Ajanta Pharma Limited (AJANTPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ajanta Pharma Q2 FY 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Yogesh Agrawal, Managing Director of Ajanta Pharma Limited. Thank you, and over to you, sir.

Thank you. A very good evening, and welcome to all of you. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, our CFO; Mr. Rajeev Agrawal, our AVP, Finance and Investor Relations. So friends, I hope that the results are already there with you. We will take you through the business-wise performance for the Q2 and H1 for the year, along with the comparison for the previous year same period. So 3 verticals of business, Branded Generic, U.S. Generic and Institution business in Africa. It generated a total revenue of INR 1,028 crores against INR 938 crores, posting a growth of 10% in Q2 and with INR 2,049 crore against INR 1,889 crore, posting a growth of 8% for the first half. During the year, 73% of the total sales, it came from the Branded Generic business, which is spread across India, Asia and Africa. This business exhibits assurance, sustainability and potential for the long-term growth. The sales stood at INR 743 crores against INR 711 crores, posting 4% growth in Q2 and INR 1,475 crores against INR 1,399 crores, posting 5% growth for the first half. Let me now first -- let me take you through the international business, and international business, I will start with the Branded Generics business in Asia and Africa, which contributed to 39% of our total revenue. So let's begin with Asia. In Asia, our presence spans across the Middle East, Southeast and Central Asia encompassing about 10 countries. During the Q2, the sales was INR 230 crores against INR 251 crores, degrowth of 8%. And in the first half, sales was INR 484 crores against INR 492 crores, posting a degrowth of 2%. During the first half, we launched 7 new products in Asia region. During the quarter, there were some supplies which got pushed out from the current quarter to the next quarter, adversely impacting the quarter numbers. However, on the full year basis, we -- of course, we are confident of posting a low-teen growth. Let me move to Africa. Africa business is spread across 20 countries. During the Q2, sales was INR 157 crores against INR 146 crores, posting 8% growth. And in the first half, sales was INR 316 crores against INR 314 crores, posting 1% growth. During the last 4, 5 months, we've seen the slowdown in overall market in Africa. Hence, correspondingly, our growth rates also got impacted. However, in the last few months, we've seen the growth coming back in the market. And coupled with various initiatives we have taken over the last 12 months or so, we are looking to deliver low-teen growth for the full year. Let us now talk about the 2 other verticals of the international business. I'll move to U.S. Generics. So U.S. Generics contributed 22% to the total revenue. In Q2, with the sales of INR 237 crores against INR 185 crores, we posted a robust growth of 28%, and in the first half, sales was INR 451 crores against INR 364 crores, posting a very healthy growth of 24%. Going forward for the next 2 quarters, we expect the revenues to be at a similar level. In the first half, we have filed 5 ANDAs, and we expect to file about 3 ANDAs for the rest of the year. We have received 6 final approvals and launched 2 ANDAs during the first half of the year, and we expect to launch around 3 to 4 products more during the rest of the year. We have 42 products available on the shelf, and 21 ANDAs are awaiting approval with the U.S. FDA. Let me take you through the Africa Institution business now. This business contributed 5% of the total revenue, which comprises of antimalarial products. In Q2, the sale was INR 37 crores against INR 33 crores, posting 14% growth. And during the first half, sales was INR 102 crores against INR 110 crores, posting 7% degrowth. As we have been guiding in all our calls, this business remains unpredictable due to reliance on the procurement agencies' funds and the schedules. I now invite Mr. Rajesh Agrawal, our Joint MD, to take you through the India business. Thank you, and over to you.

Thank you. Good evening to all of you. I'm delighted to share the key highlights of India business with you. Our performance has been excellent on the back of increased volumes, price increase and new product launches. India business contributed 33% in the total revenue. In Q2, sales was INR 355 crores against INR 314 crores, growth of 13%. And in H1, sales was INR 674 crores against INR 593 crores, posting a healthy growth of 14%. India business includes revenue from trade generics of INR 45 crores against INR 38 crores in Q2 and INR 81 crores against INR 71 crores in H1. In first half of the year, we launched 10 new products, including 4 first time in the country. Our medical representatives' productivity has shown marked improvement aligned with our revenue growth while maintaining consistent MR levels. We continue to outpace IPM by 400 basis points, with Ajanta growing at 14%, surpassing the IPM growth of 10% as per IQVIA MAT September 2023. This places us as the third fastest-growing company in the IPM. This trend extends to most of the therapeutic segments we are engaged in, where our growth has consistently outpaced the segment growth. In the covered market, we continue to be fourth largest in the IPM and among top 10 in all our therapeutic segments. As per IQVIA MAT September 2023, we have 4 brands appearing amongst top 500 list. In our sales breakdown, cardiology contributed 39%, ophthalmology contributed 31%, dermatology contributed 21% of the India business and remaining 9% came from pain management segment. With this, I invite Mr. Arvind Agrawal, CFO, to take you through the financial performance of the company. Thank you. And over to you, Arvindji.

