Laurus Labs Limited (NSE: LAURUSLABS) Q2 2025 Earnings Call dated Oct. 24, 2024
Corporate Participants:
Satyanarayana Chava — Executive Director and Chief Executive Officer
V.V. Ravi Kumar — Executive Director and Chief Financial Officer
Analysts:
Monish Shah — Analyst
Tushar Manudhane — Analyst
Jeevan Patwa — Analyst
Unidentified Participant
Madhav Marda — Analyst
Bharat Kumar — Analyst
Gagan Thareja — Analyst
Keshav Shriram Mundra — Analyst
Parekh — Analyst
Yasser Lakdawala — Analyst
Sachin Shah — Analyst
Abhisek — Analyst
Rohit Jain — Analyst
Samay — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Laurus Labs Limited Q2 FY ’25 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions]
I now hand the conference over to Mr. Monish Shah from Antique Stock Broking. Thank you, and over to you, sir.
Monish Shah — Analyst
Yes. Thank you, Del. Good evening, everyone, and welcome to Laurus Labs 2Q and 1H FY ’25 Results Conference Call. Today, we have with us Dr. Satyanarayana Chava, Founder and CEO; Mr. V.V. Ravi Kumar, Executive Director and CFO; and Vivek from the IR team. On behalf of Antique Stock Broking, I would like to thank the Laurus management for giving us the opportunity to host this call.
I would now like to hand the call over to Dr. Satya for his opening remarks. Thank you, and over to you, sir.
Satyanarayana Chava — Executive Director and Chief Executive Officer
Thank you, Monish, for the introduction. We welcome you all to the Q2 FY ’25 and first half of FY ’24 results conference call. We are pleased to see sustained demand in our CDMO services, supported by operational excellence initiatives and expanding platform capabilities at both development and manufacturing scale. Our pipeline momentum across business network has remained healthy, and we are demonstrating steady progress in application of specialized technologies like continuous flow across multiple projects. Our ambitious and dedicated teams are working diligently to expand portfolio offering and advanced pipeline projects with a goal to solve our customer complex needs and deliver long-term stakeholder value.
We recently announced opening of the new small molecule R&D center at IKP, Hyderabad, which significantly elevates our one-stop development and manufacturing service capability, enabling innovators to accelerate their clinical and commercial cell projects using cutting-edge technology. I would say the new center is seeing good interest from our several existing biopharma customers. For early stage process development work and we believe it will play an important role in driving our future growth. As communicated earlier, Laurus is on track to evolve into a well-respected and diversified seeding the company, meeting complex needs of our customers.
And we are reinforcing it by executing on our long-term investment strategy in advancing both our development expertise and building integrated large-scale manufacturing capabilities. Moving on to our financial results. Our Q2 results demonstrated continued resilience in financial health, reflecting robust business quality despite pricing pressure in generic APIs. For the quarter, we delivered a revenue of INR1,224 crores. The growth is flat over last year. Although there is a strong growth in CDMO division, which was substantially offset by lower uptake in and oncology APIs. Gross margins were very healthy and maintained at 55%, while EBITDA margins remained subdued at 15%. This is due to lower asset utilization and dilution from growth projects initiatives in cell and gene therapy as well as both human health and crop sciences.
Our performance is well on track to deliver full year growth outlook, which will be driven by facility ramp-up and scheduled CDMO project deliveries in the second half of this financial year. To begin, I would like to share key updates on various business segments. In CDMO, we continue its operational and commercial improvements and recorded a sale of INR299 crores. On H1 basis, the division recorded 8% growth. The soft growth is on expected lines driven by a significant resource allocation towards to deliver multiple high-value complex programs at various clinical places. If you look CDMO business environment, the outlook within small molecule service industry is positive. And then specific there is good demand for specialized expertise with rising number of complex compounds in the clinical phases.
As against the industry backdrop, we expect healthy growth in FY ’25, supported by scheduled project deliveries for late phase clinical programs in Q4. As highlighted in my initial remarks, we have commenced operations at our new small molecule R&D center in October 2024. The facility will leverage advanced capabilities like flow chemistry, biocatalysis, chemistry. This will enable us to early-stage projects to widen the project funnel and meet the expanded global partner needs. We are working on over 90 active projects in total, over 70 in human health and then about 20 in the animal health and crop production. In the generic API revenues from this division during Q2 reported a decline of 11%, and we achieved INR557 crore sales. This was mainly due to lower demand in oncology portfolio and the temporary impact from a planned facility shutdown for modifications, while reported in line sales. For H1, the overall growth was very flattish.
ERV APS reported revenues of INR3,600 crores. This was lower compared to last quarter as we had to undertake certain modifications in the manufacturing facilities, which created capacity charges for a few products affecting dispatches in the Q2. We expect operations to resume from this week onwards. Having said that Laurus will fulfill all come applications. We don’t expect this will have any impact on the overall financial year. The current order book for our product market looks encouraging, and we continue to maintain a leading share in the first-line HIV treatment. Oncology APIs, sales have declined, and we reported a Q2 sales of INR1,500 crores. In the other API segment, which includes various therapies like cardiovascular, diabetes and NAFTA, we have reported sales of INR138 crores, but the — it is only 3% growth.
