Syngene International Ltd (NSE: SYNGENE) Q3 2025 Earnings Call dated Jan. 23, 2025
Corporate Participants:
Jonathan Hunt — Managing Director and Chief Executive Officer
Deepak Jain — Chief Financial Officer
Nandini Agarwal — Investor Relations
Analysts:
Shyam Srinivasan — Analyst
Chirag Dagli — Analyst
Alankar Garude — Analyst
Madhav Marda — Analyst
Bharat Sheth — Analyst
Neha Manpuria — Analyst
Kunal Dhamesha — Analyst
Presentation:
Operator
Good evening, everyone. Thank you for joining us on this call to discuss Syngene’s Third Quarter and Nine-Month Results for FY 2025. To discuss the financial and business performance for the period, we have on this call today Mr Jonathan Hunt, Syngene’s Managing Director and Chief Executive Officer; and Mr Deepak Jain, Chief Financial Officer.
After the opening remarks, Jonathan and Deepak will be happy to answer any questions you may have. Before we begin, I would like to caution that comments made during this conference call today will contain certain forward-looking statements and must be viewed in relation to the risks pertaining to the business. The safe-harbor clause indicated in the investor presentation also applies to this conference call. The replay of this call will be available for the next few days and the transcript will be made available.
With this, I now turn the call over to our Managing Director and CEO, Mr Jonathan Hunt.
Jonathan Hunt — Managing Director and Chief Executive Officer
Thank you, and thank you to everybody for joining the call today. As always, my remarks will cover an overview of the key financials and market trends for the quarter before getting into any operational or strategic highlights. I’ll then hand over to Deepak to provide a more detailed insight into the financials in his remarks, both for the quarter and for the first-nine months of the year. We’re pleased with the performance in the 3rd-quarter.
Return to growth and I think it sets us on the right trajectory for the rest of the financial year. Reported revenue from operations for the quarter came in at INR944 crore rupees, up 11%. We benefited from a favorable exchange rate between the US dollar and the rupee that resulted in approximately an 8% increase in revenue from operations in constant-currency terms, so 3% FX benefit.
So looking at the growth sequentially, revenue from operations increased by 6%. I think that’s an indicator that things are moving in the right direction. Operating EBITDA was up 23% to INR284 crore. So we delivered good operating leverage with the operating EBITDA margin increasing by around 300 basis-points. So that came in as 30 spot 1% for the quarter. Our reported profit-after-tax after exceptional items for the quarter was up 18% year-on-year to INR131 crore rupees. This reflects good underlying performance and despite the tax-related one-offs that you’ll hear more from Deepak shortly. So during the quarter, there were signs, I think of stabilization in the US biotech funding environment. That said, the market didn’t recover as quickly as we’d anticipated when we set our guidance at the beginning of the year. So while we called the return to growth in the direction of travel, I think correctly, the timing feels, I don’t know, eight, 12 weeks off. So we’ll cover more of that when we comment on expectations for the full-year.
But back to growth in the quarter, directionally in the right way, took a little bit longer in the year than I anticipated when I first set the guidance at the beginning of the year. Well, Discovery Services contributed to the growth in revenue in the quarter as well marked by collaborations with many large pharma companies on pilot projects, last quarter, we had quite a discussion around biopharma companies looking for alternatives to China as they rebalance their supply chains. They’re partnering through pilot projects and they’re using these as a way to select their longer-term partners.
And during the quarter, the initial pilots converted through for us into longer-term contracts and of course, they then have the opportunity to contribute to growth next year. The performance of development and manufacturing services remained steady, driven by biologics with repeat orders from existing customers and also through new collaborations on integrated projects that cover anything from drug development to clinical-stage manufacturing. And so to conclude, performance in Q3 was positive with a return to growth, good momentum across the business divisions that puts us on the right track for the next quarter. We’ve made good progress on our strategic priorities and I think we’re moving in the right direction to gain in that longer-term China plus 1 trend.
So with that, let me hand over to Deepak and he’ll give you more detail on the financials.
Deepak Jain — Chief Financial Officer
Thank you, Jonathan. Good evening, everyone. Let me walk you through our 3rd-quarter performance, followed by a review of the Nine-Month results and an update on our outlook for the fiscal ’23. As we had indicated in the year, we expect growth momentum to build-in the second-half of the year and Q3 marks the return to growth on a year-on-year basis. As highlighted by Jonathan, growth during the quarter was driven by performance across all divisions.
