Solara Active Pharma Sciences Limited (NSE: SOLARA) Q3 2025 Earnings Call dated Jan. 24, 2025
Corporate Participants:
Abhishek Singhal — Investor Relations
Arun Kumar — Founder & Non-Executive Director
Poorvank Purohith — Managing Director & Chief Executive Officer
Arun Kumar Baskaran — Chief Financial Officer
Analysts:
Amresh Kumar — Analyst
Jagdish Sharma — Analyst
Naman Bhansali — Analyst
Sajal Kapoor — Analyst
Divya Shah — Analyst
Aditya Sen — Analyst
Sunil Kothari — Analyst
Rakesh Banerjee — Analyst
Manas B — Analyst
Parth Jariwala — Analyst
Anupam Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Solara Active Pharma Sciences Limited Q3 FY ’25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, sir.
Abhishek Singhal — Investor Relations
Thank you. A very good afternoon to all of you, and thank you for joining us today for Solara Active Pharma Science earnings conference call for the 3rd-quarter and nine months ended financial year 2025. Today, we have with us Arun, Solara’s Founder; Poorvank Purohith, CEO; and Arun Kumar Baskaran, CFO, to share the of the business and financials for the quarter.
I hope you’ve gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as the stock exchange website. The transcript for this call will be available in a week’s time on the company’s website.
Please note that today’s discussion may be forward-looking in nature and must be viewed in relation to risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free-to reach-out to the Investor Relations team. I now hand over the call to Arun to make his opening remarks.
Arun Kumar — Founder & Non-Executive Director
Thank you, Abhishek. Appreciate it. Thank you all for joining us today. So let me start-off saying that it has been a fairly disappointing quarter in terms of our revenue performance. And this is mainly a design situation that we have been confronted with increased pricing competition on our portfolio of our ibuprofen range of products. We have been taking conscious decisions, as you would notice over several quarters to be focused on operating leverage, higher and improved margins and discipline of the balance sheet. I think we have come a long way in several of those key metrics. But we decided not to accept price challenges on our products that would be detrimental for our business on a long-term basis.
Consequently, it’s very rare that we revise the guidance downwards. We have this time in the case of Solara revised the guidance downwards on the revenue standpoint, but I’m also at the same time pleased to confirm that our margins are actually trending ahead of — our Q3 margins are trending significantly ahead of our H1 numbers in terms of an average percentage point and we will see growth coming back to the business in a more disciplined and organized manner.
I’m also pleased with the gross margin expansion of 500 basis-points and that is a good start point for us to build the business from there. All of this obviously results in improved free-cash generation, resulting in reduced debt. And while the revenue guidance downwards is disappointing, we are not changing the EBITDA guidance previously provided at INR230 crores to INR260 crores and we expect Q4 is typically a high quarter for the pharma API industry. We expect that to be the case for Solara II to and we — while we have obviously reduced our revenue guidance, we had to adjust our EBITDA guidance for by about INR10 crores. But overall EBITDA for the year for that — I mean, INR10 crores for the quarter of Q4, but the EBITDA for the entire quarter, which was guided earlier, will be maintained. We are trending quite nicely on the debt-to-EBITDA times that we have guided and we’ll continue to improve on this.
A major decision we have taken is obviously to give focus to our CRAMS business. It’s been suboptimal, if I may say, over the last two to three years. And it requires a very different approach to build value and also capabilities and as most of you know, we have been mod our facility for a long period of time, although it’s been FDA approved. We have invested significant amounts of capital there. And the carve-out of the business will be beneficial to shareholders. We — albeit the size of the business is small today at INR120 crores with gross margins that the EBITDA will trend at around significantly higher than the company average and more in the 25% to 30% range.
But we do acknowledge that this business is very suboptimal at this stage. But given the infrastructure that we have at, which is going to be one of the largest sites in the API sector and having two consecutive 0483 inspections, we think that we are well-poised to have significant capabilities build-out of Isaac away from the catalog generic business and at the same time, pushing down about INR200 crores of debt into the new CRAMS business and also funding it separately as and when it’s required. It just gives the ability for the Solara Retail business to be significantly asset balance sheet — I mean a lighter balance sheet and will deliver significant outcomes in terms of financial key ratios.
Consequent to all of this successfully complete — getting completed and obviously subject to shareholder approvals and other regulatory approvals, which would take upwards of between 12 and 15 months. We believe that the debt-to-EBITDA in Solara will be closer to the one-time range, which is in a very healthy position for us to then grow the business. The carving out-of-the facility will not impact our capacity and for the next at least foreseeable two to three years in our core catalog business as we currently operate the business at around 65% capacity utilization.