We’re actively working with few customers to expand our CDMO engagements as part of our strategic growth initiatives, and we remain committed to long-term growth with clear focus on cost leadership and select key value APIs. During H1, we filed four DMFs out of these three are in non-RV categories with this total number of BMS filed so far is 87. Our formulation division reported a overall revenue is up INR328 crores for Q2. Our H1 revenues decreased marginally of 2%. Performance was subdued due to lower volume uptake in the RE business, offsetting good growth in the developed market portfolio. We expect to see certain benefit of a few recent ANDA approvals in the coming quarters. In addition, we also increased BD efforts to serve new market opportunities, with continued focus on strengthening portfolio offerings and increasing market share.
Similarly, we have a total of file ANDA to date Of these, we have a total of 21 final approvals and 14 being tended to operate so far. I’m also pleased to report that our collaboration with our partner,, is progressing smoothly, and the capacity expansion remains on track to meet their strategic capacity needs. We have already initiated tech transfer for multiple products under this arrangement. And in the medium term, the focus will continue on delivering synergies and enhancing product portfolio and also enter into India market through the joint venture. On R&D front, our overall spending to sales for the first half of this financial year was at 5.4%, which was increased by 25% year-on-year. The higher R&D spend is in line to enhance our pipeline, which includes regional spend towards segmentation, biocatalysis and gene therapy programs.
We continue to invest in portfolio with products very coverage based on complexity and scale economies. We have a total of 62 products in the R&D pipeline as under review or in development having a significant overall market size. We also expanded our capabilities at our fermentation side ARPU by adding a new pilot plant. This announcement will not only allow us to further optimize ARPU capacity, but also helps us to debottleneck and optimize ARPU capacity for our greenhouse projects. The plan to build larger fermentation capacity is on track to capitalize on GMP manufacturing opportunity. In H1, the company close to 76 quality artists by multiple regulated agencies and several customers. The company has successfully passed audit inspections without any critical findings.
During the quarter two, we have concluded successful U.S. FDA inspection of API manufacturing presence in Hyderabad without any observations. Together, we have made signal progress across building diverse portfolio with an exit the pipeline. As a company, we are committed to ensuring our actions remain aligned with our strategy. And I’m confident that we are all well positioned to deliver value to shareholders in the coming years.
With that, I would like to hand it over to Ravi to share some financial highlights. Thank you.
V.V. Ravi Kumar — Executive Director and Chief Financial Officer
Thank you, Dr. Satya. A very warm welcome to everyone on our quarter two and H1 FY ’25 earnings call. Total income from operations for the H1 at INR2,419 crores against INR2,406 crores previous year. For the quarter, we have reported a revenue of INR1,224 crores, which is almost similar. Performance is largely unexpected lines and it’s slated improved in H2, driven by order booked and expected project deliveries. Gross margin maintained at a healthy level for Q2 at 55% and for H1 is at 55%. This is partly for a better product mix and also process improvements done in some of the key large volume APIs. Our EBITDA for quarter two stands at INR182 crores and margin at around 15%, but H1, INR356 crores with a margin of around 15%. The margin was suppressed due to continued operational deliveries.
Our profit after tax for H1 is INR33 crore. Our ROCE was around 5.6%. This is because of lower profitability and the capex and continue capex investment for the growth projects. On the capex front, we invested close INR137 crores for the quarter and INR262 crores for first half. Our net debt stood at INR2,679 crores and debt to EBITDA is around 3.4%. This we expect to improve based on H2 performance, this ratio. We will continue to prioritize investment into higher-value business segments to drive sustainable medium- to long-term growth. The Board of Directors recommended dividend — interim dividend of INR0.40 per share. You can refer further details, our IR presentation.
With this, I would request the moderator to open the lines for Q&A.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Tushar Manudhane
Yes. Thanks for the opportunity. Am I audible?
Satyanarayana Chava
Yes. Yes. You are audible.
Tushar Manudhane
Yes. Sir, with respect to this onco API, given the is to do with the increased competition. So how do we — how are we thinking to cope up almost INR50 crores quarterly sales dip which has happened in the onco API industry?
Satyanarayana Chava
Tushar, we don’t have competition severe in this. The lower sales is only based on the delivery schedules to our partners. Overall here, we don’t see any challenge in growth over the last year.
Tushar Manudhane
Now that is for the onco portfolio, right?
Satyanarayana Chava
Yes.
Tushar Manudhane
On the FDA side, also, we have not seen major accruals or when we — even this quarter, we’ve seen only one ANDA accrual, so to see. So how are we able to sort of grow in the FDA segment going at least for next, say, 12 to 15 months?
Satyanarayana Chava
ANDAs, which were approved in the last two, three quarters, we are only building up stocks to garner the market share. That is the reason we are very confident to increase our sales in the market.
Tushar Manudhane
Understood, sir. And just lastly, if you just refresh in terms of the guidance, which we are talking for FY ’25, is that — that the sales would be stable as compared to FY ’24 or how to read this?
