricing of key raw materials, we are working on developing a strategic vendor relationship with long-term contracts and derisking supply chain from China. We are also planning to initiate manufacturing excellence programs to lower production costs and improve margins.
Now, I hand over to Anish for future outlook.
Anish Swadi — Senior President of Animal Health and Business Transformation
Great. Thank you, Vimal and Manoj. Since our business heads have now talked about their respective businesses, I would like to take you through some of our other key priorities we are working on as part of project Pinnacle.
As you already know, we are undergoing a transformation of our business from good to great while continuing to drive profitable growth. We have also onboarded a global consultant to help us identify the right strategic direction for choosing the suitable products, partners, technologies for the future while bolstering our R&D and manufacturing capabilities. Some of the key focus areas for this financial year will be compliance. As I have mentioned earlier in my address as well, we are taking stringent steps towards strengthening our compliance policies, derisking, separating the operating model of both our businesses, stricter vendor due diligence and revamp of vendor contracts, third-party audits of all our plants and process improvements to enhance checks and balances. We are making every effort to an endeavor to ensure the Company is not involved in any such incident ever again.
Cost improvements. We are taking targeted actions to ensure our bottom-line improvement by price pass through on long-term contracts, manufacturing excellence programs, which is cost improvement programs for priority products to improve yield and solvent recoveries, strategic vendor relationships for key raw materials, backward integration and a shift to renewable energy and biomass.
Customers. Customer-centricity remains key for Hikal. We will continue to fulfill our commitments and deliver best-in-class quality products. Our continued focus will be to increase share with existing customers while adding new customers and strengthening presence in newer geographies such as Latin America and Japan.
Capacity utilization and expansion. We are working on improving our asset utilization with a clear focus on reduction in cycle time and changeover times. We will continue to selectively invest in growth opportunities for the businesses to ensure that we are investing in right opportunities, offering long-term returns to the business.
In terms of outlook for next year, we expect FY ’23 to be a year of necessary slowdown and consolidation to prepare us for future accelerated growth. We expect market headwinds to continue, but we are confident that the strong measures taken will help us navigate these turbulent situations. Pressure in Q1 will remain high, higher than that of Q4, but we are confident of improving quarter on quarter starting Q2. The growth trajectory along with new opportunities, strong customer relationships and new technologies will capitalize the future of our business towards our bold aspirations.
Finally, we are a company that has been in business for over 34 years. We have faced multiple headwinds and been through several ups and downs in our journey. However, we have always navigated through these tough times without compromising on our core values and ethics. Our business has been and continues to be built on long-term relationships. The past six months has been challenging, however, I am confident that as we come out of this, we will be a more nimble, flexible and resilient company. We are eternally grateful to all our colleagues who have risen to the occasion and all our stakeholders who have supported us during these difficult times. While the short to medium-term outlook is cloudy, the longer-term growth and profitability story is very much intact.
Thank you all for your time and support. With this, we will now open the floor to questions and answers. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth. Please go ahead.
Rahul Jain — Credence Wealth Management — Analyst
Hello? Am I audible?
Operator
Yes. Your line is in talk mode. Please go ahead. Yes.
Rahul Jain — Credence Wealth Management — Analyst
So just to understand, so last call, we remember the commentary with regards to the growth and demand outlook was quite buoyant, at the same time the commentary with regards to input cost was bearish and you had mentioned, it takes some time to pass on the cost to the consumers. So just to understand on the growth part and the demand side and the sales revenue part. What has changed in last, say, two, three months, whereby our commentary has changed from a strong demand outlook, a buoyant demand outlook to something where you seem to be more cautious or talking about the next year being a very challenging year?
Anish Swadi — Senior President of Animal Health and Business Transformation
Sure. What I would do is I’ll hand this over to Vimal for the Crop Protection, and then Manoj can talk about the Pharma division.
Vimal Kulshrestha — President of Crop Protection
Yeah. So demand is strong. We are getting customer inquiries and we are confident that we would continue to get inquiries in our CDMO space and Own Products also. The challenge has been in quarter four of supply chain. So there were a lot of supply chain disruptions. After this Russia and Ukraine war, crude has gone up sharply, energy has almost become double, raw material prices has increased almost 40% to 60%, solvent prices have increased, so that is what has created the issue, one is raw material availability and second, the pricing issues which has put pressure on the margin. We expect a lag in passing the cost impact in the price and we’re confident that from Q2, we’ll be able to pass on this in the prices.
Over to Manoj for Pharma.
Manoj Mehrotra — President of Pharmaceuticals
Yeah. So I’ll address this question in two parts. Number one is on the demand side. So demand, since we’ve two distinct segments, on the CDMO side, we are seeing increasing demand with more number of inquiries coming, more number of customers willing to work with Hikal, but as we know that CDMO side, the demand takes some time to ramp-up, but we are seeing very, very positive signals from our customers on the demand side on CDMO.