Even though we have made significant cost-improvement strategies, our opex and under-recovery continues to be a challenge in this business and therefore, rather than adding significant new under-recoveries by kickstarting Wisack within the same P&L, we thought it was prudent and in the interest of all stakeholders to strategize this operation separately.
Yeah, so that’s a slightly long-ish opening note, but both Poorvank, and I am happy to address questions that you may have. We continue to believe strongly in the quality of the business that is emerging in Solara’s reset strategy, and I’m sure that we will deliver improved results in the coming quarters. Thank you.
Abhishek Singhal — Investor Relations
We can take the Q&A now.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to ask, remove yourself from the question queue, you may press time to. Participants are requested to use handset mode while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Amresh Kumar from Geosphere Capital. Please go-ahead.
Amresh Kumar
Thank you for the opportunity, sir. And this is regarding the carve-out of CRAMS business. So if you can give just a history of this business, how you have grown it so-far and the idea behind — you have explained it in a bit, but a little bit more details and how it will compete in the current environment? And how does a separate identity for this business help us as a and what are the technological capabilities we have developed in this business so-far? Some details and how big is the business in the context would be helpful. Thank you, sir.
Arun Kumar
Thank you,. I mean, like you rightly said, most of your questions have been addressed in my opening statement, but just to reemphasize, staying in the catalog generics business, we believe Solara has not — does not have the required bandwidth of leadership and the financial resources to build this business while it is resetting its own proprietary catalog business. So the need to do this was obvious. Is a very significant plant with almost 700 KL capacity and has the ability to double that capacity easily, which is what typically potential partners would look at large capacities if they were going to come our way. Our business has been very suboptimal. It’s been very stagnant and not been growing so much.
But we believe that with the renewed focus, we can add significant — in a significant velocity to the growth of the business. This business currently in FY ’25 is approximately INR120 crores. It delivers that 25% to 27% range adjusted EBITDA. And of course, when we take this revenues into the new company, the first several years, there would be not necessarily great numbers as we will have under-recoveries and additional expenses in terms of building new capabilities.
But overall, I think the polymers — pharmaceutical polymers business that we have got a lot of legs to grow and we will build that business quite significantly, but it will take us two to three years before you see a the emergence of a challenger or a new player in the CRAMS API business. We have several types of chemistry and capabilities that we can offer from this plant. At this time, our primary focus is going to be the polymer waste API chemistry, which not many have out of this country. Yeah. Thank you.
Amresh Kumar
Thank you, sir.
Operator
Thank you. The next question is from the line of Jagdish Sharma, an Individual investor. Please go-ahead.
Jagdish Sharma
Sir, thanks for giving me this opportunity. I have a couple of questions for the carve-out camps and polymer business. You just mentioned that you have INR120 crores of top-line for this business. What are the EBITDA margin currently you’ve made in this quarter?
Arun Kumar
I don’t think we can give you specifics for this quarter, but generally, the business delivers about 25% EBITDA.
Jagdish Sharma
25%. Okay. So my second question is like you mentioned this business is subscale, right? Currently at subscale level. What is our aspiration over the next three years in terms of revenue and margin?
Arun Kumar
I think we believe that we can take a revenue expansion obviously to be in the 35% to 40% EBITDA range has to happen to be a serious comparable CRAMS player. I think we can triple or even quadriple our turnover from the current INR120 crores. We do have a nice pipeline. And with a new arrangement that is being proposed, we think in about three to four years, we can get to that INR500 odd crore number.
Jagdish Sharma
Okay, sir. Thank you, sir.
Arun Kumar
Thank you.
Operator
Thank you. The next question is from the line of Naman Bhansali from Nine Rivers Capital. Please go-ahead.
Naman Bhansali
Hi, sir. Thank you for the opportunity. First question is, you’ve mentioned in the presentation that we have received six key product approvals in 11 market extensions in the Q3 quarter. So could you elaborate a bit on this and if we have any material product approvals that can come out of these?
Arun Kumar
And I’ve got to request Poorvank to answer. He can give you more perspective.
Poorvank Purohith
So specifically, we have already mentioned about this that we are doing we are strongly focusing on the polymer space and we did get some of the approvals in the polymer space for some of the key markets. And then there were some approvals that we got in the ibuprofen plus space wherein we actually talk about some of the markets which we have not catered for some of the existing customers. So it is adding to a mix of new geographies that is actually adding to our opening new markets for us.
Naman Bhansali
Got it. That is helpful. And second question is on the financial side of the CRAMS and polymer business. So if you could share what is the total capital employed till-date for this business and what incremental capex would we need to do for this particular facility?
