Supriya Lifescience Ltd (SUPRIYA) Q2 FY23 Earnings Concall Transcript

Supriya Lifescience Ltd (NSE:SUPRIYA) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Rasika Sawant — Investor Relation Partner

Satish Wagh — Chairman and Managing Director

Saloni Satish Wagh — Director

Rajeev Kumar Jain — Chief Executive Officer

Ashish Ramdas Nayak — Chief Financial Officer

Analysts:

Naresh Vaswani — Sameeksha Capital — Analyst

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Devang Shah — Investsavvy — Analyst

Rahul Veera — Abakkus Asset Manager — Analyst

Tushar Bohra — MK Ventures — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Q2 FY23 Earnings Conference Call of Supriya Lifescience Limited. [Operator Instructions] 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 Ms. Rasika Sawant from Orient Capital. Thank you, and over to you Ms. Rasika.

Rasika Sawant — Investor Relation Partner

Thank you, and welcome to the Q2 and H1 FY23 Earning Conference Call of Supriya Lifescience Limited. Today on this call, we have Dr. Satish Wagh, Chairman and Managing Director, along with the senior management team.

This conference call may contain forward-looking statements about the Company, which are based on beliefs, opinions and expectations as of today. Actual results may differ materially. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. A detailed Safe Harbor statement is given on page #2 of the Company’s Investor presentation which has been uploaded on the stock exchange and company website.

With this, I hand over the call to Dr. Satish Wagh for his opening remarks. Over to you, sir.

Satish Wagh — Chairman and Managing Director

Good afternoon, and warm welcome to all participants. Thank you for joining us today and discuss Supriya Lifescience Limited Q2 and H1 financial year ’23 results.

To take us through the results and to answer your questions, we have with us the top management from Supriya represented by Dr. Saloni Satish Wagh, Director; Mr. Rajeev Kumar Jain, the Chief Executive Officer; Mr. Shireesh Ambhaikar, the Technical Lead; Mr. Ashish Nayak, the Chief Financial Officer of Supriya Lifescience Ltd, and our investor relations partner, Oriental Capital. I hope everyone got the opportunity to go through the financial results and investor presentation, which are uploaded on the stock exchange as well as on Company’s website.

In Q2, financial year ’23, we faced challenges in China market due to the lower [Indecipherable] in the major cities. Our operating revenue in Q2 FY23 was INR112 crores as against INR150 crores in Q2 FY22, with an EBITDA margin of 25% and PAT margin of 15%. For H1 FY23, our operating revenue was INR213 crores as it is INR227 crores in H1 FY22, with an EBITDA margin 26% and PAT margin of 20%. Having said this, we are positive that the upcoming quarters, we’ll be able to gain on the lost opportunity. We would like to introduce to you the new CEO, Mr. Rajeev Kumar Jain, and I would also like to state that Dr. Shireesh Ambhaikar, CEO will continue as — with us as Technical Lead and will continue to look over the expansion projects as well as CMO/CDMO projects in pipeline.

With this. I now hand over the call to Dr. Saloni Wagh, Director to share the key highlights of our business performance. Over to you, Dr. Saloni.

Saloni Satish Wagh — Director

Thank you, Dr. Satish Wagh, and good afternoon to all the participants. We welcome you to the Q2 FY23 and H1 FY23 earnings call of Supriya Lifescience Limited. I will just add a few comments on top of what Dr. Satish already in terms of business for our key therapy antihistamine and key market China, we had a very muted quarter due to the continuous lockdowns in China due to, which while the operating revenue has remained similar to H1 FY22 there is an impact on the margins in this market and product is a key margin generator. Other than above in our other key markets like Europe due to current Russia-Ukraine war situation and energy crisis, we are seeing delays in consignment.

We don’t perceive this as revenue loss and we have demand visibility for these products and once these specific external uncertainties normalize, we expect to make good shortfall in revenue. Our current product portfolio continues to grow. Additionally, for key products we are seeing good traction in untapped regulated markets like USA where we have initiated five new ANDA projects in this quarter for anesthetic Vitamins and antihypertensive range. Focus areas where we are experiencing excellent progress include backward integration, increased capacity for future prospects and capitalizing on CMO/CDMO potential.