On the API side, since our raw material costs have gone up and we have been in discussions with various customers for increase in selling prices, and that actually subdued the demand in the short-term because everybody wants to kind of go back or liquidate the inventory first, so there definitely is a short-term impact. And since we are in B2B business, it takes some time for customers to take suitable decisions as well and we would also lot like to really sell at very low prices and build up inventory at customers end. So it’s better to be a little slow and steady and make sure that the cost is passed on over a period of time, but that usually takes around two to three quarters, I would say, and we want to retain all our existing customers because in the long run, it is the same customers who will give us the margins.
On the CDMO side, although we have contracts for pass-through costs, but they always have a lag effect because we can’t do month-by-month pass-through costs. It is always either three months or the six-month window where the customers discuss. It’s mostly six months and it takes some time for us to pass through. Also, the energy costs have been just shooting through the roof and not showing any respite whether it is the fuel, whether it is gold, whether it is biomass briquettes, and that is causing a lot of pressure. So overall, the cost side, there is pressure. It will take I’ll say Q3 onwards — Q2 onwards, you will definitely see better margins from the Pharma business. But long-term demand remains good, all our products and relationship with customers stand steady. We will continue to add new customers on the CDMO side as well as on the generic API side.
Rahul Jain — Credence Wealth Management — Analyst
So just to further this question, see, our margins on the pharma side are already below the averages for last three quarters and this quarter, we have had probably the worst margins on the pharma side and both agro side. So do we expect this to continue say for another quarter, and quarter two onwards, will we see a sharp improvement or a gradual improvement and when do we expect to get back to our normal margins?
Anish Swadi — Senior President of Animal Health and Business Transformation
Right. So I’ll take the formal question. Manoj, you can take the question, but I’ll just answer on the overall perspective of the Company. I think it’s very difficult for us to give guidance in terms of margin at this period of time because things are very uncertain and things are very fluid. I think Q1 overall for the Company as we look at it will certainly be more subdued than Q4, but as Manoj and Vimal have both mentioned, on Q2 onwards, you will start seeing an improvement going forward. So it will be a step-wise approach, Q1 will probably bottom-out and then you will have an improvement in Q2 and then you’ll see an increase in Q3 and Q4 going forward. As to when you will see us get back to it, we are hopeful that next financial year, you will see us getting back to it, but there are lot of external circumstances that are beyond our control and we do expect and we are hopeful that they will solve themselves in a short amount of period. So that’s why we are a little cautious in terms of giving guidance at this period of time.
Manoj Mehrotra — President of Pharmaceuticals
I agree with Anish that the Q1 will see a bottoming out of the margin. Q2 onwards, the uptick will start. Now how long will it take to reach the previous margins is a little difficult to forecast at this stage because we all know that supply chain across the world are very much disrupted and on top of it, this energy costs have really put a pressure on our costs.
Rahul Jain — Credence Wealth Management — Analyst
Sure. And secondly, sir, on the growth part as far as our top line is concerned, are we more confident on the top line compared to the margin given also Anish that we have done or as per the result, the capital addition is roughly around INR170 crores, INR180 crores in terms of the fixed assets addition, but at the same time, in terms of the cash flow amount being spent, we have almost spent roughly around INR150 crores each in the two years FY ’20, FY ’21 and further about INR270 crores in FY ’22. So just to understand, when do we see the benefits of capex ticking in and thereby the top line growth being much better?
Anish Swadi — Senior President of Animal Health and Business Transformation
Right. So again, reiterating the point of guidance, at this point in time, it’s a little challenging for us to give you both revenue guidance and margin guidance. But certainly, the assets that we put on ground, all the capex that we have, we are finishing off the capex. Whatever spending, we’re finishing off because they’re mostly backed by contracts and/or products that we have in the pipeline. But given the current situation that we have with the raw material and input costs, it’s very challenging to say that when we’re going to start the operations of those plants for production, but we are hopeful as both the business heads have indicated that at the end of Q2 onwards we will see a resurrection in terms of the business and you’ll start to see that growth and profitability come through.
Rahul Jain — Credence Wealth Management — Analyst
Sure. And just the last thing, the capex capitalization. So if you could — what amount has been — what amount of capex do we expect in the current year and what amount of capitalization do we expect in the current year, predominantly on the capex side?
Manoj Mehrotra — President of Pharmaceuticals
Yeah, sure. I’ll take Anish this question. See, we’re expecting INR250 crore to INR275 crore cash flow for this year, and the capitalization will be close to INR400 crore in the current financial year.
Rahul Jain — Credence Wealth Management — Analyst
Okay. So that means if I just take two years, FY ’22 and FY ’23, the total capitalization will be roughly about INR560 crores, INR580 crores? Is that correct?
Manoj Mehrotra — President of Pharmaceuticals
INR600 crore almost.
Rahul Jain — Credence Wealth Management — Analyst
And then in terms of the asset turn, how do we look at this capex asset turn for FY ’24 and FY ’25?