Arun Kumar
Yeah. So basically, the capex that has been invested in Vizag is close to about INR500 crores. But not all of that capital will be useful for a CRAMS business because it was predominantly an ibuprofen facility. So I would like to say that the good assets that the CRAMS business can enjoy would be about in the range of INR250 crores to INR300 crores because the rest of the plant has to be retrofitted. We probably need to invest at least another INR100 crores to INR150 crores in the next three years to achieve the goals of what we want to be. And then, yeah, so that should take us to the next big level we want to build this platform to.
Naman Bhansali
Got it. Thank you. That’s it from my side.
Operator
Thank you. The next question is from the line of Sajal Kapoor from Antifragile Thinking. Please go-ahead.
Sajal Kapoor
Yeah, hi. Thanks for the opportunity. Solara made an excellent move, I think, by separating Polymer and HP API. And a couple of questions from my side, if I may, Arun, and you as well. Can you share some perspective on the R&D infrastructure? Do we have a — as on today, do we have separate teams for CRAMS and generics? And what is the combined team size on the R&D side today and where do you see this number growing over the period.
Arun Kumar
As I said, so basically today, our R&D is combined for both generic and for the crafts business and that is one of the key reasons that we need to separate and segregate the two considering that we need a very different level of capabilities and infrastructure to attract customers. So this more of us would facilitate that. We think that we will end-up at adding at least 100 new scientists for our TRAMS division in the next 12 months.
Sajal Kapoor
Yeah, that’s helpful, Arun. And on the — yeah, on the gross margin side, clear, is a higher gross margin business. We all know that, but it’s subscale today is low volumes as disclosed. Now given that it’s a higher-margin business and it’s contributing an almost negligible amount, let’s say 10% to the overall, our consol gross margins are still 56%, which is very healthy. And that kind of suggests that the other business, the non-CRAMS business is also not having very low gross margins as on today. Is that a fair assumption?
Arun Kumar
It is because of our focused attention to margin and that is what has caused the revenue drop. So our attention has been that when we have price challenge, we are happy to let go of business. And we gain credit to the new challengers for having built plants which are very modern of very large-scale. But considering that we’ve been an ibuprofen player for 40 years, obviously, we find ourselves pitted against very young challenges and we are happy to let go of business in the interest of margins.
But having — and you rightly pointed out that our — and if you look at Purong’s commentary, 76% of our business continues to be in the regulated market. So they are very sticky businesses. They are long-term partnerships where we would rather service those customers and increase the wallet share than trying to expand markets at price. So you are right, at 55%, I think we have achieved our first threshold of an ideal margin situation. I don’t think the carve-out to the business is going to drop this dramatically may drop it by 100 to 100 bps, but even 53% 55% range is what we want to first establish. Growth given the structured approach of not chasing revenues will come because seeding customers and geographical expansions and that is why we highlighted that we got new — same products expanded to new territories or acquiring new customers are good healthy signs where we can show growth.
So I think growth will be tepid on the top-line, but I think you can see margin expansion, OpEx leverage, inefficiencies in our manufacturing infrastructure and our corporate overheads coming down dramatically. And if you see our presentation, you’ll see in the last five quarters, we’ve had a very successful run on cost management.
Sajal Kapoor
Now brilliant thinking, Arun. Definitely a masterstroke, no doubt. I’m done with my question. Thank you.
Operator
Thank you. The next question is from the line of Divya Shah, an Individual Investor. Please go-ahead.
Divya Shah
Hi, sir. Thanks for the opportunity. So my question was on one on the top-line guidance which has been revised down. So if you look at the FY ’25 as a whole at the mid range of your Q4 guidance, we will be doing mid-single-digit revenue growth in FY ’25. And if I take a three-year view, what is the potential growth that we can achieve for Solara? That’s my first question.
Arun Kumar
Double-digit would be a fair assumption.
Divya Shah
Okay, got it. And my second question was on the EBITDA margin side. So I mean, we’ve already reached a 20% EBITDA margin in this quarter. So going-forward, if we take a long-term view of three to four years again. What kind of margins can Solara catalog BPI business do?
Arun Kumar
I don’t think we can go much further from here. I think 20% to start-off and if we can have three or four consistent quarters at this percentage numbers, then we can start accelerating because incremental growth will flow-through margins will improve from if we keep the gross margin. So at this time, I am following a group strategy of consolidation every three, four quarters and then growth coming after and this worked well and I think it will flow-through here too. I think the margin expansion from 20% to 22% 23% in this three-year horizont that you are talking about is feasible.