Operating EBITDA margins came at about 30.1% for the quarter compared to 27.5% in the previous quarter and 27.1% in the same quarter last year. Operating EBITDA margins benefited from lower material costs during the quarter, which as a percentage of revenue from operations declined from 27.8% to 25.2 in the 3rd-quarter. This was driven by a change in the business mix and some efficiency gains.
Material costs are likely to be in the range of 26 to 28% as we had guided earlier. Staff cost, staff cost increased by 14% year-on-year, primarily driven by salary increments and recruitment in skill areas needed to build capabilities in the business. With a focus on deployment of energy efficiency measures, renewable energy now comprises 96% of our total energy consumption. Other direct costs remained flat during the quarter as compared to the same quarter last year.
Moving on to other operating costs, which increased by 18% year-on-year, largely driven by investments in digital initiatives, maintenance and upkeep of expanded facilities and infrastructure. This broadly remained the same as percentage of revenue through this year as to around 13%.
Turning now to treasury and our hedging performance. Revenue for the quarter was hedged at around $85.3 per dollar and the average spot rate during the quarter was lower at about 84.8%, resulting in a hedge gain. As a reminder, we hedge most of our sales for the — for a 12-month period. Hence any change in spot rate, while is reflective of in the revenue gets adjusted in the hedge rate as a hedge gain or loss in the P&L. The company saw a hedge gain of INR2 crores against a hedge loss of INR12.4 crores in the 3rd-quarter of the previous year.
Operating EBIT was up 42% year-on-year, supported by a stable depreciation cost of about INR109 crores, similar to the last year. Interest expense increased by 15% year-on-year to an increase — due to an increase in lease liabilities. Other income for the quarter was INR18 crores compared to INR29 crores in the previous year, which included a one-off item relating to income tax to fund amounting to INR15.8 crores in the same quarter last year and INR2.5 crores in-quarter three to FY ’25.. Moving to income tax. During the quarter, the company chose to settle income tax dues in four prior year amounting to INR9.5 crores under Se Vishwas scheme.
With facilities coming out-of-the favorable tax base created by the SEZ status adjusted for prior year taxes I mentioned, the reported effective tax-rate stood at 22.2% against a 19.3% in the same quarter last year. Reported profit-after-tax before exceptional items increased by 14% after exceptional items grew by 18% to INR131 crores. Now turning to performance in the first-nine months of the year. Revenue from operations was up 2% year-on-year in reported currency, flat in constant-currency as early softness in the first-half of the year was offset by the recovery in the 3rd-quarter. This growth was marked by a return to growth in Discovery Services division as well as continued growth in the Syngene CADMO divisions with increased tractions in biologics.
Despite decline in revenue and EBITDA in the first-half of the year, the 3rd-quarter revenue growth and improvement in margins enabled us to report flat year-on-year EBITDA for the nine-month period. The operating EBITDA margin stood at 26.6% compared to a 27.1% in the same-period last year. While raw-material costs benefited from gain efficiencies in biologics, investments in people, digitization initiatives, in addition to decline in revenue in the first-half of the year impacted margins. The trend of operating expenses in the first-nine months of the year broadly reflects that of the 3rd-quarter.
Reported PAT after exceptional items decreased 3% year-on-year to INR313 crores due to an increase in depreciation on account of investments made in the last 12 months and a decline in interest income due to lower cash balance as we utilize the cash to acquire biologics unit from Biopharma in-quarter three of FY ’24. We continue to invest in the expansion of capacities and capabilities in technological advancements to drive long-term growth. Over the first-nine months, we invested a total capex of around $34 million US dollars, approximately 50% in research services and approximately 25% in biologics to upgrade Unit-3, the manufacturing facility that we acquired last year.
We continued our investments in digitization and automation, which we believe are essential for increasing efficiencies in our business. We maintain a strong balance sheet and after meeting our capex for the quarter, we have a net cash of INR838 crores as of December 2024. Thank you. Finally, let me say a few words about guidance. Revenue trajectory in the first-half of the year was as anticipated. The 3rd-quarter performance was back to growth after 3/4 of decline. The growth observed in the quarter indicates that market dynamics, particularly within the US biotech sector are stabilizing. As mentioned by Jonathan, the recovery in-demand, which was expected in the second-half of the year experienced delay of approximately eight to 12 weeks.