Manoj Mehrotra — President of Pharmaceuticals
See, typically, as we mentioned earlier, in case of Pharma business, it takes typically 18 months to 24 months to put it to commercialization. And in case of the Crop Protection, it takes typically six to nine months after completion of the projects.
Rahul Jain — Credence Wealth Management — Analyst
Sure. Sorry, just, pardon me for this last one. So what is the capex schedule in terms of the commercials being started in this year? That’s the last one.
Manoj Mehrotra — President of Pharmaceuticals
Yeah. So for the Crop capex, we expect to commission in Q3 FY ’23 and we expect [Indecipherable] revenue from Q4 of or end of the year of FY ’23.
Rahul Jain — Credence Wealth Management — Analyst
Sure. Thank you so much. Wish you all the best. Thank you so much.
Operator
Thank you. 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. So taking forward this question on capex, INR600 crore we will be capitalizing towards FY ’23. So one thing I wanted to understand, Anish, let’s forget about FY ’23. FY ’23, we do understand the kind of challenges we are facing. But let’s say over FY ’25 with INR600 crore capex being coming in streamline and given, let’s say, one, one and a half years of streamlining, do we think that this INR600 crore capex can give us additional INR1,000 crore kind of revenue and we reach the top line of say around INR3,000 crore by FY ’25? I’m not even talking about FY ’23, but I’m talking about FY ’25.
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah. So I mean very valid question. I think by ’24-’25, we definitely expect us to be operating somewhere near close to peak levels. As we’ve indicated in the past, peak levels are above 1.5 times, right. So to answer your question, whatever we have coming on-stream now, we expect to deliver revenues worth 1.5 times of what we have to be in the ground, right.
Ankit Gupta — Bamboo Capital — Analyst
Expect to reach at least INR3,000 crore by FY ’25.
Anish Swadi — Senior President of Animal Health and Business Transformation
I’m sorry. You’re inaudible at the time. Can you please repeat that?
Ankit Gupta — Bamboo Capital — Analyst
Yeah. So we can at least touch INR3,000 crore revenue by FY ’25.
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah, that should be possible.
Ankit Gupta — Bamboo Capital — Analyst
Sure. And sir, the kind of commentary you guys have given earlier, of course, we do understand that first half of next year will be challenging, but on the margin side, let’s say when you touch INR3,000 crore revenue, what kind of margin improvement do we see in our base margins of around 19%, 20% that we have been reporting over the past year or two? From there, what kind of margins can we see in FY ’25 when we hit peak revenue and hopefully, all these headwinds that we are facing currently are also behind us?
Anish Swadi — Senior President of Animal Health and Business Transformation
So look, when we look at the future margins of the business, I mean look up to the nine months ended this — or last financial year, we were at a very, very healthy rate, right, as you can see from 19%. So we were actually a little ahead of what our targets were and had we continued or we had no external challenges like the current environment, certainly delivered on our growth and exceeded it. I think if you look at the longer-term vision, we certainly see above 20% margins from where we are and renew our consolidated growth as we’ve indicated in the past. The current situation given where we are with the external challenges that we have, it’s very difficult to tell, but the long-term picture, the long-term horizon for both businesses are very much intact. We’re very positive about it which is why we are still investing in it. And most of the investments are going backed on the basis of our customer commitments.
Ankit Gupta — Bamboo Capital — Analyst
Sure. Even earlier you have always guided over the past year or two that we will be at least 1%, 1.5% kind of margin improvement compared to a base margins of 19%, 20% over the next two years. So let’s forget about FY ’23, but let’s say from FY ’24 onwards, can we start seeing that improvement from our base levels of 19%, 20% in FY ’24 and ’25 every year?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yes, we should. And I had always indicated 50 basis points to 100 basis points on an annual basis, but yes, we should. That’s what we’re working towards. Yeah, absolutely.
Ankit Gupta — Bamboo Capital — Analyst
Sure. And on the capex side, given the kind of headwinds that you’re facing currently, what are our capex plans for FY ’23 and ’24?
Anish Swadi — Senior President of Animal Health and Business Transformation
Right now for FY ’24, we haven’t gotten any capex because it all depends on where we are today, but as Kuldeep, our CFO had mentioned is that we’re completing all the capex that we had backed by the customer contracts that we had initiated last year on the crop side for the Crop division, and for the Pharma division, we have the Animal Health capex that we’re undertaking this year and a slight expansion in R&D based on the increase or the number of increase we’ve had and that we need to cater to, so we have to invest in that. So we expect that it’s only capex that we need to do. Obviously, it’s focusing on what’s absolutely necessary at that time and what’s backed by customer commitments. What’s good to have is something that where at this point in time deferring probably till the second half of this financial year.
Ankit Gupta — Bamboo Capital — Analyst
How much will that amount be for FY ’23? How much capex is still left where we have commitment from customers or commitment from [Technical Issues]?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah. So about INR250 crores to INR270 crores as Kuldeep, our CFO had mentioned, yeah.