Thank you very much. Good evening, and warm welcome to the second earnings call of FY 2024. We will look at the consolidated financials and provide year-on-year comparison. The key financial highlights for Q2 and H1 FY 2024 are as follows: total revenue in Q2 stood at INR 1,028 crores against INR 938 crores, posting 10% growth. In H1, revenue was INR 2,049 crores against INR 1,889 crores, a growth of 80% (sic) [ 8% ]. Our gross margin came at 75%, in line with our guidance. Continued favorable shift in API prices and normalization of the euro against INR resulted in this improvement, which is expected to persist for whole of FY 2024. Personnel costs increased by 19%, part of which about 8% is on account of regrouping of related expenses from selling expenses as explained in earlier earning call and balance was regular annual increments. R&D expenses was 5% of total revenue. In Q2, expenses was INR 50 crores against INR 59 crores. And in H1, it was INR 105 crores against INR 113 crores last year. Other expenses stood at INR 259 crores in Q2, reduction of about 12% over previous year same period. In H1, it stood at INR 534 crores, a reduction of about 5% from previous year same period. International logistic cost has returned to pre-COVID level, contributing favorable impact of about INR 20 crores in Q2 and INR 45 crores in H1. This works to about 2.5% and 3% for the Q2 and H1 compared to average of FY '23. We expect higher marketing and R&D expenses in the next 2 quarters, which will increase overall other expenses in H2. EBITDA margin improved to 28% in both Q2 and H1. EBITDA stood at INR 291 crores against INR 196 crores in Q2 and in H1 at INR 572 crores against INR 418 crores. This positive performance was attributed to the combined benefit of improved gross margins, reduced logistic costs and INR depreciation against euro. However, as mentioned earlier, higher other expenses in H2 would limit EBITDA in the range of our guidance about 26% for FY 2024. Other income was at INR 21 crores in Q2 and INR 43 crores in H1, predominantly driven by ForEx gain of INR 13 crores and INR 23 crores, respectively. Income tax stood at 29% for Q2 and 26% for H1. For FY 2024, tax is expected to be around 25%. PAT in Q2 was at INR 195 crores against INR 157 crores, 19% of revenue. And in H1, it was INR 403 crores against INR 331 crores, 20% of revenue from operations. We incurred CapEx of INR 46 crores in H1 FY 2024. CapEx, including maintenance CapEx for FY 2024, is estimated to be around INR 150 crores, which also includes part of new corporate office. There was good improvement during H1 FY 2024 to moving working capital days from March '23. Inventory stood at 71 days against 80 days, and trade receivable at 103 days against 104 days. ROCE and RONW continue to improve and be comparable to the best in the industry. ROCE stands at 31% and RONW at 23% at the end of September 2023. In H1 2024, we have generated a healthy cash flow from operations of INR 399 crores, with cash conversion ratio of 70% and free cash flow of INR 350 crores, with 89% PAT conversion. With these highlights, I open the floor for the question and answer. Thank you very much.

[Operator Instructions] We'll take the first question from the line of [ Yash Goenka ] from Awriga Capital Advisors LLP.

Am I audible?

Yes, please.

Okay. Sir, the first question is on the U.S. business. How do you see U.S. business turning out in the next 3 to 5 years as we intend to reduce the capital allocation, but in H1, our sales are up by 22%?

So U.S. business, the market landscape is changing, evolving from what it was 12 months back. We've seen the price erosion to be stabilizing into the normal level. In fact, there have been shortages which are reported in the U.S. market. So overall, the environment has changed, and it is looking quite positive in the U.S. So our outlook still remains, but as we have not taken any knee-jerk reaction or decision back then, we don't intend to do anything on the similar line. Our outlook remains to be filing around 8 ANDAs plus/minus going forward for next 2 to 3 years. Our outlook is that I think the market should hopefully remain at a similar level of the price erosion, and it's more stabilized.