We saw initial pilot projects with large and mid-sized pharma companies starting to convert in the longer-term into longer-term contracts. We are also seeing positive momentum in the CDMO division led by Biologics. We expect the growth momentum to continue in the 4th-quarter of this financial year. Despite challenges faced in the first year, we expect to close the full-year with single-digit revenue growth and a flat. As communicated in the last quarter, we expect operating EBITDA margins recovery to continue in the 4th-quarter, which should lead to a full-year margin around the same as last year in the high-20s as we have guided previously.
Our CapEx program for the year remains on-track at around $60 million by the end-of-the year. While we remain cautiously optimistic, we continue to focus on executing in-line with our strategies and are investing in the right capacity and capabilities to position the company for future growth.
I will now hand it back to the operator and we will take a few questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press R&1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press R&2. All participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We’ll take our first question from the line of Shyam Srinivasan from Goldman Sachs. Please go-ahead.
Shyam Srinivasan
Good evening and thank you for taking my question. Just on the revenue guidance cut, right? So I think earlier we had high single-digit growth. I know it started with a range high-single-digit to low-double-digit. Now we have come to say, can I assume it’s like mid-single-digit dollar like 5%? I’m not asking to pin down a number, but just trying to see this trajectory of revenue revisions downwards. If you could help us understand, I know the qualitative comment around eight to 12 weeks, but you know in terms of when we started the year versus now what’s been the biggest miss for us in terms of expectation versus reality?
And two, also if you could also help us give the split of the businesses between CRO and CDMO research versus a CDMO, has there been a mix-shift in the nine months or maybe in the forecasted 12 months, so that we can get a sense of where the weakness is higher or lower? So those are my two questions.
Jonathan Hunt
Okay, and I shall try and color in a bit more and help you think about it. And I mean, what I was trying to get at with my comments is our guidance at the beginning of the year is two sets of forecast really, isn’t it? Because I have to — to take a view on what we think the rate of recovery in the US biotech funding and then flow-through to expenditure market is. And then I had to try and take a view on what we think our share within that market is. And I think the comments I was leading to you too is the rate of stabilization in the biotech funding took longer in the year than what we’d included in our original guidance. I was hopeful that we would — that it would stabilize clearly in 2Q and I think it stabilized more in 3Q.
If you actually look at our ability to win sharing at point, it looks on plan to what I originally expected, just space shifted out by those eight to 12 weeks. So that’s what the — the coded language, if you’re decoding what were we saying in the press release and the comments, it was exactly that. It’s good to be back into growth in the 3rd-quarter, plus 11%. And I just think that the external environment stabilized a little bit later in the year than I had originally baked into our guidance when we gave it.
And then I’m sure as the earnings seasons go through, you’ll read that across into the performance of others and other comments and we’ll piece together the jigsaw at the end-of-the earnings cycle. As to the split, I think — and again, this is intuitively embedded in it. If it’s US biotech funding, it’s more likely to be in researched because that’s what they spend their money on when they raise. So and I think that’s probably true. Does that help?
Shyam Srinivasan
Yes. So maybe you put this number out only once a year. So fair to assume like 100, 200 basis-points of that 60% has actually come off, right, I would imagine. We’re trying to assess the decline in the CRO business. I think that’s what we’re trying to assess, Jonathan.
Jonathan Hunt
And it’s growing. It grew in the 3rd-quarter.
Shyam Srinivasan
Understood. And last question, just macro. There’s been a delay in the whole US Act being cleared by — so I’m not asking you to comment on legislation, but from a conversion of these projects, like you said, there’s a pilot project that has been converted, has there been any behavioral change or are people now reluctant to kind of — or there is the urgency to move things out of China, let’s assume, has that reduced? So any comments?
Jonathan Hunt
Look, I’ll — yeah, well, and again, I don’t know what would — terrible thing to do, the CEO asking the analysts a quick question rather than the other way around. Look, how would you interpret what all the comments I’ve made throughout the year and the year before and things like? And I think I’ve been fairly constant in saying that at best, it’s the cherry on the top of the cake, it isn’t the cake. It’s as much or more so about pandemic learning, COVID supply chains, it’s around structural rebalancing around it’s about risk committees. I think I and many other CEOs have not placed the emphasis of single-point emphasis on it’s the Biosecure Act.
Now if you’re using that as a shorthand for the whole thing, I get it. But the big change in the BioSecure Act was the moment that they took the implementation deadline from, you’ve got to get it done in 12 months-to you got to get it done in eight years. So that happened over a year-ago.