Significant progress is made in the CMO/CDMO space. Work is in-progress with various companies ranging from big pharma to innovator companies to walk us as a partner who supplying products as per their needs. Work is in advanced stages for the first commercial quantities to qualify Supriya Lifescience as a source. We also expect that two of the CMO projects will cross Phase 2 and be ready for regulatory filing in the Q4 FY23.

With regards to capacity enhancement, work on construction of Block with about 350KL reactor capacity is in-progress. A new manufacturing Block with capacity of 70KL attached to the new R&D facility with pilot plant is being setup at Ambernath. We are currently debottlenecking our existing manufacturing Block to increase capacity of running products. We are seeing increasing demand for current products.

Lastly. I would like to touch upon company backward integration business model, the product which we produce contribute 70% of our total revenue. We are extending backward integration model to our newer products as well to stay competitive. By adding more products, increased penetration rate, expanding customer base rate, expanding customer-base, adding more —

Operator

Ma’am, sorry to interrupt. There was a disruption in your voice. Can you please repeat your last line?

Saloni Satish Wagh — Director

I would like to touch upon company’s backward integration business model. The top 12 products which we produce contribute to 70% of our total revenue. We are extending the backward integration model to our newer products as well as to stay competitive. By adding more products, geographies, increased penetration in regulated market, expanding our customer base. adding more operating sites, we are completely derisking the business, a stepping stone to our success story.

With this now. I hand over the call to Mr. Rajeev Jain, CEO to share our business strategies. Thank you, very much.

Rajeev Kumar Jain — Chief Executive Officer

Good afternoon. Thanks, Dr. Satish, Dr. Saloni and warm welcome to all participants.

I have recently took over assignment from Dr. Shireesh as a CEO last month, October 2022. Thanks to all shareholders for this opportunity. As mentioned by Dr. Satish despite [Indecipherable] like Russia-Ukraine war, lockdown in China, we have managed revenues to INR213 crores [Phonetic] with EBITDA margin of 28%. We keep this opportunity to add more products in our basket, which improves efficiencies. Our key focus area will be increase our presence in ability market, the new emerging markets, backward integration, optimization of manufacturing capacity with proper installation of men, material and upgrade announced facilities and automation.

We are also working to reduce our working capital with proper planning and better coordination between marketing, operation and preferred use. Our R&D is also working towards some low risk products in our basket. Our newly upgraded facilities, new block, our new building at our Lote, business operation from divestments. Our new block QC, R&D and enhanced and upgraded. Our expansion activity at Lotus site is [Indecipherable] time. It will help us to add new CMO/CDMO opportunity. News products seems fully operating in Q1 ’24. We at Supriya see this as a fantastic opportunity for sustainable.

With this, I will hand over the call to our, CFO, Mr. Ashish Nayak. Over to you, Ashish.

Ashish Ramdas Nayak — Chief Financial Officer

Thank you, Dr. Wagh, Dr. Saloni, and Mr. Rajeev. Hi, everyone. I will now share the operational performance for Q2 FY23 and H1 FY23 which are under review. Our exports were approximately 79% of sales and share in the regulated markets was down at 22% as against 52% in FY22. On account of response in China due to lockdowns over there.

Talking about the quarterly and half yearly performance, Company reported revenue from operations of INR112 crores in Q2 FY23 and INR213 crores in H1 FY22 as against INR150 crores in Q2 FY22 and INR227 crores in H1 FY22. EBITDA in Q2 FY23 stood at INR29 crores and INR60 crores in H1 FY23 as against INR80 crores in Q2 FY22 and INR96 crores in H1 FY22. EBITDA margins stood at 28% in H1 FY23 as against 42% in same-period last year. PBT was INR58 crores for H1 FY22. Profit-after-tax stood at INR42 crores for H1 FY23, at 20% of the revenue.

Operating revenue has remained similar in H1 FY22 despite of muted customer response in our key markets, China. However since this market is a key margin generator, there has been a dip in our margin. There is no pricing pressure on all products, also we have not seen any major cost pressure on raw materials. Logistic challenges faced in the earlier quarters have eased out. On the expense front, there has been an increase in certain expenses like power, which stood at INR9.5 crores for H1 FY23 as against INR40 crores for the full-year FY22, lab expenses at INR2.3 crores for H1 FY23 as against INR3.2 crores in FY22. Repairs at INR8.5 crores in H1 FY23 as against INR7.5 crores in FY22. Increase in power and lab expenses is primarily as manufacturing block there was commissioned in Q1 FY22 is now running at peak capacity.