Ankit Gupta — Bamboo Capital — Analyst
Sure. And last question on the Pharma side. In FY ’19, we ended Pharma with revenues of around INR940 crores, INR939 crores or INR940 crores, and this year, we are ending INR1,130 crores. So it’s a single-digit kind of revenue growth that we have seen over the past three years in Pharma. So if you can highlight about what kind of challenges we have faced on the Pharma side despite most of the EPI companies running [Indecipherable] in past year or two? So what has been the reason of such slow growth in Pharma side? And leave apart FY ’23, how much growth do we see in Pharma segment during FY ’24 and ’25?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah. Go ahead.
Manoj Mehrotra — President of Pharmaceuticals
So on the Pharma side, if you see typically, the revenue growth has been 10% to 12%. If see overall CAGR of five years, it will be more in the range of 13%, 14%. And yes, in between, we had a little slowdown in one year and that’s why maybe this two-year period is dropping, but over the extended five-year period, we have close to 13%, 14%. What we are looking at for the future is adding more new products on the API side. As I mentioned, we are launching several new products on the anti-diabetic segment, and number two is, we are looking at building new relationships on the CDMO side where we offer our development and manufacturing services. And the third vertical is the Animal Health business which we believe has got very good potential. There are limited number of players out here and we believe Hikal is in a very good cost position and strategic position to ensure that we get capture more of the Animal Health market. So we will be in all the three segments, and I think the growth will always be in that range, I’ll say close to 12% to 15% going forward.
Ankit Gupta — Bamboo Capital — Analyst
So from FY ’24 onwards also like we expect the Pharma segment to grow at 12% to 15%.
Manoj Mehrotra — President of Pharmaceuticals
Yes, that’s correct. FY ’23, we’ll have to wait and watch as we explained on the various issues. But going future, definitely, we will go back to our growing with these three initiatives I mentioned on APIs, on CDMO business, and Animal Health business. We’re very bullish on CDMO and Animal Health because it is upper ally. We have done several such projects and customers like to work with us in those segments, and we have made a success of it in the past and we’ll do more so in the future in these two segments.
Ankit Gupta — Bamboo Capital — Analyst
Sure. Last question on the gliptins side. We’ve been very hopeful that gliptins like two, three years back, we were very confident that gliptins as a segment on the Pharma side will see some at least few molecules coming out of this gliptins segment which can contribute INR50 crore to INR100 crore of additional revenue per molecule. So if you can talk about how have this segment or gliptins as a segment scaled up for us and how much is it contributing to our revenues currently?
Manoj Mehrotra — President of Pharmaceuticals
Gliptins are just — anti-diabetic side, there are two segments, one our gliptins and gliflozins. They’re both coming out of patent now actually, like say something like sitagliptin, FY ’24 will be the real year where we will see significant commercial sales. As of now, we have provided development quantities and seeding quantities to various customers and they can launch only once the patent expires in various market which we will start seeing good commercial sales in FY ’24 onwards on the full anti-diabetic segment.
Ankit Gupta — Bamboo Capital — Analyst
Sure. Thank you and wish you all best.
Manoj Mehrotra — President of Pharmaceuticals
Thank you very much.
Operator
Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Dhwanil Desai — Turtle Capital — Analyst
Hi. Good afternoon, everyone. So Anish, the first question is, I think if we go back to our earlier calls, so I think we were aspiring to grow anywhere between 15% to 20% year-on-year. And barring FY ’23, if I understand that, that commentary continues and only Pharma segment grow 12% to 15%, Crop Protection has to grow at much faster rate, right. So how do we correlate these two things together?
Anish Swadi — Senior President of Animal Health and Business Transformation
So I think basically based on what the current situation is, we’re being a little more conservative, but we certainly feel that both divisions can grow at 15%, right. Given the current situation, as we said, it’s very little very difficult for us to give guidance post-FY ’23. But if you look at the comparison between the Crop business and the Pharma business, Crop can scale-up much faster than that of Pharma because of the regulations and because of the validation and the time taken to actually get to commercial. Being originating as a Crop company 32 or 34 years ago, we know this business inside out. We see the massive demand in terms of both our product pipeline and the commercial that we have currently in process. Certainly, Crop being more of a hockey-stick approach while Pharma taking its time because of all the regulations, the different markets that we’re entering. Both businesses will continue to grow at 15% and that’s how we are confident of how. When, is a bit of a challenge to say right now given where we are today with the external forces that we have.
Dhwanil Desai — Turtle Capital — Analyst
Okay. Second question, Anish, a slightly direct question, but I mean, the change in commentary on demand side, I understand RM pressure and everything is there for everybody, but in span of just three months, the change in comment is quite significant. So is it because have we lost any significant customers or contract which is leading us to kind of taper-down our growth aspiration for FY ’23?