And again, that’s the 3rd-quarter I’ve made that comment, I think feels like it anyway. So I don’t think it’s that. I think it’s — it’s more structural. Here’s a good word for you. It’s more tectonic like plate tectonic, it’s going-in one direction. It’s powerful, but it’s slow-moving, steady moving. However you interpret tectonic. But that’s what I’ve been trying to say to you all year. I’ve said it on public dioces, I’ve said it on conference calls. In most industries, that would be considered to be a reasonably positive structural tailwind that was going to play-out over — again, I’ll go back to the last two quarters. This will play-out over many years, not over weeks. So there you go,. You’ve got me in a talkative mood and I’ve colored in as much as I can.
Shyam Srinivasan
Okay. Thanks.
Jonathan Hunt
Does that help?
Shyam Srinivasan
Yeah.
Jonathan Hunt
So that’s what I think is going on across the industry. So, so and that’s good. That’s a — that’s a positive for the Indian industries to have that sort of structural dimension to it.
Shyam Srinivasan
Got it. Thank you. All the best.
Jonathan Hunt
All right. Thank you.
Operator
Thank you. Next question is from the line of Chirag Dagli from DSP Mutual Fund. Please go-ahead.
Chirag Dagli
Yeah, hi. Thank you for the opportunity. Am I audible?
Jonathan Hunt
There you are.
Chirag Dagli
Yeah. Thank you so much for your — yeah. Thank you so much for the opportunity., you’ve talked about positive momentum in the CDMO division led by Biologics. Does this mean that the new facility, which is going to come on-stream, you already have customers for that? And just how should we think about ramp-up of that capacity as and when it comes on-street?
Jonathan Hunt
Super question. No, it doesn’t mean that, but no, it doesn’t mean that. As in made no comment on it. The whole point we were telling you about the acquisition of that facility, we were running out of capacity because of the rate of growth we’ve seen over the last two or three years in our biologics. We were getting close to me being concerned, if we continue at this growth, we will have to turn clients away because we won’t have capacity. That prompted us to think, do we accelerate our internal build-out and that still left us with an overhang risk, which was you can’t build plants that quickly.
And then we saw a good opportunity, which I think was good value. We paid cents on the dollar for that facility and we’ve invested. And then we told you, look, don’t — don’t start plunging anything into your models. It’s 12 months just for us to do the renovation and the retooling and the re-engineering and that 12 months is not yet.
That ends this quarter and we’re on-track. So all that happens probably in April is that, that facility is ready to do work for clients that want to place work there and then we’re into the selling cycle. But I’m going to look across at my finance colleagues and nod if I’m getting this right, the life-cycle on a plant like that is 20, 30 years, right? So we’ll start get — we’re showing it and we’ll sell it and we’ll try and sell capacity. But I don’t know, I’m not a big believer in hockey-stick moments in any sort of business. Does that make sense.
Chirag Dagli
Understood. No, no fair point. Fair point. The other question was, Jonathan, we’ve spent two years now with single-digit kind of growth FY ’24 and ’25 and you’ve always reasons well. The question is you know the next two years or maybe three how different should they look versus the last two you know where we spent single-digit, while we continue to invest in the business long for the longer-term. And but revenue growth…
Jonathan Hunt
I get it and you know I’m not going to give you a two-year guidance outlook at the 3rd-quarter results. But put it this way, let’s just minimize into quarters, shall. We minus 2% last quarter, minus 2% the quarter before, plus 11% this quarter. You can triangulate as did from Goldman’s in his first question, what does it mean for the full-year, the 4th-quarter, I think feels like the 3rd-quarter. So there you go. You can — I’m not prepared to go into next year, but at least I told you a bit about what I think is happening this quarter and next. We’re back into growth and we’ll update you in April when I’ve had a chance to really have a look at the annual operating plan. But I see very similar patterns. If I look across either our Indian peer group or I look more broadly, that we don’t look — if anything, we went into the slowdown a little bit later than them. We’ve come out of it maybe a quarter earlier than many of them, but was all largely experienced the same, I think, slowdown in research because of slowdown in biotech funding and therefore slowdown in expenditure. And I think it’s stabilized. We’ll see whether it — how much it will rebound.
Chirag Dagli
Understood. And the last just bookkeeping question, if I may. What is your employee strength and scientific talent strength?
Jonathan Hunt
Oh, I need to look it up, but we don’t — we publish it once a year in the annual report. It’s largely unchanged. There’s some very good scientists though.
Chirag Dagli
So it’s largely unchanged from the March ’24 number as on today.
Jonathan Hunt
I think so but I’d have to go and look it up. It’s not something that we report quarterly.
Chirag Dagli
Understood. Okay. Thank you so much.