Okay. And sir, what would be the optimum working capital level for the company? And is the higher working capital attributable for the U.S. business compared to past trends?

[ Yash ], we are not able to hear you clearly.

Sir, your voice is muffled.

Am I audible now?

Yes, sir.

Okay. So I wanted to ask on working capital levels. Compared to past years, is the higher working capital level now attributable for the U.S. business?

[ Yash ], earlier, we've -- whatever working capital increase was there, that was mainly because of U.S. But as you have seen now, the inventory levels are coming down. Even the debtors level are also getting stabilized. So hopefully, now we are not seeing any major increase in the working capital levels.

The next question is from the line of Rashmi Shetty from Dolat Capital.

So just on the R&D expenses, last quarter, as you all mentioned that 6% of R&D is something which we are going to spend in FY '24. But your first half is just 5% of sales now. So is it that in the subsequent quarter, the R&D will be very high? Or you feel that it would more or less remain at this 5% level?

It will depend, of course, like the projects are on. So naturally, there will be some expenditure. But what is happening is that this year, in the beginning of the year, we have brought a little bit of focus on the cost optimization. So we are able to get out of the same money, the same work or a little more work. So because of that, you are seeing this little softness, but we expect this to little go up, not much, but maybe it may go a little up.

So probably, it's fair to say that for FY '24, R&D guidance should be below 6%. I mean it should be around between 5% to 6% quarter?

Yes, absolutely right.

And going ahead in FY '25 and '26, it should increase, or it should remain more or less in the same range?

More or less in the same range.

Perfect, sir. And sir, on your other expenses, do we have any ForEx part as a part of the other expenses? Or you have ForEx income, which is coming in the other income part?

Yes. ForEx loss is not there in this quarter. H1 has only INR 1 crore here, but otherwise, there is no ForEx loss in the other expenses.

Okay. And you mentioned that sir...

No, last year, it was there. This year, it is not there. So that's why you are seeing other expenses getting reduced.

Okay. And will this be the new base or you feel that other expenses will be high in quarter 3 and quarter 4 as you mentioned that your marketing expenses will be high? So if I -- what quantum -- by how many basis points from this -- excluding R&D, your other expenses is 20% of the sales. By what quantum it should increase in the subsequent quarter if the additional marketing expenses come?

Honestly, that much granularity, I will not be able to give you now. But what I can only say is that it will be a little higher as compared to what we have seen this trend in the last 2 quarters. It will be higher than that.

So sir, will you be upgrading your EBITDA margin guidance for FY '24 from the earlier levels of 25%?

Yes, that's what I mentioned in my call just now that we are expecting now to be around 26%.

Okay. And [indiscernible] annually, how much expansion we should expect for every year? Because the business is like back on track and all the markets are doing well for us. So in FY '25, '26, sir, what is the kind of number that we can build in?

It will be difficult to give you the number as such. One thing which we can only say is that it will improve certainly.

Got it, sir. And sir, on your Asia branded business, you mentioned the guidance for low-teens growth, while in Africa branded business since now we are doing flattish growth in first half, and you also mentioned slowdown in the industry growth. For the full year, are we maintaining our guidance of high single-digit growth or here, we can see some kind of challenges coming in?

No. Africa, we are seeing the revival. We will bounce back to the growth. So for the full year, we are very optimistic to post low-teen growth. So we will cover up in the next 2 quarters.

We'll take the next question from the line of Harsh Bhatia from Bandhan AMC.

Just 1 or 2 questions from my side. Firstly, in terms of the India growth, could you help us understand the bifurcation between volume, price and new productions for the second quarter?

So as far as volume and value is concerned, price increase and -- no, because this is almost the same as compared -- at par with the industry. Only the volume has gone 3x. So the industry has grown at 2%. We have grown at 6% in terms of volume. So that is what is the biggest advantage which we have. So as far as the price and new products is concerned, it is still at 3% and 5%, in line with the industry.

The price is 3%.

New product is 3%. Price is 5%, and volume for industry is 2%. Ours is 6%.

Okay. And one clarification in terms of the U.S. business. In the first quarter as well, you mentioned that the sales would largely be sort of range-bound for the next 2, 3 quarters. And the second quarter, it's slightly higher as well. So should we assume this to be sort of a relevant base for the next 2 quarters? And again on this, the assumption is ex of Chantix.