Kuldeep Jain — Chief Finance Officer
So we’ve lost not a single customer, neither have we lost a single contract. Our customers have stood by us during this difficult period of time, and they are still with us. In fact, we are in discussions with our existing customers on how to increase volumes as we go forward. So our customers are very much with us. The demand has come-off like in the Pharma business as Manoj has alluded to, the demand on the generic side has come up because there have been a lot of inventory — there has been a lot of pipeline in the inventory.
On the CDMO side, I definitely see the demand to be buoyant, and it’s all about us executing the demand. The challenge there has been is that the input costs have gone significantly high. And for us to be in business, we need to make money as well. So we are working with our customers, taking into account that these are long-term relationships that we will work with our customers to ensure that it’s a win-win situation for both of us, but we have not lost a single customer and/or a single contract.
Dhwanil Desai — Turtle Capital — Analyst
Okay, that’s very helpful. So again coming back to the margin side of it, I think we have been guiding, as you said, 50 bps to 100 bps margin improvement every year as the growth comes back. Now we are undertaking this transformation program, quite a big initiative that we have been talking about. So this 50 bps to 100 bps was before even the transformation program that you had undertaken, right? So I mean, is there any positive rub-off impact of that which can kind of improve the potential of margin improvement going forward?
Kuldeep Jain — Chief Finance Officer
So we certainly see, I mean a lot of the programs that we’ve taken actually, we would have been worse off had we not undertaken the programs and had our global partner not been with us because a lot of those initiatives had started late last financial year. So if we were to compare and we do compare this internally, had we continued the way we were in terms of our programs versus what are the value-add has been from our external partners, it’s significant, right, it’s significant improvement. So the raw material cost, the input costs have been so substantially higher than what we had predicted, but some of those cost improvement programs that we’ve undertaken has helped to actually save us money, otherwise, the impact would have been even worse. I think going forward, getting on board, cost improvement programs also looks at strategic supply chain, right. So we’ve also developed strategic suppliers to derisk ourselves from the Chinese supply chain. So that takes time, right. So we have various programs which will eventually come on stream, I would estimate, probably in the next half of this financial year, which will actually lead to supply chain derisking and eventually, a increase in terms of margin.
Dhwanil Desai — Turtle Capital — Analyst
Okay. And last question. So last question is, basically, with respect to our [Technical Issues]
Operator
Line for the current participant has got disconnected. We’ll move on to the next question from the line of Shravan from Premier Capital. Please go ahead.
Shravan Vora — Premier Capital — Analyst
Hi, thanks for the opportunity. So I needed a little more color on our Animal Health contract. It’s been like a year since we got that contract. So any color you can give on the kind of capex we are incurring specifically for that large client that we are working with, and also the kind of potential we see — revenue potential over next three years probably?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah. So Shravan, basically as we had indicated in the past calls as well, since this is a very confidential contract, we are not disclosing the amount of investment that we’re putting in. However, in this case, our customer is contributing to 50% of the capital expenditure that we are putting into the plan which shows their long-term commitment. It is a 10-year contract. It is multiple products in the contract itself, so it’s a diversified contract. The asset turnover ratio of the revenue is going to be more or less in line of what we are doing today, which is 1.5 times what the asset that we’re putting in. It is a substantial asset that we are building and this is just the first phase of the products that we have in the pipeline. So this is wave one and wave two. There’s also wave three and wave four that will potentially come down the line. The Animal Health business, as Manoj alluded to is a very strong potential for us. We are seeing a lot of traction in there, not only from this customer, but also from other customers that are now looking at rationalizing their supply chains and their product portfolios. So we definitely do expect good things for the Animal Health business in the years to come.
Shravan Vora — Premier Capital — Analyst
Right. And like on previous calls when we spoke about this Animal contract and the kind of capex that we’re doing, we clearly said that the kind of the capex that we’re doing is typically for products that have better gross margins than currently that we have. So all those things hold like the kind of — the products that would come on-stream later part of this year and FY ’24, the margin profile of those products would be significantly better.
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah. I would say, they’re incrementally better than what we have right now. Obviously, it takes time to go to full potential, but we do estimate that the products to be above 45% contribution margins on those Animal Health products.
Shravan Vora — Premier Capital — Analyst
Right. And like just two more questions. One is, we are seeing this somber demand environment, but we’ve mentioned in our press release that H2, we see the Animal Health — the Crop protection capex coming on-stream. So that would add incremental revenues in H2, we would see that only in the latter part of Q3 or Q4, right?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah. Since the plant comes on-stream towards the end of quarter three, when you fire-up the plant, you validate the product and then you start selling, you’ll really see some part of revenue coming in this financial year to the end of quarter four.
Shravan Vora — Premier Capital — Analyst
Right. And this is like my own thing that I wanted to share with you that if you see year-on-year, in such a challenging environment, our expenses have actually gone up. So our employee expenses are up 30% while our other expenses are up 10%, 12%. So in this challenging environment, should we be following a much more stringent control on our expenses as our margins are down about 800 basis points, 900 basis points Y-o-Y, so should we be a little more aggressive on cost controls?