Operator
Thank you. Before we take the next question, we’d like to remind participants to press RN1 to ask a question. Next question is from the line of Alankar Garude from Kotak Institutional Equities. Please go-ahead.
Alankar Garude
Hi, thank you for the opportunity. Sir, one question on the technology built or the capabilities built. Now out-of-the various capabilities, technologies such as, say, say lifeilization, low chemistry, column chromatography, which we offer, which ones would you say are our cote? And similarly, I mean, which would be the technologies where you think that there is some catching-up to do in terms of the depth of our offering.
Jonathan Hunt
You broke up, which was our what? What was the Forte… Sorry, man. Yeah. No, there wasn’t you. The phone glitched and I couldn’t figure out what you said, Forte. Well, clearly, where we think we do a good job in large molecule biologics, whether it’s discovery, development or manufacturing of those. In the small molecules, actually all of the things that you listed as sort of core competencies where we’re right in the middle of the pack where I think we’re very solid on our small-molecule development and manufacturing. And then once you go into the research services, remember, research is still the — so historical is also the biggest part of the business.
You’re right on the frontier of many things. Whether it’s some of the advanced techniques in biology or in chemistry, I think we’re doing some really good innovation work. But if you roll it back to strategy, our intention is to be broad enough on our scientific capabilities that we can meet the needs of a large proportion of the market, particularly recognizing that a lot of our customers also have large scientific footprints and they don’t want to be having managing a multiplicity of partners. They quite like that bit of one-stop shopping. They can align culturally, operationally and then get — they get everything they need. So we’re intentionally broad scientifically.
Alankar Garude
Understood. The second one is more of a clarification. Now last month-in December, there was this FDA letter which came for Librela. This is not really a new issue, but just wanted to understand get confidence from you whether that $50 million number — annual number or do you foresee any risk to that at all?
Jonathan Hunt
I couldn’t comment on the FDA letter. I mean, that’s a question for Zoatis. I’ll go right the way back. The $50 million, I think what I actually said at the time was, because it was an answer to a question, how do we — how do you want us to think about this? And I said $500 million over 10 years will average around $50 million a year. So beyond that, we don’t call-out individual quarters or months of production, partly because it’s clearly competitive-sensitive for our client. I don’t think — they would want us disclosing that to their competitors. But yeah, I think my understanding is it’s doing well in the marketplace. And we’re very happy with our relationship.
Alankar Garude
Okay. So essentially on that $500 million number, you don’t foresee any risk as of now.
Jonathan Hunt
I don’t think I said that. But then I don’t know as a CEO, you’re not a professional risk. I don’t know what it would be. I spent a lot of time worrying about what could go wrong to make sure it doesn’t go wrong. Please don’t misinterpret that. I’m not making any suggestion around that. But you did ask me a question to prognosticate for another eight years. And I don’t think I could do that. But today, the relationship is good, the product is doing well, I understand. Certainly our delivery and manufacturing has been good and continued to get better. I’m very happy to have that relationship. I hope to do a lot more with Zoatis, with other animal health companies and with human health companies.
Alankar Garude
Understood. That’s helpful. Thank you and all the best.
Jonathan Hunt
Thank you.
Operator
Thank you. We’ll take our next question from the line of Madhav Marda from Fidelity International. Please go-ahead.
Madhav Marda
Hi, good evening. Thank you so much for your time. My first question was on — if I understand right and correct me if I’m wrong here that we have two facilities. One is the one which we acquired and one is the Mangalore API facility. Both of them seem to be running lower on the utilization side. So just what I wanted to understand is how much of a drag does that have on our profitability given that there might be operating deleverage that we are facing with those sites currently. So if you could give us some sense to share that we understand the underlying.
Jonathan Hunt
Just a basic construct to the question, no, we don’t have just two facilities. We have an entire manufacturing campus facilities here in our main campus in Bangalore. Round the corner, we’ve got Unit-3, which we’ve added, which is a large molecule one. We’ve got a campus with more than one block over in Bangalore. I — yeah, so to some extent, your question is a derivative of the construct of the question.
Madhav Marda
No, my point was that these two facilities are the ones which are a bit underutilized currently, right, where one where we are innovating the…
Jonathan Hunt
Well, it’s not unutilized. One of them has an open jail. Yeah, exactly why it’s unutilized.
Madhav Marda
My simple question was, how much of a cost very broadly are we incurring at these two sites so we can get a sense of the underlying business profitability given that you initially as you scale-up the plants, you might be cutting some OpEx at both the facilities, right?