Satyanarayana Chava
See in the FY ’24, ’25, if you compare the biggest growth will come in the synthesis CDMO division. In the year FY ’24, CDMO did INR922 crores. If you look at in H1 this year, we’ve already done INR530 crores. And we expect this number will go up significantly in H2. So that’s where we’ve been investing in the last two years. Our efforts towards securing customers projects and execution is going smoothly. From the beginning of this year, we were clearing our message to our stakeholders. The H1 is going to be softer and whereas H2 is going to go as per our expectations. And we — currently, we believe we are on track to deliver what we committed for growth in H2.
Tushar Manudhane
All right, thank you.
Satyanarayana Chava
Thank you.
Operator
Thank you. The next question is from the line of Jeevan Patwa from Sahasrar Capital. Please go ahead.
Jeevan Patwa
Yes, sir. So first question is obviously — so we — last time, we said that in for the full year, we will achieve 25% kind of EBITDA margin. So first half, we are at 15% EBITDA margin. So do you think second half will be able to compensate for this?
Satyanarayana Chava
Jeevan we — if we remember well, we committed to achieve around 20% EBITDA for the entire financial year. Yes. Maybe referring until we achieve 25 in the H2 will not be average at 20%. So we are committed to show say 20% EBITDA for the entire financial year.
Jeevan Patwa
Okay. And secondly, so this operating deleverage is actually hunting since last few quarters now. So I would say almost eight, 10, 12 quarters now. So by when you actually think that this operating deleverage will start actually in the reverse that. So operating leverage will start kick in. So this has been haunting since almost 12 quarters.
Satyanarayana Chava
You are absolutely right.
Jeevan Patwa
Saying that operating deleverage has the EBITDA. So gross margin has been good this time because of the synthesis contribution. But again, we are at the 15% EBITDA margin because of operating deleverage. So how long we are going to have this kind of operating deleverage still?
Satyanarayana Chava
See, this operating deleverage came because we only plan investments into new areas, we only plan capex to meet the future demand. I think this operational deleverage is not surprising, not unexpected. And going back to the question how long this will continue. Maybe we are at the end of the deleverage. If you ask me, when we will leverage, maybe we have to wait a few quarters, but we are end of the deleverage right now.
Jeevan Patwa
Yes. So I understand there are some large deliveries in the every Q4 of the CDMO part and all. But again, next half, next year, first half is again going to be the similar because these are lumpy deliveries, right? Or do you think that will continue — that will keep consistently, it will — we will have the CDMO business growing even for the next year?
Satyanarayana Chava
No, it’s a very interesting question, Jeevan, you are asking. But as we maintained, we are not giving guidance, but we’ll give you more clarity as we go towards the end of Q4. Maybe Q4 commentary will give you how the forecast look for Q1 FY ’26. Yes.
Jeevan Patwa
Because typically, it is like Q4, we have I think the large deliveries and all. But Again, the question comes whether H1 next year is going to be the again soft pricing.
Satyanarayana Chava
No, really will definitely answer your question closer to each quarter. We are not giving any guidance right now, yes.
Jeevan Patwa
And the CDMO contracts on the formulation side, have we started those contract where we had the terms packaging and everything else. So are those contracts started in this quarter, Q3?
Satyanarayana Chava
No. We will start Q1 FY ’26. We are investing more into manufacturing lines and packaging lines. The CMO integrated generic contract manufacturing, the results will come in Q1 FY ’26.
Jeevan Patwa
Okay. So the formulation sale will still be in the similar lines. So that will pick up only in next year. That’s what you’re saying?
Satyanarayana Chava
Our ARV sales will pick up formulations. Our non-ARV sales in also pick up. When I said Q1 FY ’26, when you asked a specific question about the contract manufacturing. The expanded capacity will come in only in Q1 FY ’26.
Jeevan Patwa
Correct. But this sale — so there’s a meaningful pickup, I would say, because North American sale, I think — I don’t know how much it will actually add. So I would say, meaningful will happen only after we have the CMO contract starting?
Satyanarayana Chava
It is the combination of both. Our growth in MDF will come from our own sales in — North America and contract manufacturing in Europe. It is a combination of that not only one.
Jeevan Patwa
Okay. Okay. Perfect, sir. Thanks a lot, sir.
Satyanarayana Chava
Thank you, sir.
Operator
Thank you. The next question is from the line of from MLP. Please go ahead.
Unidentified Participant
Yes, hi. Thanks for the opportunity.Just one question on the debt like that has increased to INR2,700 crores now. And looking at first half operating cash flow is negligible. We are definitely looking to improve the debt-to-EBITDA ratio, but in terms of absolute amount of debt, I mean, are you looking for some kind of reduction or you can increase further?
V.V. Ravi Kumar
As we indicated last time, we’ll be in the similar range, it will be below INR3,000 crores.
Unidentified Participant
Okay. And I believe we also have aggressive capex plan, right? I mean, around INR2,000 crores.
V.V. Ravi Kumar
Yes. capex plan is on.
Unidentified Participant
Okay. And that can be funded from internal accruals or some kind of fund?
V.V. Ravi Kumar
See, if you look at our depreciation itself is a INR400 crore right on an annual basis.