Over and above this there has been an apportion of IP expenses approximately INR1.8 crores, which was not there in FY22. These expenses have been apportioned over a period of five years. On the balance sheet front, as on 30th of September 2022, there has been an increase in the fixed assets by INR5 crores, there is towards equipment at Lote, Parshuram. The capital work-in progress has increased by INR31 crores which is primarily towards the new admin block at Lote which is expected to get operation in the coming months. The ETP facility at Lote, the newer raw-material warehouse at Lote and upcoming manufacturing Block at Lote and Ambernath manufacturing Block. The admin block and the RM warehouse will be operational in the coming month, the upgraded ETP facility in Q4 FY23 and the E Block in Q1 FY24.

Once the manufacturing blocks are operational the total capacity would stand increased to 810KL. Other non-performing assets of INR4 crores comprises of deposits given towards electricity. The net working capital was INR405 crores as against INR398 crores. Inventory was INR106 crores, which is approximately 261 days as against INR92 crores, which was 200 days as on March 22. Please note this is calculated on the cost-of-goods-sold. Receivables was INR81 crores which is 68 days as against INR115 crores. So there has been a marked decline in the receivables almost INR34 crores, but in terms of number of days there has been a marginal increase from INR68 crores to INR75 crores. Please note this is calculated on gross sales.

Cash and bank balance was INR190 crores out-of-which INR180 crores was in fixed deposits. Other current assets was INR113 crores, comprising of prepaid expenses INR12 crores advance to suppliers INR24 crores and then advance for block INR56 crores which we expect to be converted to a leasehold land in the coming quarter on the remedies. On the equity front the reserves of INR636 crores, which comprise of share premium of INR199 crores and the retained earnings of INR437 crores. Non-current liabilities were INR21 crores, comprising of provisions and deferred tax liabilities, current liabilities were INR89 crores, comprising of borrowings of INR30 crores and trade payables of INR54 crores. Net equity stood at 0.06.

On the cash-flow front, operating profit before working capital changes was INR60 crores. The increase in current assets primarily on account of receivables which as, I said earlier, have reduced by INR34 crores, inventory has gone up by INR14 crores, other current assets, there is an advance for two of — which block which has gone up by INR42 crores and advance to suppliers have gone up by INR7 crores. Investing activity, increase in productive assets by INR36 crores of which INR5 crores is for fixed assets 730 or INR31 crores is capital work-in progress.

Cash-flow from finance activities is INR8 crores. IPO proceeds from utilization. We have repaid the working capital facility to the extent of INR60 crores out of INR92.3 crores for A block we already utilized INR13 crores and general corporate purpose out of INR36 crores was already utilized INR35 crores. This is all from my side. We can now open the floor for questions and answers. Thanks to all of you.

Questions and Answers:

Operator

Thank you, very much. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Naresh Vaswani from Sameeksha Capital. Please go-ahead.

Naresh Vaswani — Sameeksha Capital — Analyst

Yeah. So on the revenue side value, mentioned that you have been impacted because of lockdowns in China. I want to get some more detail regarding this, how is it exactly impacting you, and by which ports do you supply in China? We will see this situation because you mentioned that you expect to recover the lost sales but then these products will be seasonal in nature. So how do you plan to recover that?

Second. If I look at other therapies, apart from the anti-histamine those have also been tepid year-on year. And now given that you had guided for a 25% sort of revenue run-rate, how the first-half has declared — first we have seen a decline of 6%. So, what will be your revised guidance for the FY23? And third is, your capacity utilization you mentioned that it is 72%. Given that you have lost production and also you had a new block this year, how can it be 72% because if you have not produced any inventory or inventories are also flat from the March quarter, so when this utilization be much lower?

Saloni Satish Wagh — Director

Correct. So. I would like to take this question. In my speech, I have mentioned that you know our key market, China we have seen a muted response and the way the lockdowns have affected us is actually because airports in Shanghai, Guangzhou, where most of the distributors, our key distributors are based they were under lockdown because of which what has effectively happened the consignments have not been able to move. In fact in the last two quarters we have done some small shipments just to see if the import clearance process is proper and if they are able to clear the goods. However these consignments are also stuck at the port for a very long-time about two odd months. So that is the main reason why the lockdown in China is impacting our sales there because the consignments in terms of logistics are not able to because of the shutting of the airports and seaports.

