Alivus Life — Q3 FY26 earnings call

So, see, there are three elements here. One is that CDMO has begun to contribute more. There's also launches that are happening across markets and usually newer products tend to get us much higher margins. In the first couple of years, we can expect to see pretty good margins, with newer launches and then it begins to settle down. So, we have had both of them, plus on the operational side as well, we have performed a lot better in terms of both raw material costs as well as the on the operational side. So, all this put together and this is sustainable.

Analyst questioned the sustainability of high margins, and management provided a detailed breakdown of the three key drivers (CDMO, new launches, operational efficiencies).

Asked by Pratik Kothari

Solapur is a little delayed. It's not going to impact business because, see, more than 80% of our business comes from the reg markets. Okay. And the Ankleshwar, Dahej capacity expansion is well on track and it will deliver and basically give us the runway for at least the next couple of years for the reg markets. So, no challenge there. We have Mohol as well, right, to service the ROW markets and Kurkumbh. So, all that put together puts us in a reasonable position with respect to capacity. Solapur is, delayed by like three months. So, we expect Solapur to start operations by July of this year.

Analyst inquired about delays and changes in Solapur capacity plans, and management clarified the delay, its impact, and the overall capacity strategy.

Asked by Pratik Kothari

See, organic is pretty well scripted. Okay. In terms of the portfolio buildup, the choice of molecules that we are making, the capacities that we are building up to service the growth in the business through launches, with new launches and so on coming up in the next few years. So, that is pretty much on track. I hear you, right, in terms of the inorganic part. But see, we want to be sure that and even that is well defined within our plans, right, in terms of what kind of where we need to go in terms of inorganic. So, we are looking out. It's not like we have shut our minds to that. We are pretty clear that the right opportunity comes along, we will take the right steps. But obviously, we are not just going to do things willy nilly. I mean, it's hard-earned money and we are going to make sure that it's deployed well.

Analyst questioned why the company isn't more aggressive with growth given its capabilities and cash, prompting management to explain its cautious, planned approach to inorganic growth.

Asked by Yog Rajani

But where you have long reaction time, a lot of energy consumption, excessive reagents that are being used, there's a good possibility to use flow to optimize, both material usage as well as energy usage. So, there it can have a big impact. We have had a very successful product that we brought down the cost to 40% of what it was, in batch. (page 11); To make small batches and that's more efficient in terms of utilization of the platform. Flow would be used for higher volumes, basically. (page 11)

Analyst sought clarity on the extent and benefits of flow chemistry, with management detailing its application for high-volume products and cost reduction.

Asked by Krishnendu Saha

So, 400 KL is just backward integration, right? And this we are doing to protect the larger, molecules that bring in like Rs. 40 crores-Rs. 50 crores of revenue for molecules. So, we have got to protect those businesses from a supply security perspective, as well as from a margin protection. So, that will be deployed for BI. And then the remaining is basically for the growth. And like you said, there's price erosion. So, the volume growth is much higher than what we are seeing. Okay, so that should cover us up. Plus, we have been operating at 90% capacity. And that can be pretty risky because if new business comes along, then we don't have any capacity, any kind of surge capacity to be able to grab that business.

Analyst questioned the large difference between a 50% reactor capacity increase and high single-digit revenue growth, leading management to explain the role of backward integration, price erosion, and the need for surge capacity.

Asked by Karthik Swaminathan

Let's put this in some perspective here. How many such $50 billion to $100 billion opportunities are fructifying? At least, in our country? Not many. Right? Because the reality is that these are all patented products which big pharma usually likes to keep with themselves. Maybe we could get an intermediate here and that may give us some business. But the reality is that, it is Ireland where they manufacture because Ireland has a 12% tax rate, I believe. And all big pharma companies park their profits there, so they don't take manufacturing out of Ireland. This is the reality. (page 19)

Analyst challenged the company's CDMO strategy, suggesting it aims for smaller deals and slower growth compared to competitors, prompting management to defend its approach by highlighting market realities and its strong process development platform.

Asked by Sajal Kapoor