Unidentified Participant
Right. Yes. But I mean operating cash flow has been quite depressed. So that’s why…
V.V. Ravi Kumar
Operating cash flow also will support.
Unidentified Participant
Okay. So as internal accruals will be sufficient for the capex, which we have the capex plans we have. Okay, got it. Thank you.
Operator
Thank you. The next question is from the line of Madhav from Fidelity. Please go ahead.
Madhav Marda
I had a couple of questions. The first one was in the presentation, you have mentioned that performance was soft due to long manufacturing time cycles. Could you explain what that means exactly? And typically, for these complex projects, could you do, how long are these manufacturing cycles, if you could help us understand.
Satyanarayana Chava
When we mentioned the complex and long manufacturing lead times, some of the projects we’re doing anywhere between 10 to 20 chemical steps midyear. So we need to — see, these are not at commercial. So we cannot do a regular manufacturing. So we have to be very careful in executing these batches. And sometimes our partners will help us in scaling it up. What we meant long lead times is executing those complex multistep synthesis is taking a long time. So when we mentioned the early this financial year, the deliveries will happen in Q4. Most of — some of the high-value projects. We know that much long lead time is needed to procure raw material and execute those complex multistep synthesis projects.
Madhav Marda
Further quarter for delivery, which we are planning in some sense, production is already happening in batches that are production like even as of right now and then all of the gets sold in quarter four, something like that. Is that how we should think?
Satyanarayana Chava
For some projects, we started production in the month of February itself.
Madhav Marda
And sales for that will be booked in quarter so like after one year?
V.V. Ravi Kumar
Yes, yes. No, no. February — we started in February, March of calendar year, and we are going to build in January, February next year.
Madhav Marda
Yes, that’s. That’s what I’m saying. So it’s almost like a one-year cycle…
Satyanarayana Chava
So as Ravi mentioned, so that will — you can’t do 10 batches at a time like a regular production. So you country capacity, but utilization is intense. And — but you have inventory for a year, mostly we paid inventory. So these are the kind of deleverage is happening in the system right now. But this is what we expected. This is not surprising. When we handle such complex projects, we can’t deliver in one month from TiVo. So we need some time. The one way is good. So we’re handling complex projects. That means it’s good for the organization. We are not doing a very simple chemistry.
Madhav Marda
No, sir, I think it’s positive. I mean I was — at least it clarifies why they’re going through this period of investment, right, that they’re kind of doing these long lead time projects or at least explain some of the financials that you are reporting. Okay. Got it. And the second question I had was on the margins. Did you mention 20% for the full year FY ’25? Or is what we kind of expect?
Satyanarayana Chava
Yes, yes. That’s right. No, 20%. We are not saying 25%.
Madhav Marda
20% for full year FY ’24.
V.V. Ravi Kumar
Indicated before there is clarified on that.
Madhav Marda
Which means second half, we expect it to be significantly better, right? Because we’re at 14%, 15% in first half?
Satyanarayana Chava
No Madhav, as you have seen, our margins are healthy. If you do higher sales, I think most of the gross margin will flow into EBITDA, isn’t it?
Madhav Marda
No, sir, I understand. I was just trying to clarify. Okay, understood. Thank you so much.
Satyanarayana Chava
Thank you.
V.V. Ravi Kumar
Thank you.
Operator
Thank you. The next question is from the line of Bharat Kumar from Quest for value. Please go ahead.
Bharat Kumar
Yes. Hi, sir. In investor presentation, it is mentioned that there are further breakthrough molecules in pipeline for CDMO. Can you please throw light on these molecules like number of molecules, what phase they are in, are they in mid phase or not?
Satyanarayana Chava
Actually, our intention is not to give any more details on the clinical phase or therapy category out those projects. I think until those molecules goes in the commercial phase, which everybody can monitor from the exports. So until such time, we don’t want to give more clarity on that.
Bharat Kumar
Okay. Yes. Good enough. Yes. And may I know, what is your opinion on Biosecure act? I know that in short term, there would not be much material impact, but do you see any early positive signs like increase in RFQs or increase in pilot project? And more importantly, how your customers are seeing it? Are they diversifying ever from China?
Satyanarayana Chava
So I can give our perspective, but I can’t give you the overall industry perspective. What we have seen, there is a lot of customer interest in visiting engaging with us on the capability, understanding for the large volume projects. But early-stage preclinical and Phase I, we aren’t seeing much rush. So there were no increased flow of inquiries for preclinical and phase 1. But there are discussions for Phase II, III molecules where they want to add a new and many customers are talking. Existing customers are increasing their pipeline towards us. That’s the policy what we are seeing.
Bharat Kumar
Yes. And I see that this FDF revenue is very low in the last two quarters. There will be a lower offtake in ARV FDF. May I know the reason for this? Is there any slowdown in the uptake from a level?
Satyanarayana Chava
No, it’s quite normal. This is — maybe we have more deliveries planned in Q3, Q4, but nothing unusual. In the — as I mentioned in my opening remarks, so one of the block was went for maintenance and modifications, EHS modifications. So some delay in deliveries in Q2. But we have enough capacity to service the existing under. Nothing unusual is happening in the ARV both APIs or formulations.