The second thing what we would like to highlight and, what I’ve also mentioned in my speech is that the demand for the product is very much there and we have a good order book in-hand and the demand visibility is still very much there for us, which is why we keep saying that this is not a revenue loss per se, the product demand or the product is not de-growing, and hence when the situation sort of stabilizes in China which is expected to in the next coming few months we expect that this also should normalize and we should be able to move our consignments in this market.

Our second as far as capacity utilization is concerned, you mentioned that we are still at 72%. What has happened is that we are a multiproduct — we have a multi-product facility and, what has happened in this particular quarter is that whichever campaigns were planned these were the kind of products, which are not very you know high contributors to margin or revenue, but these are the kind of products which have a longer-cycle time. So while effectively you have not seen much in revenue as well as in margins, the fact is that the occupancy of these products in the plant has been there. For the first-six months we have produced about 372 metric tonne of material which is a very large-volume and that is why the capacity utilization still is at 72%. In the next few quarters when the high-margin product demand picks up and these products don’t necessarily have a very long-cycle time, you might see that even with the lower capacity utilization we were able to generate higher margins than revenues. It is very product-specific I would say multiproduct facility.

Naresh Vaswani — Sameeksha Capital — Analyst

And given that you still believe that China will take some time to recover, what will be our revised revenue growth guidance for full-year.

Saloni Satish Wagh — Director

So, like I mentioned before that the revenue dip has only happened because of the dip in key market, China. If you look at the other markets and other therapies, the key therapies in fact like anaesthetics they have so-far win. So because these are governed by external factors and external uncertainty and we still have a demand visibility there. I think we would like to wait-and-watch how the next couple of months shape up to give firm guidance on what we will close-out for this financial year.

Naresh Vaswani — Sameeksha Capital — Analyst

But if I look at your other therapies and I understand the China situation but other therapies also the demand. I mean the growth is very tepid on a year-on year basis. So while you are saying that you have orders in-hand, what is stopping you to ship in other markets.

Saloni Satish Wagh — Director

One of the other markets where we are — I mean till quarter two there wasn’t much impact but some other area where we are seeing some slight impact and delay in consignment is Europe, as you know this is our second-largest market and key products, the higher margin generating products are going into the European region and because of the current water crisis there and also the energy crisis that they are facing we have seen some slippage in terms of delaying certain consignments. And again here I would like to reiterate that the orders are there in the books however because of the current situation there it might look like a slippage in this particular quarter but it is not a loss of revenue. And once the situation in this market also sort of stabilizes we should be able to get this revenue back.

Naresh Vaswani — Sameeksha Capital — Analyst

Yeah, but why I’m asking this question again because we have not — we don’t have any additional inventory on-hand right now and given that you are saying that we have orders in-hand. So given the capacity we would have, how will we plan to recover the lost sales because we don’t have any increase in inventory in this first-six months.

Saloni Satish Wagh — Director

So that is something that we are working towards majorly whatever is there in the inventory the orders are in the books, however because of the — like I said issues and lockdowns in China and Europe these consignments are not able to move. As far as the other products are concerned we’ll have to wait-and-watch the situation because while we are getting more orders of the other products the key margin driving products still are at a little bit of uncertainty due to the external factors. So to give you a guidance, like I said before we’ll have to watch a couple of more months and probably towards end of quarter three is where we will be able to give you a more and appropriate guidance on where we land at the end-of-the financial year.

Naresh Vaswani — Sameeksha Capital — Analyst

Okay, thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Aashish U from InvesQ Investment Advisors. Please go-ahead.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Yeah, hi thank you for the opportunity. So again clarification on what the earlier participant was trying to understand. If a product which was not shipped which will either be there in the inventory as produced or it will be booked into sales. So if it is not in either of the things, then I mean the production has not happened then. So is there a disconnect between what you’re trying to explain and what we are understanding.

Saloni Satish Wagh — Director

So basically what we’re trying to explain is that the market for these products as such is not degrowing. The demand is there in the market. However, because these markets have been badly impacted because of certain external situation, the shipments and the orders have not been able to commercialize. So while it seems that you know it is the loss of revenue but what we’re trying to say is that it is not because the demand is still very much there. However, once the situation in those areas streamlines only the customers will be able to place the orders and take the consignment.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

So there is an order, but it has not been produced and commercialized. That’s what the situation inside.

Saloni Satish Wagh — Director

Yes, yes, because..