Yes, I think we should be able to deliver the numbers on the current quarter basis going forward for next -- rest of the year.

Okay. But this would again not be inclusive of the expected launch of Chantix?

Everything is factored in that. It's a mix of whatever the new launches, market share loss increase. All put together, we are -- I think we look reasonably comfortable to post the numbers what we have done for this quarter going forward the next few quarters as well.

Sure. That's helpful. And one last clarification on a broader perspective, if you look at these 3, 4 therapies in the India market, would it be fair to work with the assumption that at the gross margin level, the cardiac would continue to be the highest gross margin provider purely from the India market perspective, if at all, you are disclosing therapy-wise?

No, we are not disclosing therapy-wise margin. So that will not be disclosed, but one thing which we can definitely tell you is that every segment is contributing almost at the same level. It's not something which is much different. Only the thing is cardiology has got more contribution. So 39% of the sales is getting contributed by cardiology. That's the only thing which you'll get.

Sure. So you meant that at the operating margin level, it wouldn't be anything significantly different?

Exactly. Different.

We'll take the next question from the line of Abdulkader Puranwala from ICICI Securities.

Sir, firstly, on the Asia branded business. So in your opening remarks, you mentioned that there was some lumpiness due to which there was a spillover from this quarter to the next quarter. So would it be possible to quantify what was the spillover and also, if we would be on track on the mid-teen growth adjusted for the spillover in this particular quarter? Because H1 itself, if you see the business has not grown much. So what gives us the confidence of this mid-teen growth in this particular segment as well?

So we are talking about Asia, not Africa. We have the spillover effect for the -- this quarter to the next quarter. I think let me tell you in another way. As I said before, the Asia for the whole year, we look comfortable in giving the guidance of posting the low-teens growth. So next few quarters would be making up of whatever we have not done in this quarter. So that is, I think, comfortable guidance we can give. And Africa also, I think, on the same lines, we are looking to post the mid-teens -- the low-teens to mid-teens growth for the next -- for the whole year.

Okay. Okay. And sir, possible to quantify the spillover?

No. Unfortunately, I can't give the exact breakup number, but you can do the math. It's not very difficult.

All right, sir. Sure, sure. And sir, secondly, on the India business. So the 10 new products what you've launched in the first half, I mean, which are the therapies that are catering to? Are these existing for? Or are you entering into a few new therapies as well?

They're in the same therapy, existing 4 therapies. And most of them are cardiovascular, diabetic segment only. And there are a few in derma and one in opthal.

Okay. Sure, sure. And sir, just last one on the bookkeeping side. So the tax rate for this quarter was slightly higher. And for the whole year as well, we are guiding for almost 25%. Sir, any particular reason you would like to highlight for this rise in the effective tax rate?

Basically, I think for the quarter, it is because of the dividend which we got from the subsidiary, so that is the major reason for the quarter that it has gone to 29%. But in the other quarters, it is not going to be there. It will come down to that extent. And overall, 25% is basically because the profitability has gone up compared to last year. So naturally, the tax rate also has gone up.

The next question is from the line of Bharat Celly from Equirus Securities.

So sir, just wanted to understand on the U.S. business, so you've mentioned that there is some structural change which is happening in the U.S. So I just wanted to get clarify...

Excuse me, sir. Sir, your volume is too low. Can you please increase it a little bit?

Is it any better?

Yes, sir.

Yes. So what I was saying, so we have been referring that there has been some change in the U.S. structurally. So just was trying to get a sense that how the overall market is shaping up, whether you are seeing that people are ready to pay higher price considering the shortage market or the volume growth has been more of leading the growth?

Yes. It's a combination of all the things. The customers are valuing the consistent supplier of high quality with high compliance rates over the prices of reducing by a few cents or few percentages. This is getting valued much higher than before we have seen. And in light of that, Ajanta is positioned extremely well to take advantage of such situations. So I think they're a combination of things. As we know, COVID, the supply chain was -- became the center of focus for everyone. So product availability was at all-time high. There were no inspections, so there were no disruption because of FDA inspection. So all in all, I think the market has gone back to the pre-COVID level where inspections have started. That is causing some disruption in the market. And because of the COVID experiences, now the customers are seeing more value working with the companies, having a very high compliance rate. There's a combination of all that -- all of the things. I think it's kind of thing that the market is kind of stabilizing and getting better now.