Bharat Kumar
And my last question is to Ravi. Ravi, sir, you guided that net debt to EBITDA would be around 2.5 times by end of this year. Do you still maintain the same guidance?
V.V. Ravi Kumar
Yes. Today, we are at INR2,600 crores. So maybe in that range, I can’t say INR2,500 crore, but in that range, you’ll be there. But actually, as I said in the little while back, so we will not breach the INR3,000 crore range.
Bharat Kumar
I mean I’m talking about the net debt to EBITDA. So you said net debt to EBITDA would be…
V.V. Ravi Kumar
Between INR2,500 crores to INR3,000 crores.
Satyanarayana Chava
What number, 2.5, you said.
Bharat Kumar
Around that number.
V.V. Ravi Kumar
Net debt to EBITDA, we are not committed. You — I know you will calculate — we will tell that the EBITDA also you can calculate it.
Bharat Kumar
Thank you.
Operator
Thank you. The next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.
Gagan Thareja
Hey, good evening, sir. I hope I’m audible.
Satyanarayana Chava
You’re audible Mr. Thareja.
Gagan Thareja
Yes sir, Gilead has issued voluntary licenses for manufacturing of apart. We saw one huge transition from TLD two years ago. We might possibly see another huge transition in the coming year or so. And you are not one of the licensees, do you see another reduction in the ARV markets in the offering in the coming year or two because of this?
Satyanarayana Chava
The we’re currently it is approved as a prep. It is not approved as a treatment yet. So typically, the delta between approval in Europe versus bringing document to access markets is three years. So no therapy the regimen disruptions will happen in the next five years. we will disrupt and we will be left band. We don’t think so. If you look at the current licensees, some of them have capabilities. Some of them have no API capabilities. Some of them have no ARV API experience. So at some point of time, either we will get licensed from Gilead or we will get sublicensed from these manufacturers to make the API. So we are still very hopeful in that front.
Gagan Thareja
No, I get the point that you might be there for the APIs for being able to supply the finished injectable formulations, you may not be there unless you have a license. And if the license has been issued, and this is already a marketed brand in the regulated markets with comprehensive trial data available. Do you still think that it will take as much time? I would have thought generally issuance of licenses. I don’t only when market formation is on the horizon.
Satyanarayana Chava
We are pursuing our efforts. So today, we don’t have a SRL manufacturing facility, and we can’t convince anyone to give a license without having manufacturing capabilities. That’s the one. So as and when we house sterile manufacturing capabilities, they will approach them because they know that we are a strong player in this ARV space. When we have capabilities, we’ll approach them again. And there is time for us to do this. We are — nobody has an API still everybody has to develop. So it is very existence. There were instances the number of licenses were increased closer to the market formation. So we are pursuing that.
Gagan Thareja
And on GLP-1, would Laurus be involved in any way in the future? Or is it that that being a peptide, you may not be participating there?
Satyanarayana Chava
I will not comment on that right now.
Gagan Thareja
Are you attempting to develop it in-house?
Satyanarayana Chava
As I mentioned, I will refrain from commenting on that right now.
Gagan Thareja
Okay, sir. Just the final one, what should we consider a sustainable working capital in days terms for Laurus. I understand currently, you’re going through a phase where you’re taking a big batches for your CDMO products and that is what should be a sustainable number?
V.V. Ravi Kumar
Right now, it’s in — as you rightly, your question has an answer. Your H1 actually, we have a higher number but March, definitely, it will come down. It all depends on the further in the next few months’ time, what kind of artist reason we are going to have and then what kind of revenue we will be having. But definitely, it will reduce than the current number.
Gagan Thareja
Sure. Thank you, sir. I’ll get back-in the queue for more if required. Thanks for taking my questions.
Operator
Thank you. The next question is from the line of Keshav Shriram Mundra from Guardian Capital. Please go ahead.
Keshav Shriram Mundra
And thank you for taking my questions. So I have Couple of questions, please. What would be the revenue guidance you would give for the company as well for the next year, right? And what would be the revenue guidance you would give for the individual segments? This is my first question. And my second question is regarding the API segment. Like as we have seen a decline in the overall sales, right? What would be the major reason for this? Was this a drop in volumes? Or are we seeing a drop in the pricing for our API products as well?
Satyanarayana Chava
I think when Keshav, going back to your first question, except speaking, the quality of business for the previous quarters, we are not giving any quantitative guidance. We already give you very qualitative. So I think we expect to deliver better results in the H2 and also better in the next financial year. We are only giving qualitative. Going back to the second question now for APIs. API sale coming down because of less API deliveries in the ARV segment and also less sales in the onco segment. And by the end of Q2, Q3, Q4, I think oncology sales will go back to growth when compared to last year. And yes, sales will be flattish. We don’t expect the sales will grow. It will be very flattish by the end of the Q4. And we are developing some portfolio of products to grow in API segment. We are not defocusing our efforts gaining market share and putting new products in the generic space.