Jonathan Hunt
Yeah. I love the question, not sure we’ve ever given that level of detail. I’m looking at my finance colleagues, anything helpfully I can do? I mean, you’ve got turnkey operations in there. So whatever you need to bring a facility up to speed, it won’t be an enormous amount, but beyond that, I’m not sure I can give you that level of color.
Madhav Marda
Okay, sure. Understood. Understood. Steve. Yeah, that makes sense. Thank you. Thanks.
Jonathan Hunt
Okay. Thank you. You’re very welcome to have another question if you wanted, because I don’t think I gave you the answer you were looking for.
Madhav Marda
Yeah.
Jonathan Hunt
Okay. That’s all right.
Operator
Thank you. We’ll take our next question from the line of Bharat Sheth from Quest Investment. Please go-ahead.
Bharat Sheth
Hi, sir. Thanks for the opportunity. I want to understand how do you integrate currently AI…
Operator
I’m sorry, there’s a lot of disturbance on your line. Can you use your handset more?
Bharat Sheth
I want handset. Is that clear now?
Operator
Yes. Please go-ahead.
Bharat Sheth
I want to understand how do we — how much we integrate the IT on the research side to expedite as well as AI part side. So if you can give some color and our roadmap for the same?
Jonathan Hunt
Oh, super question. Gosh, we could be here till midnight if we really talked about it. It’s quite an exciting area. We do it. So we have within the company, of course, our own AI informatics and sort of digital research, if you think of it that way, group. What we try and…
Operator
I’m sorry, sir. Hello. So you’re not audible. Yeah, Bharat, please stay connected. Yeah. Jonathan, sir.
Jonathan Hunt
Yeah, am I audible?
Operator
Yes, yes. Please go-ahead.
Jonathan Hunt
All right. As I was saying, good question. Oh, there’s an awful lot of excitement and there’s commentary has been written every day around you know, Gen AI, AI application in all walks of life. And we’re making good progress on that journey. We have those sort of decision support tools already operating in the company and whether it’s use of things like Alpha fold, you’ll have read about that to help you predict how proteins fold and therefore help you in drug discovery, whether it’s AI augmentation of scientific decision-making, we have algorithms that will go and look at all of the scientific literature in the world and help our scientists understand what’s already known so they can add to it with new innovations.
We have digital ways of helping us predict DMPK distribution properties. So it’s real. I don’t know. I think it’s a little bit like the moment where the world started talking about the Internet and then just not being able to live without it. Certainly, I find in my home life with my young youngest son, he can barely breathe to them as he has access to the Internet. And I think that’s what we’re going to see in the world of work. We’ll build those AI tools into everything we already do scientifically. So does that help? I’m not sure I told you anything specific other than what we’re doing correct.
Bharat Sheth
Yeah. But if you have to think of from, say, two, three years perspective, how do you think that can really benefit on the efficiency side or cost bringing down the cost. So any color do we have at this moment or will like to wait?
Jonathan Hunt
Yeah. Certainly if you find ways of doing things quicker, I think real issue in innovation, let’s split it between the innovative bit of the company, finding new drugs, creating new knowledge and then the rest of it. And the innovation bit, you just want to help you be — make the right decision more often and make the right decision quicker, have a higher degree of confidence in your scientific decision-making.
So it won’t necessarily make it cheaper, but it will make it more value-creating because those are the magic moments in drug discovery. It’s — it’s an intuitive breakthrough that you validate. It’s proving that something works. So it’s a lot around decision support. And then I think if you come into the rest of the business, like many companies, I don’t know, you’ll end-up with AI bots looking at your finance your accounts, your press release, your admin your contracts and there, you’ll just try and industrialize white-collar work and augment it digitally and that will drive down — drive-up speed, drive down cost.
But I think that’s a journey that all businesses, yours including, I would imagine would go through and those sort of things. And then the last bit for us actually scientifically, it bridges from manufacturing into the labs. It’s around automation. How do you — how do you try and link various machines together so that you don’t have that human intervention and therefore, you can go a little bit quicker or with certainty. And we do that sort of thing every day. That’s now sort of a business-as-usual task to see how we can try and automate various processes within the business.
Bharat Sheth
Okay. Thanks a lot, sir. I have one question for Deepak. So in initial remarks, you said that…
Jonathan Hunt
Yeah. Please go-ahead.
Bharat Sheth
Yeah. See, we said that we take the hedging for the 12 months. Is it fair understanding is rolling-12 months or for our financial year only?