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay, okay. Got it.

Saloni Satish Wagh — Director

I would like…

Operator

Ma’am, your voice is breaking again. Can you please repeat?

Saloni Satish Wagh — Director

Sorry, I said that in the future also, I mentioned and even when I was explaining before, for example, for our key market, China, we had large orders, but because of the logistical issues when we tested out sending smaller quantities into that region, we had a lot of problems under distributor, our agent had a lot of problems to clear this cargo, which is why the next larger lots have not been. This is the main gap, which is happening, but the orders are in hand, but because we don’t had it from the end of the customer on when we can ship these, they might not be visible in terms of revenue and the order booking.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

And what’s the [Indecipherable] where you can say that this means orders won’t marketize now because the season for them would be over. What is the outer timeline for that?

Saloni Satish Wagh — Director

I think towards end of quarter three is when we should have a better clarity. We expect a lot of things to happen in favor of us, and we expect these things to normalize. So end of quarter three is where we’ll be able to give complete clarity on the guidance for the full year.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. Is the situation same with European business for you, because, I mean, they’re not be as bad as China, but still some kind of, say, destocking there or kind of hesitant to take up inventory of your products?

Saloni Satish Wagh — Director

So as of now, as of quarter two, we have not seen a very large impact from European market. However, in the last one month or so, yes, there has been some delay in shipping out the consignments. This is because of again the local issues over there where customer is not getting proper clearance for importing the cargo and everything. So as of now till quarter two, not much impact, but if the situation continues like this we’ll have to wait and watch, and we only get a better clarity in the next one month or so on how things will move and how much of that will be impacted in this financial year.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. And any other pressure points on the business on — would you like to elaborate, so that we can all understand what’s kind of happening?

Saloni Satish Wagh — Director

Well, for — other than the lockdown in China and some unstable situation in Europe, we don’t have any pressure points in terms of raw material because of the backward integration that we have. We are very much secured in that front. Also, margin pressure is not there as such. But you saw, although for the two quarters it seems like a negative in revenue, but what I want to highlight here is that the product portfolio itself is growing and then you know these external factors sort of stabilize and not play. Whatever revenue and sales we have lost, we will be able to recover, and that we can say with a lot of confidence because the demand visibility is very much there in front of us for these products.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. So fine, we’ll come back with more questions afterwards. Thank you.

Operator

Thank you. We have the next question from the line of Devang Shah from Investsavvy. Please go ahead.

Devang Shah — Investsavvy — Analyst

So one, while…

Operator

Mr. Shah, I would request you to use your handset please. There is a lot of disturbance.

Devang Shah — Investsavvy — Analyst

Can you hear me?

Operator

Yes, please proceed.

Devang Shah — Investsavvy — Analyst

Yeah. So when you say that the demand is very much there and that you will recover the demand, is it more of that going forward the demand would come back or is it that even the period loss will be made up?

Saloni Satish Wagh — Director

I think given the loss period will be made up because for these key products in the past also, we have highlighted that the market is stable and whatever we have lost in the previous quarters, we should be able to make up for that. What we are currently trying to do is trying to find out ways how logistically we can surpass the challenges that we’re facing in China for range of consignment and if there any alternate way where we’ll be able to ship this cargo there and we’ll be able to import it without any [Technical Issues]. When I say good visibility, I…

Operator

Ma’am, your voice is breaking, ma’am.

Saloni Satish Wagh — Director

Hello.

Operator

Yeah, yeah, please repeat.

Saloni Satish Wagh — Director

I was saying that what we are working on now is trying to understand how we are able to resolve the logistics issue, especially in markets like China and how we will be able to send out the cargo because customers are also waiting to receive these orders. And we are also — I mean, we will also be ready with producing these products because these are our regular key products. So we are just waiting to resolve the logistics issue and with that, I think we should be able to make up for the lost revenue in the first two quarters.

Devang Shah — Investsavvy — Analyst

But see, two things, if it is not resolved till now, then we’ve got half of Q3 also, which has gone by. So are we expecting the issue to still continue in Q3 and only Q4 then we get a resolution, because if it’s not resolved till now, then Q3 is also kind of gone. And the other thing is that if let’s say pardon, maybe the business…

Operator

Mr. Shah, we are not able to hear you. There is a lot of disturbance on your line.