But let’s take one year at a time. And I think importantly, if we can have another five quarters of 20% EBITDA and even if the growth is only 10%, it delivers close to INR350 crores to INR400 crores of free-cash in that period. And the first target is to make the balance sheet even lighter and make the company debt-free. And that’s my goal and I think we’ll get that.
Divya Shah
Okay, got it. That’s it from my side. Thank you.
Operator
Thank you. The next question is from the line of Jagdish Sharma, an Individual Investor. Please go-ahead. Jagdish Sharma, please go-ahead with your question. Unmute your phone-in case if you are muted it.
Jagdish Sharma
So thanks for giving me this opportunity once again. Our gross margin improved to 55% during this quarter. That’s a 500 bps sequential jump. What was the main drivers for this margin expansion and is this number sustainable going-forward?
Poorvank Purohith
Yeah. So basically what we have done is basically while, as Arun mentioned about the fact that we have significantly focused on profitable products. And one of the questions was also that while we are talking about cramp business, there are other businesses wherein we have actually been able to sustain our margins. Having said that, with respect to this, we did a debottlenecking of capacities on some of the high-margin products, while also while continuous focus on the cost-improvement program that we had in-place, which actually allowed us to expand the margins and that’s how we have been able to do that and we see a demand coming for these two products and which would sustain in the coming quarters.
Jagdish Sharma
Okay. Okay. My second question is like our other expenses have reduced INR256 crore in this quarter. Is it sustainable going-forward? What were the key initiatives taken by us to bring this efficiency?
Arun Kumar Baskaran
One is, you see over the last four quarters, our opex has been coming down. It’s mainly because of both margin plus we have also taken some offer production measures in other side.
Jagdish Sharma
Okay, okay, sir. Thank you, sir.
Operator
Thank you. The next question is from the line of Aditya Sen from RoboCapital. Please go-ahead.
Aditya Sen
Hi, thanks for the opportunity. I got my answer just now. Sir, can you please come back on the revenue guidance for the next three years? I guess you answered, but I missed that point.
Arun Kumar
Low-single digits.
Arun Kumar Baskaran
Low double digit.
Aditya Sen
And the asset turn for the plant would be 1.2x to 1.3x. That’s right?
Arun Kumar
Correct, asset turn, yeah.
Aditya Sen
Okay, got my answers. Thank you.
Operator
Thank you. The next question is from the line of Sunil Kothari from Unique PMS, please go ahead.
Sunil Kothari
Thanks for opportunity. Sir, my question is a little bit on abroad to understand,, your success of getting — getting acquiring assets, merging and demerging and then creating value is very highly successful. Very, very few entrepreneurs has up to now done this type of successful restructuring and creating value. Sir, my question is, are you — internally you have capable team and you have prone yourself. Are you seeing larger external opportunity maybe because of regulator markets, supply-chain disruptions or maybe China plus one, if you can talk a little bit more on those opportunities will be really helpful.
Arun Kumar
Yes, let’s restrict our conversations to Solara at this time. I think Solara is a classic case of a legacy business which missed out on the run. And I think our primary focus today is to segregate the business, give it the attention it requires resource the capital, get the teams, the technical capabilities and that is a lot to do. And I think that itself will create value to Solara stakeholders. So that’s what we do well as a group like you rightly said, and we will stay focused on that approach here too.
Sunil Kothari
And sir, your thoughts on external opportunity, is there any major shift happening compared to, say, last 10, 15 years or this is the opportunity which was there and it is continuing or maybe increasing? How do you see this?
Arun Kumar
We see clamps is an opportunity increasing, I think there is some benefit of the China Plus One strategy. I don’t see it’s a tsunami coming our way. I just think that the pharmaceutical industry and the life sciences industry is looking at India as a very serious player, just that we now have the capabilities, infrastructure, people, skill-sets and they are benefiting from that, but we still are a very small part of the global supply-chain in terms of CLCR DMO activities. But I think we still have a chance. Some of the chemistries that Solara has is historically in good — in a good spot and we are benefiting from that opportunity by doing what we did. On your themes, I think internationally, there are several opportunities, but I think valuations are high and building international assets at this stage on the API platform is not necessarily what we are looking at.
Sunil Kothari
Thank you so much.
Operator
Thank you. The next question is from the line of Rakesh Banerjee, an Individual Investor. Please go-ahead.
Rakesh Banerjee
Yeah, good afternoon. Thanks for the opportunity. My question — I mean, first of all, congratulations for hitting 55% gross margin. That’s really awesome at this stage of the business. What I was trying to understand, you have already mentioned that you got six approvals in the last quarter. So if you can, sir, elaborate a bit on the expected approvals in the coming quarters as well, maybe in the next or next two quarters, that would be really helpful. And also if you can comment on out-of-the six approvals that we have already obtained, if there is any major molecules which got approved, I think that would be also very insightful.