Deepak Jain
No, we’re just talking about the financial year.
Bharat Sheth
Financial year. Okay. So again, I may say next hedging will be at little higher-rate than what we already have, correct?
Deepak Jain
You’re talking about hedge or you’re talking about the financials? No, no hedging. The question was, do you hedge one every 12 months? So do you hedge every day for a rolling forward view of 12 months? We do a rolling forward view hedging. I thought your question was around financial. No. Sorry, yeah.
Bharat Sheth
Thank you. Thanks a lot.
Jonathan Hunt
So let’s — but just let me summarize, there’s no confusion that we caused. Hedging forward view 12 months, but rolling. So we updated in Real-time. We’re all good. Our forward book goes 12 months in. Okay.
Bharat Sheth
Thank you. Thanks a lot, sir.
Operator
Ladies and gentlemen, to ask a question, please press R&1 on your phone now. We’ll take our next question from the line of Neha Manpuria from Bank of America. Please go-ahead.
Neha Manpuria
Thanks for taking my question. Jonathan, based on your comments that there is a structural need by innovators to look at alternate location to China. Is there any investment you think we need to make and to increase our commercial footprint in order to get that business, you know with the competitive dynamics changing, you know globally?
Jonathan Hunt
Yeah. I think we’ve done quite a bit of that. So if you look at two-levels, either on a capacity level, and I’ll go back to the earlier discussions were asking me about when — when is Unit-3 coming online, that’s just making sure we’ve got the capacity headroom in-place to enable future growth because we were running out of capacity. And on the commercial piece, I assume the earlier question about what’s the latest headcount was digging into this.
So the 14%, if I’m looking — got the right 14% increase in the salary bill, some of that is going into new capabilities and some of that will be in commercial. We — our sales force structurally over recent years, we now have more of the staff living in the West close to clients. And I think that’s advantageous for us. Net-net, it’s more expensive on a per person basis, but they spend less time traveling to the US because they live there already and they’re much closer to their customers and that gives them more selling days in a year and often it gives them the opportunity to build closer relationships. So I think we’ve done some of that already.
Neha Manpuria
Okay. And just would this addition be more in the recent years or it’s — I understand you would have been obviously investing this, but has that focus increased that investment increase, let’s say, in the last few quarters with this entire noise around, etc., whether it happens or not?
Jonathan Hunt
No, no. Again, you’re going to take me back to what you said that entire noise about the. I tried really hard at the beginning of the call to see it’s more structural than the. It started over the last 24 months and certainly was in-place over the last year. You can see that in our in our margins and our costs. But it’s the right thing to do. If we want more connect, more face time with customers, we’ve got to be prepared to invest in it.
Neha Manpuria
And just an extension to that question you know some of our peers have argued that it’s an advantage to have, let’s say, manufacturing or R&D facilities closer to customers, would that be a direction that you could think at from a capital allocation perspective in the next few years? Or is that something that you think the way we are structured now with our capacities in India makes more sense for?
Jonathan Hunt
Good question. I’m going to — I’m going to give you a strategic answer, but as long as you promise not to misinterpret it as — because I would never comment on M&A. I’ve never known any exec say, oh, yes, let me tell you about the secret thing that we’re working on. So don’t misinterpret that. I think there are elements where if you can get unique talents that you can’t get-in one geography of the world that are in another. And that doesn’t necessarily mean Europe, it could be — I can’t get this in Japan, so I buy it in Europe, I can’t get-in Europe. So I buy it in the US that would be one strategically sensible reason.
The other one, if there was particular requirements from a customer point-of-view. And you’ll know this if you look across the pharma industry and particularly on innovative drugs, customers historically are much more comfortable doing drug product final formulation in-region. So you tend to get more of the drug product made in the US for consumption in the US, you get drug product made in Europe for consumption in Europe. Once you go back to API, so drug substance, then into intermediates, RSMs and KSMs, people are less concerned around where it’s made as long as it’s made to quality and standard and cost.
And you can see that, I mean, the whole Indian generics industry and the Indian API industry has been founded and has benefited on that. India tends to do well on KSMs, RSMs intermediates into some drug substance, but most of the drug product in the world is made in the regions where it’s consumed. So whether it’s Japan or in Europe or in the US.
So you can get — I think there are good reasons why sometimes you’d want to be in one region equally, don’t miss that there are a lot of Western companies at the moment thinking, I wish I wasn’t in the West. I wish I was in Asia. India looks good large population, supply of talent, labor — labor cost arbitrage, good knowledge around chemistry and science in general. So I think our industry group, whether it’s Syngene or my peers here in India are also a benefit. Sometimes it’s good to be in a particular region. So does that make — does that help?