Anish Swadi — Senior President of Animal Health and Business Transformation
So you’re actually right. I mean, firstly, our margins are down 800 basis points, 900 basis points only when you compare Q4, but for the first nine months of the year, the margins were up and the growth was there. But that is something definitely that we have been looking at very closely. We have looked at every cost that we have. We have stripped out whatever is not necessary. Again we had invested for future growth. When you have a plant that’s coming on-stream, you need to hire because the hiring process itself takes anywhere between four to six months to get people on-board or good people on board and these are complex multipurpose operational plans that we have. We’ve also hired for future growth. So we are putting the handbrake on a lot of costs. We are rationalizing costs, but the key here is, while we do that, the focus is on improving margins and growing our business because you can only cut costs so much. But to your point, it’s absolutely at the forefront of our current financial governance that we have right now.
Shravan Vora — Premier Capital — Analyst
Right, got it. And just one last question. So if I just look at the Crop Protection business. So Pharma business still Q3 also, we were facing a lot of pressures, Q2 and Q3. But the sequential drop that we see in the Crop Protection business, can you just highlight a little more whether like the lockdown in China, did that lead to us not being able to meet some demand because of the supply chain issues or like because of the lockdown, could we source some of the materials or they went up so high because the sequential fall in Crop Protection margins is quite a lot like Pharma is down, but we were facing those issues in Q3 also. Just if you could highlight a little more on Crop Protection business because when we spoke last on 10th February or when we had the last call, at that time, the scenario of the Crop Protection business wasn’t that bad. So I understand the war and everything and that has taken place post that only, but I really — like if you could just highlight a little more on what actually transpired in the Crop Protection business for such a sharp sequential decline?
Vimal Kulshrestha — President of Crop Protection
Yeah. Anish, I’ll take this call. So as I mentioned to you in my speech that there has been supply chain disruption which we faced and those disruptions are one is that availability of raw materials and other is the price. The way there was a sharp increase in crude prices, energy also has almost become double, and there were issue off — I mean, passing the cost to the size and the availability of raw material and that has impacted between Q3.
Shravan Vora — Premier Capital — Analyst
Okay, perfect. Thank you so much and all the best.
Operator
Thank you. The next question is from the line of Piyush Jain from Hansraj Virendra Capital. Please go ahead.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Sir, thanks for the opportunity. Sir, my question is on the Pharmaceutical segment.
Operator
Mr. Jain, sorry to interrupt you. The audio is not clear from your line. Please use the handset mode.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Is it better now?
Operator
Yes, sir.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Sir, my question is on the Pharmaceutical segment. As we are talking about the good growth coming in for the next couple of years, can you throw some light if we look at our DMF filings for the last three years has been one API for at least for FY ’20, ’21, and ’22. So can you just throw some light how the given pipeline is evolving on the development side, and where do we see the most of the growth would be coming from the existing approved projects or it would be from new development projects which you would be working on?
Anish Swadi — Senior President of Animal Health and Business Transformation
Do you mind repeating the question? I think your audio was not very clear towards the beginning.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Sir, my question is on the product pipeline on the Pharmaceutical segment. So if you look at our DMF filing for last two, three years, it’s been one API for each year. And as you are bullish on the growth which would be coming in the Pharmaceuticals segment, so is that you are expecting from the existing products or are you having new products in the pipeline which you are working and that is going to drive the growth in the Pharmaceutical segment?
Manoj Mehrotra — President of Pharmaceuticals
So I’ll just answer this question. Hello?
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Hello?
Manoj Mehrotra — President of Pharmaceuticals
See, first is, our DMF filing has been more than one per year. If you see the average, it has been two to three per year and that is the philosophy where Hikal works on, that we’ll file less number of DMFs, but we will ensure that those DMFs are commercialized and we have a good cost process.
Now the on the costs — on the future growth, it will be a mix of getting more customers for existing products and increasing market share, as well as getting into commercializing these new DMFs. As you know that what DMF we file today, it’s actually a three to four-year process to really commercialize, so it takes some while. From a current level of two to three DMFs, we will actually now will accelerate growth to four to five DMFs per year and that’s the reason we are investing more in R&D in the last one to two years and we’ll continue to do that. And as I mentioned that it will always be a combination of old plus new.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Okay. And sir, second question is on the CDMO pipeline. So I think if we look at the sales pickup in the Pharmaceutical segment. So it’s something from FY ’20 to FY ’22, it has gone significantly down from 54% of the sales to 44% of the sales. So can you put lights there, is that due to some projects has been dropped off from the pipeline or how this pipeline looks like in the coming two, three years? I mean are we adding some late-stage projects or how this pipeline is going to evolve in the coming time?