We have almost about 50, 60 products in the pipeline in various stages of development. And right now, we have seen good filings. We have done only full in the last six months out of those three non-ARVs. So most of the BMS once we are developing are in the non-ARV segment. So we expect growth will also come from generic APIs and also maybe integrated offering of doing formulations to our partners. So our generic segment will also grow, but may not be as fast as synthesis because the generic itself has its long large base right now, whereas synthesis is at a low base. The percentage wise, we will see more growth in synthesis, but quantum-wise, generics will also grow beginning next year.
Keshav Shriram Mundra
All right. Thank you, sir. Thank you guys.
Operator
Thank you. The next question is from the line of Parekh [Phonetic] from BOB Capital. Please go ahead.
Parekh
Thank you for the opportunity. My first question is, our EBITDA margin for H1 has been around 14%, 15%. And with the deleveraging being on the cards for the next couple of quarters, so are we sure would be able to achieve 20% EBITDA margin for FY ’25?
Satyanarayana Chava
Yes. That’s what we broadly guided Ms. Parekh. We will — our current forecast internally Q3, Q4 looks better. And we expect overall for the financial year, the EBITDA margins will be closer to 20%. Yes.
Parekh
When with deleveraging being on cards?
Satyanarayana Chava
As I mentioned deleverage is almost at will be behind us soon. So we don’t expect the deleverage will hunt us forever. Yes.
Parekh
Okay. And my second question is, I see our tax rate has been quite low for this quarter. So is this the same tax rate we should assume for the rest of the quarter? Is this or we can assume the historical ones?
V.V. Ravi Kumar
You can assume historical one around 28% is the effective tax rate for H1.
Parekh
Okay. That answers my question. Thank you.
V.V. Ravi Kumar
Thank you.
Operator
Thank you. The next question is from the line of Yasser Lakdawala from M3. Please go ahead.
Yasser Lakdawala
Yeah, good evening, Dr. My first question is since CDMO can be a lumpy business where late-stage molecules may or may not slow to commercial. So what are the opportunities are exploring in, say, the generic API space to improve our capacity utilization? And if you could highlight any potential large molecules in the pipeline in the event that we do have large capacity?
Operator
Sorry to interrupt sir, please come a bit close to your handset. You sound a bit distant.
Yasser Lakdawala
Yes. Sure.
Satyanarayana Chava
So there are a couple of therapy areas, which we believe Indian companies can gain advantage. We started working on those for the last 1.5 years. And we expect those — I will not give you the therapy areas right now until we do a couple of products. We will start gaining some business maybe at the end of FY ’26 onwards. One game if we are going to file maybe in the next quarter, not this quarter, next quarter, for which we have already started. That’s the first indigenously developed large the therapy segment. Maybe we will give more clarity maybe in Q4 this year. So we have identified the few therapy areas for us to grow, which, see, if we can grow by selling more, but we want to grow by identifying some niche large volume products where India hasn’t played a big role so far.
Yasser Lakdawala
Yeah. All right. Thanks a lot.
Satyanarayana Chava
Thank you.
Operator
Thank you. The next question is from the line of Sachin from Tara Capital. Please go ahead.
Sachin Shah
Hello, am I audible?
Satyanarayana Chava
Yes. You’re audible, sir.
Sachin Shah
So last year, also, if I remember, you mentioned that the second half will be significantly better than the first half on the margin side, but you close at 15% last year.
V.V. Ravi Kumar
Your voice is not clear.
Sachin Shah
Is it better now?
Satyanarayana Chava
Better now, yes.
Sachin Shah
Okay. So I was just asking that last year also, I think, if I remember correctly, you mentioned second half will be much better than the first half on margins front, but we closed at 15% EBITDA margins. So what gives you confidence that this time will be able to clock that 20% margin guidance?
Satyanarayana Chava
I think the business mix is going to change. The FY ’24 versus FY ’25, if you look at not only business mix, but the quantum of business also will be better from FY 24 to FY ’25. So if we are saying that H2 is better. We are already almost a monthly over in H2. So where reasonable visibility, what product what quantities we’re going to sell, and our margin profile look like.
Sachin Shah
Okay. And any broader business mix like between CDMO and API and the?
Satyanarayana Chava
I think we expect growth in all segments not only CDMO.
Sachin Shah
Okay. Okay. Thanks. That’s all I have.
Satyanarayana Chava
Thanks.
Operator
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Tushar Manudhane
Yeah, thanks for the opportunity. Just this formulation if you could break down into ARV formulation and non-ARV?
Satyanarayana Chava
So we are not adding any capacity to expand our ARV formulations. We are not…
Tushar Manudhane
I mean for the quarter, how much of the FBS sales is ARV and non-ARV?
V.V. Ravi Kumar
FBS here ARV and non-ARV. For H1, INR369 crores is an ARV sale, ARV FDF.
Tushar Manudhane
Increase FY ’24…
V.V. Ravi Kumar
Sorry, sorry.
Satyanarayana Chava
ARV is 369 and non-ARV is 233.
Operator
The next question is from the line of…
Abhisek
Am I audible sir?
V.V. Ravi Kumar
Maybe closer to your handset, Abhisek.
Abhisek
Yes, yes. Sir, did you other things of doing a Q to resolve the debt issue. Like many companies are doing is like have you given it a thought?