Arun Kumar
Rakesh, we don’t — don’t give any specifics on products. Obviously, that’s not what most companies do. Like Poorvank mentioned, we do have some nice products in some difficult to make products approvals, mainly portfolio maximization strategies that is new markets, not necessarily new products. They will funnel growth to the guidance that we are giving long-term, that low double-digit growth with a focus on keeping the margins. So we do not have any specific answers to your question.
Poorvank Purohith
And to add to what Arun just mentioned, we have also mentioned earlier that we have close to 95 DMS already active DMS, which are filed in the US and we are actually roughly selling just to give a ballpark, we are selling close to 30 products only. So there is still lot of value, that intrinsic value in the system that needs to be capitalized. And that’s where we are getting into cost-improvement programs and seeding the market, seeding the new customers and seeing the growth coming from there.
Operator
Thank you. The next question is from the line of Manas from Xylem Investment. Please go-ahead.
Manas B
Thanks for the opportunity. So my question is regarding what is the timeline for the demerger of this?
Arun Kumar
So typically any demerger through an NCLT process takes between nine and 12 months. So that’s what we expect this to also take.
Manas B
And that you are guiding for low-single digit guidance, right? Am I heard correctly?
Arun Kumar
Low-double-digit.
Manas B
Low-double-digit. Thank you, sir. That’s it.
Operator
Thank you. The next question is from the line of Parth Jariwala, an Individual Investor. Please go-ahead.
Parth Jariwala
Hello, sir. Thank you for providing me the opportunity. I have three questions. Here is the first one. In the previous quarter, it was mentioned that the revenue was expected to be in the range between INR1,400 crores INR1,500 crore by the end of FY ’25. Do you believe this target is achievable and what your EBITDA expectation regarding EBITDA and operating profit margin the same-period? And second question is regarding the debts. Your guidance was provided to reduce up to INR500 crores by the end of FY ’25. Do you believe this target is achievable and what strategy are in the place to ensure a smooth reduction in the depth level? And third question regarding the ibuprofen contribute 34.1% of total revenue turnover, respectively a key driver of revenue. Could you provide insight into the contribution from other segment or a product that’s mix?
Arun Kumar
So, all of these questions were already addressed, but we will respect your time today. I think you probably came in late. I did mention we actually guided for a reduced revenue in Q4. It’s already part of our guidance and our EBITDA. So consequently, we will not get to the INR1,400 crore INR1,500 crore range. We’d be more in the INR1,300, INR1,400 range, which means that there is a drop-in approximately INR100 crores of revenue. And we’ve dropped INR10 crores of EBITDA in Q4. That means that our exit run-rate will not be in the — in the INR400 crore INR500 crore number that you’re referring it. It will be more in the INR300 crore number.
I do not know where you got the INR500 in the first-place. It was never there before. And we will continue to build from here focusing on margins. Our debt has already reduced quite significantly. If you look at our debt book, we are now sub 2 times debt-to-EBITDA, I mean 2.5 times debt-to-EBITDA compared to almost six times when we started this research journey about six quarters a year-ago. And we expect the debt to be under 1.5 in the next 12 14 months after the car is complete. Thank you.
Operator
Thank you. The next question is from the line of Anupam Jain from Indira Securities. Please go-ahead.
Anupam Jain
Yeah. Thanks for the opportunity. I just wanted to know what the current RAMS facility or retrospecting, how much will be the cost for that additional cost because you have already incurred INR500 crore cost as…
Arun Kumar
Anupam, we did say that Vizag has invested — question of how much money has invested. It’s about INR500 crores, of which I also mentioned that I believe that the assets that are useful for the CRAMS business is not more than INR300 crores. So that is the useful value of the assets. We probably actually INR100 crores to get to where we want to be.
Anupam Jain
Yeah, so basically the facility was mid-care and to ibuprofoint, high potent API and polymer division.
Arun Kumar
Correct. But ibuprofen block is not going to be — has to be retrofitted because we plan to convert that into a different segment, which we will shortly make certain update announcements in the next quarter.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments.
Arun Kumar
Thank you. Thank you all and be in touch with us or with our Investor Relations team if you have any questions. Appreciate your time and have a good weekend. Thank you.
Operator
Thank you, ladies and gentlemen. On behalf of Solar Active Pharma Sciences, that concludes this conference. Thank you for joining us and you may now disconnect your lines.