Neha Manpuria
Yes, that’s helpful. And one last quick question, if I may. Our Baxter dedicated service contract was supposed to come — get over in 2024 expire in 2024. So is that renewed? Is it up for renewal? Any update on that?
Jonathan Hunt
I just would never comment at an individual client level, but we have a good relationship with Baxter and I know we’ve done good work for them over the recent year, but there’s an element of proprietaries for each individual client about not commenting on what they do and don’t do.
Neha Manpuria
Sure. Thank you so much.
Operator
Thank you. We’ll take our next question from the line of Kunal Dhamesha from Macquarie. Please go-ahead.
Kunal Dhamesha
Hi, thank you for the opportunity. Hi, hi, Jonathan. So first question is on the momentum of RFPs, which used to be quite high at least in the first-half of the year. While we have seen some conversion or we’ll see some conversion of those RFP. But how has the RFP momentum behaved in Q3 for us and let’s say, the start of the year?
Jonathan Hunt
Good question. I’m really has this — sorry, what’s going through my mind. So when I answered that earlier in the year, I said, let me give you a point of color because somebody asked me a question. But please don’t expect us to report on this like a statutory reporting item from now on. And everybody — you all promised me that you wouldn’t do that. So no real change, particularly. I’m trying to get away from that, it’s a leading indicator. It was meant to give you a sense that there are people that are looking to rebalance their supply chains, whether it’s from China or whatever or coming out-of-the US because of the Inflation Reduction Act.
And we are out there in front of the client. I’d go back to our revenue. 3rd-quarter was up 11%, that’s after two quarters of decline, minus 2, minus 2%. We called it that we would return to growth in the second-half of the year, took a little bit longer than I expected, largely around the stabilization in the biotech market. And after that we do — it’s business-as-usual?
Kunal Dhamesha
Sure. But would it be fair to say that the RFP momentum that we saw in the first-half has continued in Q3 or is there some change there? And then a related question is, after let’s say, probable delay in US Biosecure, have you seen any change in the competitive intensity or strategy of our competitors and get forecast and maybe…
Jonathan Hunt
So let me say a bit about the second one, although I’m in danger of repeating the conversation we had at the beginning of the call. It’s a perspective I’m sharing my view. Is — if you’re using a shorthand for global restructuring of supply chains with patent expiries in the US, the Inflation Reduction Act impact, risk management in a geopolitical world, learnings from COVID and balancing supply-chain, so you have resilience. If you club all of those things together. I think it’s more — I think it’s more structural than one-piece of legislation, the BioSecure Act crafted directed at five companies. So I’m not — and I’ve been consistent throughout the year. I’m not hung-up on the BioSecure Act, right? I’m just looking at my clients, think about how they manage risk and resilience in their organizations. And they’ve been doing it for one or two or three years. So I think that’s real and I think that will play-out over multiple years. Is that sure, sure. Is that — are you getting that?
Kunal Dhamesha
Yes. Yes, yes, yes. And then one more also business-related question. But since we are right now at the CRO end of activities, we do manufacture, but still are primarily we are levered to the CRO end of activity versus CMO. So in your client set, you know, what’s the kind of churn that you see over a five-year period? Let’s say, maybe the number of clients that you have right now, how many people five years back?
Jonathan Hunt
Yeah. Good question and somebody is going to get me the number. I don’t have it to hand. But intuitively, I’ll give you a gut feel, not a lot of churn. It’s fairly and I can get that just through the lens of, I meet the same customers multiple times over five years, it’s the same people, the same faces. And the only thing I would say about your characterization of the company, it’s about 60-40 split now, 60% of the revenue would be research, 40% would be development and manufacturing, so CDMO, not pure manufacturing, but it’s — it’s less pronounced towards research than you might have appreciated. It’s about 60-40.
Kunal Dhamesha
Sure. Sure. Great. Thank you and all the best.
Jonathan Hunt
Thank you.
Operator
Thank you. Ladies and gentlemen, we’ll take that as the last question for today. I now hand the conference over to Ms Nandini Agarwal for closing comments. Over to you.
Nandini Agarwal
Thank you. Yeah, thank you well. Thank you, everybody for joining the call. If you have any further questions, you can get-in touch with the IR team. Yeah, thanks and have a good day.
Operator
Thank you. On behalf of Syngene International Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.