V.V. Ravi Kumar
No, no. We are not thinking in the direction.
Abhisek
At this juncture?
Satyanarayana Chava
So we are having some stress, but we know that’s not going to last long. So we believe we’ll be able to gather that situation very easily.
Abhisek
Yeah. Thank you. That’s sir.
Operator
Thank you. The next question is from the line of Rohit Jain from Elara Capital Partners. Please go ahead.
Rohit Jain
Yeah, hi, am I audible?
V.V. Ravi Kumar
Yeah, Rohit, you are audible.
Rohit Jain
Yeah, hi. In the first quarter presentation, you had mentioned that there was a sequential decline in API because of timing of shipments. And I guess, this time also, you mentioned somewhere that the fall is because of timing of shipments. So how should we think about it? Because I think about two, three quarters back, again, you had mentioned that there was an issue of timing of shipment. So this particular reason seems to be a recurring reason. So how should we think about this?
V.V. Ravi Kumar
Can you repeat your question, please?
Rohit Jain
Yes. I’m saying in the last quarter’s presentation, for API growth being down sequentially, you had mentioned that overall sequential decline was due to timing of shipments. And in this call also, you mentioned that some of the fall is because of timing of shipments about three, four quarters back, you had once again mentioned that some of the fall because of timing of shipments. Sir, my question is that this timing of shipment issues seems to have occurred over the last two, three quarters continuously. So just wanted to understand how should we think about it?
V.V. Ravi Kumar
See, from non-ARV APIs is the timing changes depending on what customer is. Whereas ARV API is not the timing issue. It is — we have taken on manufacturing black for modifications that disturbed some supplies. So we are on track already this week holiday, the facilities came on track. So we don’t expect to enter here any disruptions in that.
Rohit Jain
My question was that if last quarter was lower because of timing of shipment issues than benefited from those supplies getting shipped in this quarter, right? So — but we haven’t seen that benefit in this quarter. So I’m just trying to understand how should we think about that dynamic?
Satyanarayana Chava
No, it’s maybe we have to take offline. We’re not.
V.V. Ravi Kumar
You’re asking like in the last quarter, we said that there is some timing because of some timing there is a lower sale. What happened to this quarter, there is no — it’s not recovered, right? So there are like unrecognized revenue even in the second quarter. Actually, second quarter, those sales have been made actually because of the revenue recognition, the second — the end of September, the number is much higher than what it was in the June, frankly. But your observation is right.
Rohit Jain
So that’s what I’m asking, sir. Is this a regulatory feature then? Like is this something that happens every quarter?
V.V. Ravi Kumar
No, it depends. Sometimes, if there is a more sea shipments then this problem may rise.
Rohit Jain
And just one more question I had. So I was asking that as one of the earlier participants asked, the seasonality of our is such that fourth quarter, we see lumpy sales and hence, our working capital improves in our debt-to-EBITDA improves. But let’s say, if we go back again to the next year, first quarter, second quarter, would it be fair to assume that there would be a deterioration in debt-to-EBITDA and working capital given the basic seasonality of our business?
V.V. Ravi Kumar
As indicated by Dr. Satya in the previous question, so we are not giving a guidance there, but at the same time, on a yearly basis, we expect a growth. So because whatever investments we’ve made so far, those going to be turned into an returns. So again, it’s trying to give a next quarter one quarter two how it will be whether there will be a decline. I don’t want to give you a comment at this juncture, but we will — in maybe April, we will give a guidance of how the next year will be.
Rohit Jain
Okay. Thank you. All the best. Thank you for answering my questions.
V.V. Ravi Kumar
Thank you.
Satyanarayana Chava
Thank you very much.
Operator
Thank you. [Operator Instructions] The next question is from the line of Samay [Phonetic], who is an Individual Investor. Please go ahead. Mr, Samay your line has been unmuted. Please go-ahead with your question. As there is no response on the —
Samay
Sorry. Hello, am I audible?
Satyanarayana Chava
Yes, sir, you are.
Samay
So my first question to Dr. sir. Sir, it mentioned in the investor presentation on slide number 25, we are following high standard for all our plants. I just want to ask about December 2023, where we are receiving U.S. FDA observation called LXPL plant. I know we acquired this plant, but in May 2020, it’s a four year. And still, I don’t understand why we are not following same high standard for this plant. Even it is very small in revenue for us.
Satyanarayana Chava
Thanks for asking this question. So as you aware, we acquired that site down were important. And FDA inspected and they gave five observations responded. And today, that they have lifted the import elite. We have no import elite down the site. That is a good sign. So we are working with the agency. We have submitted our responses, and we are very hopeful to resolve that.
Samay
Okay. And the second question for Ravi, sir. Ravi sir, what is our current growth growth for FY ’25 at the end of FY ’25, what would be that?
V.V. Ravi Kumar
From now, actually, it will add at least INR500 crores of the gross block. So it will be around INR6,700 crores or so.
Samay
Okay. So — and if I add INR2,000 crores by next two years, so by end of FY ’22, we would be around INR8,500 crores.