When the customer is coming to you, are they asking for a longer duration contracts or these are more of a shorter-term contracts till the time new players who are calling new volumes also -- new supplies also joining?

It's a mix of both, product-to-product basis where there are uncertainties on the product. Customers are wanting to lock up for the longer-duration contracts so that they are assured of the products. We've seen last few years, there have been a huge disruption. Some of the major products, which are, let's say, for the flu last year, there was a big shortage of the product. And that created a lot of disruption in the market. Patients didn't get the products, a lot of children, they were suffering. So product-to-product basis, the customers are looking to do a longer-term partnerships with the supplier.

And sir, actually, what we have seen over the past is that whenever there is a shortage, probably 6 months or 9 months down the line, new supplies come in the market. So are you foreseeing any sort of similar trend to emerge this time? Or it will be more of a permanent lock, which we are referring to?

It's very difficult to predict so far in the future. But what we are seeing is the pre-COVID kind of market scenario is coming back. So pre-COVID also, we were in the similar scenario where product to product because of various reasons, there were supply disruptions creating the shortages. There was a company who is at the right time and the right place, they would benefit from that. So we are seeing a similar kind of scenario. I think it's very difficult to predict too far away in next 2 years, 3 years, how it's going to pan out, but we remain optimistic. We believe that the worst is behind us. Market has stabilized to a great extent. There's a realization all across from the supply side, buyer side to value the partnerships more over the price. So we see, I think there is some kind of structural mind shift, which is occurring in the industry.

Makes sense. And sir, when we refer to probably that we are getting back to pre-COVID levels, so what sort of price erosions we are seeing? Either it is between 4%, 5% or it is high single digit? And how do you see it going forward?

High single digit is what we are seeing, and we would like to believe it would remain in the similar vicinity going forward also.

Okay. So high single digit sort of a number which we are aiming for?

Yes, yes.

Okay. And sir, just wanted to understand on the India business. So we have almost like 10 to 60 -- sorry, 10 products contributing almost like 60% of our revenues in the domestic business. So just wanted to get a sense that how -- when we are looking at almost like 13% growth for the domestic business, what sort of growth 10 -- top 10 products we are seeing over -- during this same duration?

We have seen a very healthy growth actually, including brands like Met XL even though we were impacted due to the price reduction that happened by NLEM, but the volume growth is very healthy. And the other brands also in the top 10, Cinod and the family extensions, they've also posted robust growth. So all in all, we posted robust growth in the top 10. Otherwise, we would not have achieved 6% volume growth in our core product portfolio as against 2% volume growth of the industry. So it is very positive.

And sir, actually, what we are seeing is that our growth in IPM has been laggard when you look at in the cardiac division. And our focus has been largely pertaining to 4 therapies largely. So how do you plan to outgrow the market growth over the longer duration? Here, I'm referring to probably 5, 6 years considering our focus has been largely 4. So are we looking to get into a new therapy areas to keep growing and outpacing the market?

So cardiology has not been a laggard. We have been growing faster. Only what you see in the last 6 months, as I've mentioned, the largest brand in cardiovascular for us, Met XL, has got impacted because of the price reduction that NLEM has done. If you normalize that, then we are growing at par or faster than the cardiac segment growth rate, right? Secondly, to answer your question on the therapy, I feel that we have a long way to go in the existing 4 therapeutic segments itself, like the way we have bounced back in dermatology in the last 2 years. That's again because we have had a sharp focus on the current 4 segments. I think there's a lot to be done, and we are not exploring any other specialty to enter into. It is mostly diabetic, but we have also increased our thrust, which also goes hand in hand with the cardiology segment in which we have a strong presence. So beyond that, no, we are not exploring anything else. But even in these 4 segments that we are present, if we are able to outpace the subtherapeutic segments of each of the specialty in which we are present, I think we would have a done a good job, and there is a lot of headroom for us to keep growing in that.

Sure. That's helpful. And before I join back the queue, just wanted to understand what's our ranking in the derma divisional at this point?

In the covered market in dermatology, we are ranked third. And overall, I think -- we think the overall ranking of dermatology, we may be ranked 15. We -- our rank is 15.

We'll take the next question from the line of Kunal Randeria from Nuvama.

Sir, are you seeing any kind of structural shift or softening of the branded pharma market in India maybe because a lot of companies are launching their own trade generics? There has to be some level of cannibalization happening at least on the volume front.