Devang Shah — Investsavvy — Analyst

I’m saying that if we are sitting in November made and the logistics issues have not been resolved yet, then clearly Q3 again would be impacted in a big way and China clearly is not getting out of the zero COVID yet in a hurry. So how is that going to be handled, that is one? The other is, wouldn’t and pardon me, I may be wrong, if I’m sick and I need a medicine today, frankly if medicine — if I don’t get it at one place, I’ll get it from somewhere else. My demand for this will go away in two weeks’ time. So three months [Technical Issues], it’s not that I would [Technical Issues].

Operator

Ladies and gentlemen, the line of Mr. Shah has got disconnected. We move on to the next participant, which is from the — the question is from the line of Rahul Veera from Abakkus. Please go ahead.

Rahul Veera — Abakkus Asset Manager — Analyst

Hi, Saloni. Just a quick question from my end in Q1 FY ’23, what was the proportion of these higher-margin products because in Q1, we can see the gross margin was 65%. I assume even at that time, the similar ratios would have been there, which we faced in this current quarter. But in Q2, we are seeing gross margin at 58%.

Operator

Mr. Veera, sorry to interrupt. I would request you to keep your mic a little bit farer from your mouth and speak. We can hear the follow-up disturbance along with your voice, yeah, yeah.

Rahul Veera — Abakkus Asset Manager — Analyst

Sure, sure. Is it better?

Operator

Yes, please proceed.

Rahul Veera — Abakkus Asset Manager — Analyst

Yeah. So there is a gross margin dip directly sequentially of 7%, I’m just trying to understand that. What was the proportion of high-margin products in Q1 versus Q2?

Saloni Satish Wagh — Director

Okay. I would just request Ashish to take this question.

Ashish Ramdas Nayak — Chief Financial Officer

Yeah. So if we look upon it, high-margin products in any case have been in that way of hovering around 50% to 52%, in that range, okay. So — and since some of the key products that did not go into China, some other products have stepped in. So if you look upon it, there has been no pricing pressure for any of our products and most of the raw material pricing has remained constant. So as a result of it, I would — on an affiliate basis, if we look upon it, yes, it appears to be not much of an impact, down from 65% to 58%, but yeah, that’s where it stands, yes.

Rahul Veera — Abakkus Asset Manager — Analyst

Okay, okay, okay. Fair point. Yeah, thank you.

Operator

Thank you. We have the next question from the line of Naresh Vaswani from Sameeksha Capital. That would be a follow-up question. Please proceed. Mr. Vaswani, proceed with your question please. Mr. Vaswani, I’ve unmuted your line. Kindly proceed with your question. As there is no response from the current participant, we move on to the next participant. And the question is from the line of Tushar Bohra from MK Ventures. Please go ahead.

Tushar Bohra — MK Ventures — Analyst

Yeah, thanks for the opportunity. Just a couple of clarifications to start with. So we see a dip of about, I think, INR50 crores in — this is because of the issue in China, right, a gap of about INR50 crores in one of your product categories?

Saloni Satish Wagh — Director

Correct. So it is majorly coming from a gap of sales in China, yes.

Tushar Bohra — MK Ventures — Analyst

For a specific product, which…

Saloni Satish Wagh — Director

For a specific product, yes.

Tushar Bohra — MK Ventures — Analyst

And the product in question is also possibly our highest-margin product or amongst our one or two highest-margin products, right?

Saloni Satish Wagh — Director

Yes, it is one of our key margin generating product.

Tushar Bohra — MK Ventures — Analyst

So just to take the question one step forward from previous participant, say Chlorphenamine Maleate [Indecipherable] one of your Top 3 products, what would have been the combined sales for these three products in the first quarter and second quarter of this year? And maybe corresponding if you have for the previous year period also for Q2, so that we’ll be able to understand the impact specifically for these products?

Satish Wagh — Chairman and Managing Director

Tushar, I would not get into giving [Indecipherable] contribution from any specific products. On the therapy front, I think it’s very clearly mentioned in the presentation.

Tushar Bohra — MK Ventures — Analyst

Okay. Fair enough. But it is — is it fair to say that the margin differential that we have between Q2 of FY ’22 and Q2 of FY ’23, the — other than the — I have possibly that INR7 crores, INR8 crores of additional costs that we have highlighted across some line items, other than that the difference in Q2 of previous year versus Q2 of this year in EBITDA is largely attributable to this missed scale of a specific product for your specific market?

Satish Wagh — Chairman and Managing Director

Yes.