V.V. Ravi Kumar
No. FY ’27, I’m sorry. I was just talking about next year. March ’26. FY ’27.
Samay
March ’25, by end of March ’26 or FY ’25, we would be around INR6,700 crores and by FY ’27 — end of FY ’27, we would be around INR8,500 crores to INR9,000 crores.
V.V. Ravi Kumar
No, I don’t know. We are not giving any guidance for FY ’27.
Samay
No. I mean — last call, I mean, you have said that we will do around INR2,000 crore capex. That’s why I say.
V.V. Ravi Kumar
That’s correct. That is March ’26, right, then not ’27.
Samay
Okay. And last question for Dr. Satya sir. Sir, I mean, is there any future that — I mean, is there any way we can see any money or profit from immuno by by FY ’25 or FY ’27?
Satyanarayana Chava
See, that company is at the very do actions appropriate time. We believe this is not the right time.
Samay
Okay, sir. Yeah. Thank you. That’s it from my end.
Operator
Thank you. [Operator Instructions] The next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.
Gagan Thareja
Yes, sir. Thanks for taking the question, sir. Sir, the capex of INR2,000 crores that you’ve indicated, can you elaborate specifically how much will go into APIs? How much in CDMO, how much in bio in your biocatalysis venture?
V.V. Ravi Kumar
Bio around INR225 crores and CDMO will be the major and then probably another INR200 crores. This is for the CMO. And of course, the rest all will be the CDMO and then the API will be lower.
Gagan Thareja
So predominantly, it’s going into the CDMO please?
V.V. Ravi Kumar
Yes. That’s correct.
Gagan Thareja
And for the CDMO contracts in for your agrochemicals, when do you foresee commercial contribution starting?
Satyanarayana Chava
Maybe Q1.
Gagan Thareja
And the animal health will be starting in second half?
Satyanarayana Chava
Animal will start this year itself for some revenues. Yes.
Gagan Thareja
So I thought last call, we mentioned Animal Health, we should see contributions coming from second half of this year. Are you saying that there will be contributions but scale will be suboptimal and major…
Satyanarayana Chava
This year we’ll see revenues coming from Animal Health. But next year, also, the projections look good for animal health.
Gagan Thareja
So basically, two new revenue streams get added up next year, which should therefore have a substantial addition to top line for you? And on the formulations business, also you have a contract with Kara. I think you indicated you were doing a joint venture also. How should we think of that business scaling up from where it is today?
Satyanarayana Chava
The JV will have in the next 2.5 years. In the meantime, we’re adding capacity that will come handy from Q1 FY ’26 onwards. We expect some meaningful revenues coming from animal health, but not that significant from right now. Right now, we have one contract, we are negotiating other products, other contracts, validations will go on. So next year, size will get meaningful revenues will come from animal health. Some revenues were from cap changes, but meaningful revenues will only come in FY ’27. And FY ’27 animal health will go do optimum capacity.
Gagan Thareja
Right. Final one, you have almost — you indicated the formulation sales from ARVs, I think the figure was around 300 if I bought it correctly around INR300 crores for the quarter?
Satyanarayana Chava
Yes.
Gagan Thareja
So that’s on an annualized basis, almost INR1,200-odd crores.
V.V. Ravi Kumar
INR369 crores.
Satyanarayana Chava
Probably H1 is INR369 crores ARV.
Gagan Thareja
Okay. Yes. So sir, eventually, whenever Linear comes in, while you participate in the API and you power for a shift to whatever degree the shift happens to cover for it by supplying the API. But on the formulation piece, you possibly stand to lose out unless you build out a fill/finish facility or a fill/finish line. Is that the correct way to understand it that in ARVs, while overall sales, I do not know how much will be impacted. My personal perception is that it’s going to be a big shift just as TLE to TLD happen. But for you, you can compensate on the API side, but not on the formulation side. Is that a correct way of understanding this?
Satyanarayana Chava
No, no, very good question,. Currently, our API sale is about INR1,500 crores, INR1,600 crores and INR900,000 crores in the formulations. It is 2/3, 1/3 roughly in ARV. Will we lose an opportunity? We don’t get fully integrated in compare by sterile manufacturing. See, lenacapavir also a lot of clinical happening on the treatment side. The subcutaneous one is the prevention prep, whereas the treatment they’re coming with the water vessels, not every day, maybe weekly on for a monthly twice treatment coming.
And for that, we don’t need sterile basically. So I think we are not at a disadvantage right now because we may lose out in the prep space, but the prep is very, very prominent in the advanced market, not in the access to markets. So we are not a right now. But we are pursuing. We have time to catch up. So it’s not that the ship will — we don’t think shift will happen. Even it happens, we have another five years’ time to get ready and take the opportunity.
Gagan Thareja
Okay. Thanks, sir. That was helpful. Thanks for taking my questions.
Satyanarayana Chava
Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of our Q&A session. I would now like to hand the conference over to the management for closing comments.
Satyanarayana Chava
Thank you, everyone, for your insightful questions and guidance guiding the management. Thank you, Monish, for hosting this call. Thank you.
V.V. Ravi Kumar
Thank you.
Operator
[Operator Closing Remarks]