Very hard to say that because we don't have any kind of data to prove it. It may be happening, but at a very negligible or miniscule level, this is my presumption. So that may not be the prime reason for any kind of slowdown. Yes, we have had a couple of soft months or the IPM, previous month, month before last have been quite soft. I think now that we begin, forget October, October typically may not be the strongest month because of the festivals that takes place in the country all across in North and East. But November to February should be a strong 4 months and until March also maybe a strong 5-month period in which we could see good amount of recovery because from IQVIA, we don't see any major reasons why the IPM will slow down dramatically. Their forecast still remains high single digit or very low double digit.

Got it, sir. Sir, would it be fair to assume that in the next 3 to 4 years, you expect the market to maybe grow at around 10% kind of range?

Yes, I would say -- I think their forecast is, let's say, 8% and 9%. So that's what IQVIA is saying for the next 3 years.

Sure. The second question is on the Asia branded business. Now I think in the last few years, you have been trying to not only enter new markets and maybe diversify away in Philippines and Iraq. So maybe can you walk us through on some of the markets that are doing well for you or the new markets that we are targeting in Asia?

So we don't give a country-wise breakup. But in general, it's other than the 10 countries block in Asia, which are spread across Southeast Asia, Middle East and Central Asia. Some of the countries are mature for us. Despite being mature, we are doing good where we are posting decent growth. Some of the countries are, particularly in Central Asia, we're building that business. So all the various countries are in the different blocks of the maturity. But overall, I think there will be a good headway growth for us to grow in the Asia market. And I think Asia also the big part of focus is getting shifted from acute to chronic. So a good part of our business in the Asia is coming from the chronic. That's also a very good high-quality business to be in.

Right, sir. And any kind of maybe now since you are a fairly big player in Iraq and the Philippines, what's the kind of competition is increasing over there? Or I just want to understand a bit more. Is there -- is the generic kind of a thing happening? So just your outlook around half of these markets you see in the next 3 to 4 years.

Both of these markets, there is a high amount of competition. There are all sorts of multinationals that are present, just like the way in India. And more importantly, the local companies are in themselves very competitive and very strong. In the Philippines, for example, you have the likes of United Laboratories, which controls more than 12% of the market share. And so it is in Iraq all the companies from in and around GCC countries also. So competitive pressure is very high in these countries. Having said that, we are quite confident with the kind of competence that we have built over the years, the understanding of the market and the team that we have in these countries. To be able to withstand, there could be a quarter or 2 in which there may be some kind of drops that may happen. But that is not to say that, that's going to continue for a very long period. I think that's a very natural thing to have. If we are alone in the market with any particular brand and suddenly, you have 5, 10 competitors, naturally, the first 6 months, we will see some pressure happening. But over a long period, we are able to quite successfully defend our position and retain our leadership positions.

[Operator Instructions] We'll take the next question from the line of Tushar Manudhane from Motilal Oswal Financial Services.

So just on the capacity utilization currently at different plants?

Should be in the range of about 60% to 65%.

So effectively -- so that would trigger more CapEx maybe in the next 12 to 15 months?

No, not really because I think we are still comfortable for the next 2 years. After that, maybe we may have to start thinking and putting -- and getting back on the drawing board. But otherwise, I think immediately, there is nothing which is a major. Some small additions will keep on happening, which is normal CapEx, which will happen, but nothing really major.

So particularly to Asia, Africa geography, if you could share how much is outsourced from the local manufacturers there?

We don't have the breakup of our plant with that on plant-wise, territory-wise. But overall, I think you can see the sense as Arvindji was saying, we have done our forecasting for next 2 to 5 years in terms of what growth and capacities and new product launches. And with that planning also, we know what CapEx to do at what point in time. So as Arvindji said, in the near future, we don't see a big CapEx outlay coming up. Maybe after a year, 1.5 or 2 years, we may have to get back to the drawing board and see again how the forecast looks with the growth and what capacities we need. But I think the clear visibility which we have is the next 18 to 24 months, there could be some line additions here and there, but nothing of a very significant CapEx.

Understood. And lastly, on the OpEx side, apart from this increase in the marketing expenses, which probably would offset decrease in the internal -- international logistics cost, any other factors that can further increase this aspect, maybe in FY '25?