Tushar Bohra — MK Ventures — Analyst

Is that fair to assume that it is largely because of that and there is no other shortfall from any other quarter in that sense from any other product?

Ashish Ramdas Nayak — Chief Financial Officer

Primarily from that single product in China, okay and there is another product, let say, which in the European market, which again there was a slippage, which we expect to make good in this quarter, but that’s what — these are the two major factors and both of them are higher-margin products, yeah.

Tushar Bohra — MK Ventures — Analyst

Okay. Fair enough. Second, the inventory that we’re carrying, this is at cost, right, so the INR106 crores inventory that we’re carrying, is it cost effectively?

Ashish Ramdas Nayak — Chief Financial Officer

Yeah.

Tushar Bohra — MK Ventures — Analyst

So given that we have a very high value addition, it’s fair to assume that we have substantially finished good and maybe WIP inventory, so that if assuming let’s say China problem resolved, say, in the next 15 days, one month, we would still be able to ship out that product in this quarter, or for that matter in Europe? Is it fair to assume that?

Saloni Satish Wagh — Director

Yes. If the situation normalizes, we’re in a position to quickly commercialize these orders and send out the product in the markets where the products are currently not.

Tushar Bohra — MK Ventures — Analyst

Okay. Fair enough. And can you highlight specific initiatives being taken on the other products, which you have some visibility to, say, in Q3 and Q4, that may step up in contribution besides your existing top two or three products, if you can highlight on some of the new products?

Saloni Satish Wagh — Director

Correct. So in terms of product therapies, we have seen good traction for the anesthetic range. In certain untapped regulated markets like US, like I mentioned in my speech, we have impact in this quarter, initiated five new ANDA projects for Anaesthetics segment. We have also initiated one ANDA project for vitamin range of products and antihypertensive range of products. Other than this in terms of CMO/CDMO also, we are seeing a lot of good opportunities in the last six months, two of which we can now say have moved to Phase 2. And in fact, we are in the process of doing the regulatory filings for this — for these products in Q4 of this financial year. So we are seeing some good traction for anesthetic range. We are also seeing good traction for anti-asthmatic range of products. So these are the two, three other areas other than the key AntiHistamine segment where we can expect. And in the last quarter also, we have seen good recovery happening from these other products.

Tushar Bohra — MK Ventures — Analyst

Sure. And the opportunity size for these CMO projects, what kind of numbers are talking about then? Is it like some kind of a comparable if you can give to the base business, are this material in context of the current base?

Saloni Satish Wagh — Director

I would like Dr. Satish to answer this question please.

Satish Wagh — Chairman and Managing Director

Yes, in terms of numbers, Tushar, as I have said earlier as well, the CMO business has a certain gestation time. So for example, the product that we started work on, which is now getting commercialized, it has taken us about one year and the first order is coming. And as Saloni said, there are two other projects that are reaching a stage where we are making regulatory filings and thereafter, then all the regulatory clearances are obtained, we will have the sales happening. So in terms of the size or the value, it will still not be significant, let’s say, in the 12 months, but after that, it will be very, very significant. That’s what we know. And with the success of, let us say, the first CMO project, though the value may not be very high. In terms of the customer, in terms of the customer trusting Supriya, they have already started evaluation of two more products. And this is how the CMO business grows, if the business has established with one customer. So in terms of the number, it’s not fair for me to estimate what will be the value in the next 12 months, but after that, this can be significant contribution.

Tushar Bohra — MK Ventures — Analyst

Right sir. And in terms of, sir, there is a lot of talk that in last call also, you had referred to, a lot of this China plus one team, I’m sure that with the troubles in Europe, there is also potentially medium-term opportunities opening up for us. Just if you can highlight some of the kind of conversations that the management is having. What kind of tracking you are seeing in new business inquiries for both generic APIs as well as specific CDMO projects in addition to what’s already known for?

Satish Wagh — Chairman and Managing Director

Yeah. Tushar, we are getting new inquiries almost every week. And we just came back from some meetings where we are progressing on some projects that were discussed. These are significant in terms of number of products and also the potential business that is possible. So there is no slowdown on the CMO/CDMO space. We are seeing good increase in the number of projects. We have several projects that have been added to our list now.

Tushar Bohra — MK Ventures — Analyst

If you can highlight, sir, like what would be the total number of active projects or projects which are, sort of, being taken up now [Speech Overlap]?