Manoj Mehrotra — President of Pharmaceuticals
See, the CDMO projects are always dependent on the forecast from customers, and there are years when the customer goes in for inventory correction, which was in the last year, I’d say customers wanted inventory corrections because they had built up excess inventory during the pandemic. So that corrections are taking place at this point of time. But at least the base business will be back to where it was, I’ll say in the next Q2 onwards.
Now on the new product pipeline, yes, we’re. As we mentioned in our opening statement, several new customers are being added as we speak. Many of them are coming for audits and discussions with us now since the pandemic is getting better I’ll say and on-site visits have restarted and we are confident of adding several customers going forward. As we have mentioned previously that all customers are looking for alternatives beyond China or what we call the China plus one strategy and that is playing out in the CDMO segment, which we are seeing very clearly. We are seeing several new RFPs coming towards us and our conversion ratios have also increased in the CDMO segment. And the same logic applies on the Animal Health segment where several big pharma companies have animal health businesses and they also want to partner with new companies in India. So overall, I’d say a very healthy pipeline of CDMO projects.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
Some new order inquiry which you have mentioned, is it largely the Phase 1, Phase 2, Phase 3 molecules, or already commercialized where they want to [Speech Overlap]
Manoj Mehrotra — President of Pharmaceuticals
I will say, Phase 3 to be commercialized again. Phase 1, Phase 2 come with their own risk. We have a few of them, but what we are referring or I’m discussing now are more in Phase 3 and getting on the way to commercialization now. In fact, two KSMs we have signed there, that’s already a commercial product and we are doing scale-up or validation quantity at this point of time.
Piyush Jain — Hansraj Virendra Capital Private Limited — Analyst
All right, sir. That’s all from my side. Thank you and all the best.
Operator
Thank you. The next question is from the line of Pankaj Jain from Mahavir Investments. Please go ahead.
Pankaj Jain — Mahavir Investments — Analyst
Thank you for the opportunity. Sir, actually just going through your collaterals and [Indecipherable] outlook throughout the call, I understand that there are some short-term challenges that the Company is facing currently. But can you please elaborate or throw some light on how do we see the long-term prospect shaping up, maybe longer-term view and especially the initiatives which we have taken and also the transformational program which we have undertaken, if you can just give us a long-term view, how the Company will be shaping up? Hello?
Operator
This is the operator. Sir, we’re not able to hear you.
Pankaj Jain — Mahavir Investments — Analyst
Are you able to hear me now? Hello?
Operator
Yes sir. Mr. Jain, we’re able to hear you. We’re not able to hear the management. One moment. Mr. Mehrotra, am I audible?
Manoj Mehrotra — President of Pharmaceuticals
Yeah, I can hear, but I thought since it’s more of a company point of your question, Anish should answer that.
Operator
Sir, we’ll reconnect the management line. One moment, please.
Manoj Mehrotra — President of Pharmaceuticals
Okay. So they have been disconnected. Actually, I’m at a different location today.
Anish Swadi — Senior President of Animal Health and Business Transformation
I think the transformational program is well underway. We’ve not only have we identified several opportunities for taking out cost and bringing in more efficiency, but we’ve actually identified several strategic initiatives with customers and product pipelines, which are actually yielding results as we speak today. I mean, as you heard from both the businesses, the pipeline has been increasing over the last two quarters substantially and as Manoj has alluded to that there are really live products in the pipeline which are Phase 2 and Phase 3 and some semi-commercial as well. Vimal himself in his Crop Protection business has several products in the pipeline, close to about six right now that are underway that are being evaluated at the proof of concept stage and that will soon go into semi-commercial stages. So I think overall from a Company perspective, we certainly see growth returning. These are short to mid-term challenges that we feel that are more external and I think the entire environment is being affected like every manufacturing company out there is being affected by the increase in terms of raw material costs as well as utilities.
To be a little more specific, I’ll hand it over to Vimal and he can take you through some of his thoughts.
Vimal Kulshrestha — President of Crop Protection
Yeah. So in Crop protection from CDMO customers, we are getting lot of inquiries. We are getting inquiries from the same customers for additional products, new products as well as from new customers also, especially from the US and Japan. In our own products, we are going to commission our one fungicide plant at the end of this financial year and there we have one more product which is under development and we have two, three more products which are under development which are expected to come in line maybe in next one to two years. So we see a good momentum going forward.
Yeah. Over to you, Manoj.
Manoj Mehrotra — President of Pharmaceuticals
Yeah. I did answer on the CDMO pipeline and DMF pipeline.
Vimal Kulshrestha — President of Crop Protection
Okay, great.
Pankaj Jain — Mahavir Investments — Analyst
That’s it, sir. That was the only question, and I wish you all the best. Given the strong background of the Company, I hope we’ll be able to [Technical Issues] Thanks, sir.
Vimal Kulshrestha — President of Crop Protection
Thank you.
Anish Swadi — Senior President of Animal Health and Business Transformation
Thank you, all.
Operator
Thank you. Ladies and gentlemen, due to time constraints, we will take one last question from the line of Pranay Dhelia from Panchatantra Advisors. Please go ahead.
