IPO funds to be used for long-term debt repayment: Laurus Labs

The initial public offering (IPO) of Laurus Labs has opened today. The company is looking to raise Rs 330 crore of which Rs 225 crore will be used to finance long-term debt and rest for corporate purposes, said Satyanarayana Chava, founder & CEO of the company. "We are at the beginning of a new growth trajectory," he said. Post the IPO, Laurus’s debt will come down to Rs 750 crore both long-term and short-term put together. The company has received a minor observation on equipment calibration for its formulation facility, which was last week inspected by the USFDA. Laurus Labs has filed an ANDA in August, second in October and will file another one during the fiscal. The company currently has 20 products under development in various stages, Chava said.Below is the verbatim transcript of Satyanarayana Chava's interview to Nigel D'Souza on CNBC-TV18.Q: You have done phenomenal growth in the last five years, a compounded annual growth rate (CAGR) of more than 20 percent profitability as well up by around 50 percent in the last five years, what is the next five years looking like and also why are you raising this money?A: Our decade of journey in the company was very rewarding for our colleagues, for me and for our investors as well.Next five years will be even more exciting for us. The reason is we have invested in research, we have invested in facilities, we have invested in our systems and procedures. I would say, we are changing an orbit and we are at the beginning of a new growth trajectory in the company right now.Q: What is your target, where do you want to get and also you are raising close to around Rs 300 crore? Majority of that is to reduce your debt?A: The company is raising Rs 300 crore primary. Out of that Rs 225 crore will be used to retire long-term debt and rest Rs 75 crore will be used for corporate purposes.Q: In terms of your revenue, Rs 1,800 crore -- where should it be in the next five years?A: We are not giving any forecast. We will have a significant growth ahead.I will give you the kind of investments we made. Today, we had about little over Rs 69 crore capital expenditure done in our manufacturing facilities. Only two-thirds is yielding revenue right now. So close to Rs 450 crore is not yielding any revenue although facilities were up and running, no revenues coming from that. That should give you some kind of idea how much of growth ahead of us.Q: Rs 225 crore is the debt you are going to repay, what will be the debt number look like after that?A: Post IPO, it will be Rs 750 crore of debt both long-term and short-term put together.Q: We understand there is USFDA inspection underway, is that done, have you all received any kind of observations, what are the kind of observations you have received because I think you are looking to get into formulations business as well?A: Our formulation facility, which we call Unit-II was inspected by FDA last week. We got one minor observation on the equipment calibrations and preventive maintenance. Other than that it was very clear audit.Q: That is why you believe that it could be resolved very easily?A: We already prepared our response to FDA, which we will send to them if not this week, maybe next week.Q: So when will you start supplying formulations from this plant itself?A: We filed our first Abbreviated New Drug Applications (ANDA) in August and second ANDA we filed in October. We expect to file one more ANDA during this financial year. We have 20 productional developments at various stages. We expect to file about around 8 ANDAs next year. Although our investments started in 2014, our facility was inaugurated in November 2015. Inspection happened in last week by FDA and we expect to start commercial sales only in Q1 FY19.Q: I believe your product Efavirenz contributes roughly about Rs 700-800 crore. There is another drug that has been supplied in market, Dolutegravir (DTG), is that giving you any kind of competition, do you see it eating into your market share, are you confident about your sales?A: Today about 10 million patients in the emerging market who are taking anti-retro virals (ARV) HIV treatment, use Efavirenz. That is going to go up to 14-15 million in the years to come and then based on the reports even in 2025, about 10 million patients still be on our Efavirenz treatment.The new patients will like to use Dolutegravir but Laurus is perfectly positioned to take opportunity of Dolutegravir also because we already have commercial validations done and we have significant Dolutegravir as well.Q: This other drug that you have launched, you are supplying it to the API to Natco Pharma, that is Hepatitis C, what part of your revenues does it contribute currently? I believe that margins are better there so how is that panning out, are you looking to scale that up, that will help your margins as well?A: Our association or partnership with Natco and Aptuit is very unique. Whoever makes API, whoever makes formulations and cells, the profits are pulled and we share equally.We also have the joint ownership of the branch in Hepatitis C. So not only the current formulations what partnership Natco is selling, the new formulations also will be part of our partnership.Q: But currently what is that proportion of your revenues? I believe it is only about Rs 150-200 crore and what are the margins on this particular product?A: Last year we had 12 percent of revenue coming from Hepatitis-C that includes close to Rs 45 crore profit share that we received from Natco last year. In the first six months, we already received about Rs 45 crore profit share from Natco and we did about Rs 150 crore in first six months. This is very good deal for both of us.Q: The margins on this product? Last year you must have done around Rs 200 crore or Rs 180 crore in the entire year, this year the half way mark, you have already done Rs 150 crore and what are the margins on this because if you are going to be growing your sales then definitely your margins will improve?A: Margins will definitely improve. This is also contributing significantly to our topline as well as bottomline and in the years to come, this will still be a significant contributor to the topline and bottomline.Q: Significant contribution will be what, I am looking at your margin outlook, you have been doing quite well, your margins for the first half of the year are at around 22 percent, that compares to around 25 percent that you did in the entire of last year. So what can that margin number go up to?A: We need to mention one interesting factor. From the day 1 in the company, we never capitalise a single rupee of our R&D expenditure, single rupee of our pre-operative expenditure to the new units. So 22 percent is after expensing all our R&D expenditure, all apex of the new units, which are not yielding any revenue, our EBITDA was 22.2 in first six months.Q: Do you all have process patents as well?A: Company has filed 150 patents, more than 30 were granted so far. Our strength lies in our knowledge in the process chemistry and our teams and also our infrastructure helps us to gain significant competitive advantage over others.