Satish Wagh — Chairman and Managing Director

So as I said earlier — yeah, Tushar, as I said earlier, one is project where we are receiving the purchase order. For the first supply, two products are getting into regulatory submission and there are at least half a dozen projects where the customer would want us to start work on the — begin work on the preparation on the regulatory part. So there are quite a few projects.

Tushar Bohra — MK Ventures — Analyst

Right, sir. Thank you. Just one request on this down to the management that as and when you think CMO/CDMO activity has started to pick up substantially, maybe it can be disclosed as a separate line item in the financials as a separate product category?

Ashish Ramdas Nayak — Chief Financial Officer

Definitely. The contribution from these projects would be highlighted as a separate line item.

Tushar Bohra — MK Ventures — Analyst

Yeah, thank you so much, sir.

Operator

Thank you. We have the next question from the line of Aashish U from InvesQ Investment Advisors. Please go ahead.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Yeah. So just wanted to again understand the seasonality on your page two [Phonetic], what would be the approximate percentage of the troubled geographies that you are mentioning in China? Even in Europe, would you think that still the percentage would be much higher in terms of your contribution to sales that will be affected? So any kind of direction on that would be helpful to us.

Ashish Ramdas Nayak — Chief Financial Officer

We would not be in a position to give any specifics as to the geography as well as any product in this program, okay. But what I can assure you is whatever geographies are there, those are being properly addressed. We are just waiting for the right and opportune time. As things open up, we’ll definitely — we have the visibility as Dr. Saloni has stated earlier. We do have — we are regularly in touch with the customers. We do have orders and visibility in terms of what kind of volumes we can do, but there are certain things that need to normalize. Once things normalize, definitely we would be there.

Satish Wagh — Chairman and Managing Director

Also but…

Ashish Ramdas Nayak — Chief Financial Officer

[Speech Overlap] added customers earlier, and yeah.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Yeah. So what I was — a slight discount that is happening is from your commentary, it seems that it’s a delay which will probably be addressed in the next one or two months or three months, but from what we understand from macros or waiting of what’s happening in China, it seems that it’s a continuous problem of zero COVID that they are following and it will not be [Indecipherable]. That’s where the kind of understanding that we are having.

Ashish Ramdas Nayak — Chief Financial Officer

See, at the end of it, these are things which are beyond our control. I mean, I do not know when things are going to get normal in China. We are in regular touch with our suppliers as well as with our customer.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay.

Ashish Ramdas Nayak — Chief Financial Officer

The moment we get our green signal, we are there to service their requirements. Therefore, like I said, I mean, it can happen in the coming months, it can happen three months down the line, that’s — only time will tell us. I mean, that’s something which is not in my hands, not in your hands as well.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. So…

Ashish Ramdas Nayak — Chief Financial Officer

Things [Technical Issues] definitely, we have the [Indecipherable] customers earlier. Let us understand these are not new markets. These are not new customers. We have done with them earlier, and it just that because of the logistics issues, the challenges that are currently facing in these markets, that’s the primary reason. Once we are able to open that, definitely, why not?

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. At the beginning of the call, madam Saloni mentioned a few geographies and cities that in China as things are the problem, can you repeat that please?

Saloni Satish Wagh — Director

So in the past, we have faced problems in airports of Shanghai, Guangzhou.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay.

Saloni Satish Wagh — Director

These are some of the — I mean, these are the airports where normally our distributors are clearing the cargoes, and both the times during the first two quarters, we did face problems during the import, I mean clearance at their side.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Sure. Okay. Thank you so much.

Saloni Satish Wagh — Director

Thank you.

Operator

Ladies and gentlemen, in the interest of time, that was the last question that the management could answer. I would now like to hand the conference over to Dr. Satish Wagh for closing comments.

Satish Wagh — Chairman and Managing Director

Thank you everyone for patiently listening to us. We have had a challenging quarter due to the current unstable global environment. However, we expect that when the situation normalizes, we will continue to grow at a steady rate with the healthy margins. We thank you our shareholders for their support, and we will continue to put our best efforts in achieving a sustainable and profitable growth. Thank you.

Ashish Ramdas Nayak — Chief Financial Officer

Thanks to all of you.

Rajeev Kumar Jain — Chief Executive Officer

Thank you.

Saloni Satish Wagh — Director

Thank you.

Operator

[Operator Closing Remarks]