Pranay Dhelia — Panchatantra Advisors — Analyst
Good evening, everybody. Good evening, Anish. I hope all of you are well and I hope that this is the last quarter of disappointments. I have a couple of questions on the financial front. Can you please give the total debt figure, term loan as well as the working capital?
Kuldeep Jain — Chief Finance Officer
Yeah. So the total debt as of March ’22 was INR675 crore, which comprise of INR273 crore of working capital debt and INR402 crores of long-term debt.
Pranay Dhelia — Panchatantra Advisors — Analyst
So what we can make out in this call is that the pessimism that you’re showing for this current year is only because of the raw material cost-push, you don’t see any shock or any problem from the sales side. You are only concerned about the profitability. The top line does not bother you?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yes. I mean, primarily it’s driven by raw material input costs, right because there had been certain circumstances in which products have become unviable to sell because in Q4 and as we see in Q1, because of these sharp increases in raw material costs and supply chain challenges. From a demand perspective, we don’t see challenges. But if these raw material situations and supply chain challenges and energy costs come down, then certainly we definitely see an upside potential. But to your first statement, certainly, I think Q1, as it’s shaping up, is definitely more challenging than Q4, but Q1 we hope to bottom-out at and then there’ll be a step-wise increase as we see it Q2 through Q4 of this financial year.
Pranay Dhelia — Panchatantra Advisors — Analyst
Okay. And the Taloja facility, how much was it contributing to our topline? What has been disclosed by you in the previous documentaries has been about say INR220 crores, that’s almost 10%, 12% of our total topline.
Anish Swadi — Senior President of Animal Health and Business Transformation
Yeah, that’s correct. It’s increased slightly. It’s about INR260 odd crores. INR260 crores to INR280 crores is what it contributes to our topline.
Pranay Dhelia — Panchatantra Advisors — Analyst
So considering you’re already expecting a muted quarter, this shutdown should not be impacting you?
Anish Swadi — Senior President of Animal Health and Business Transformation
Yes. Impacting us from what way? In addition to that, I mean that’s part of the reason why we have a muted quarter.
Pranay Dhelia — Panchatantra Advisors — Analyst
Okay. And lastly, I’ve been a shareholder for almost seven years in the Company. Prior to this [Indecipherable] saying that you know we had managed to derisk yourself in raw material procurement from China and other things that Sameer had said initially. Unfortunately, he is not there in the call. I hope he is there next time around. But all of a sudden, we have seen that there has been no specification in our raw material change in policy because it’s affecting us even harder now.
Anish Swadi — Senior President of Animal Health and Business Transformation
See, we have derisked our supply chain significantly, but it’s not only China supply chain that’s affecting it, it’s also domestic supply chain that’s gone up, right. Input costs have gone up substantially. I mean feedstock itself is not available. You’ve seen solvent prices that have gone up about 40%. Input costs from domestic suppliers themselves have been affected. So even if you’re zero reliant on China, you still have input costs. I mean there are a lot of companies that have no reliance or very limited reliance on China, they still have significant input costs, right, the increase. [Speech Overlap] Yeah. Go ahead.
Manoj Mehrotra — President of Pharmaceuticals
This time, the disruption has been more global. It’s not only restricted to China, all because of first, the COVID crisis [Speech Overlap] now the European Ukraine war, so it’s all over.
Pranay Dhelia — Panchatantra Advisors — Analyst
Okay. And because of the Ukraine war, do we see any less offtake in Europe, or that stand is normal?
Manoj Mehrotra — President of Pharmaceuticals
No, offtakes stand. In fact, there a customer for us in Ukraine who has actually resumed buying now. So offtake stands in all of European market, but it is the input costs which have become unpredictable [Speech Overlap] And all our customers have long-term contracts, they’ve government tenders and all. So it’s very difficult for us to really pass through the cost immediately, it takes time.
Pranay Dhelia — Panchatantra Advisors — Analyst
So I hope that you’re also entering into some long-term contracts with your suppliers to mitigate this for future.
Manoj Mehrotra — President of Pharmaceuticals
We do that definitely but this time in our opinion, it has been to some extent force majeure as well.
Pranay Dhelia — Panchatantra Advisors — Analyst
Okay. And this would be from my side. Thank you for your time, and hope that we recover soon and get back to being our best.
Anish Swadi — Senior President of Animal Health and Business Transformation
Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Anish Swadi for closing comments.
Anish Swadi — Senior President of Animal Health and Business Transformation
So I’d just like to take this opportunity to thank everybody for joining the call. I hope we have been able to address all, if not most of your queries. For any further information, kindly get in touch with our Strategic Growth Advisors who are our Investor relations advisors. Thank you very much and stay safe everyone.
Manoj Mehrotra — President of Pharmaceuticals
Thank you.
Vimal Kulshrestha — President of Crop Protection
Thank you.
Operator
[Operator Closing Remarks]