Not really because there is nothing which is known to us. And I think all the expenses are at the level which are at pre-COVID is like what logistic costs, et cetera, you are seeing. Now unless the situation worldwide gets into some problem, et cetera, then in that case, what happens, we really don't know. But today, at least as far as our planning for our expectation goes, I think we are going to be at -- on the similar line.

We'll take the next question from the line of [ Aman Kumar Singh ], an individual investor.

Yes. My question is related to our growth pattern what we have seen in Africa. I think our Africa business is going down, both at the institution front and even at the largest continent front. So what can the probable reason for it?

I don't know from what data you make that statement because if you see 2019, our Africa sales was INR 317 crores. And last year, we did INR 560 crores. So cumulatively, we have delivered a CAGR of 14%, which is mid-teens, which is what we've been guiding. Current year, as I told you, during the quarter also, we posted not a very bad number. It was 8% growth despite the market going down. And as I've shared for the whole year, we are looking to deliver the low-teen growth against the mid-teen growth, which we had guided at the beginning of the year. So I think structurally, we are fundamentally very, very strong. We have all of the building blocks in place of having right product, right team, right people, right training. So I think the story should not be seen in 1 quarter or 2 quarters. It should be seen on a longer horizon of a few years. And in the last 5 years, we've delivered a 14% CAGR growth. Going forward also, we feel very confident of delivering similar kind of growth for the next 2 to 4 years. So that's where the position is. Don't have to worry about the growth, don't look at 1 quarter of number. I think in the long-term story, we are confident of delivering all the numbers of low teen to mid teen.

Okay. One thing I just wanted to point out, when we have a little bit of cash on our book, why don't we deploy this cash more meaningfully by acquiring -- doing some lateral acquisition or something that will help our company to grow further? So this is what the suggestion I wanted to put forward.

I mean your suggestion is well taken. And we are looking out. Every time, I am mentioning that we are looking for acquisitions. Unfortunately, the valuations and the product qualities, which are coming to the market, they are not getting satisfied at our preliminary level. So because of that, we are not able to do any acquisition. Otherwise, we are definitely scouting, and we are there always for any deals which are happening in the India market.

[Operator Instructions] We'll take the next question from the line of [ Harsh Beria ], a professional investor.

Hello?

Yes, we can hear you.

Am I audible now? Hello?

Yes, yes, you are.

Perfect. So congrats for the good set of numbers. My first question is on our India operations. So in the past few years, most of our growth premium over IPM has come due to higher volumes in our India branded business. Can you give a bit of a color around this? So have we expanded our distribution network? Or are we going into smaller cities? So some color of why we are able to grow higher on volumes in India?

No, we have not expanded in terms of the number of reps and therefore, there is no expansion in smaller villages or smaller towns. This is primarily coming from the same markets in which we are operating. Essentially, it is the increase in the MR productivity that is driving the volumes. The increase is taking place because of sharper focus on customer relationship management activities that we have been conducting in the last 2, 3 years. And of course, being very competitive at a basic level to fight back and retain the market share. So that is what is contributing. One is the retention, and two is the growth in terms of volumes.

Okay. My next question is about our trade generics business in India. I think in the past calls, you guys had guided for 10%, 12% growth, but we continue to see very high growth of 15%, 20% in this division. This is not something I'm complaining about, but we also see a lot of other companies entering into this segment and seeing...

I think from INR 35 crores to INR 38 crores, we have gone to INR 45 crores in this quarter, 15% growth.

For the first half.

Yes.

So some part of it may be better than what we were actually aiming for, which is a good thing to happen. And of course, we are doing better than most of the companies in the market, again, primarily because of the product portfolio that we have. As we said, we are not complaining either. Hopefully, this growth rate continues, even though we have set out to achieve a growth rate of low teens, but -- sorry, low double digit. But mid-teens is always welcome.

Okay. Also my next question is about the U.S. operations. Given that U.S. has grown at a faster pace in recent years, nice to see that U.S. required higher working capital investments, especially in terms of maintaining inventory near the customers. Have you seen any change in this trend where we do not have to invest so much into inventory?

No, not really, but it only depends on how efficiently you have your entire working capital managed. How many days, if you have a consistency in the production output, you can have a lower inventory in the front end and that has been -- in the last 12 to 18 months, we've been striving for that. And that is where you see that despite the sales growing up, the number of days inventory remains the same for us for the first half, though U.S. has grown pretty robust, which requires highest working capital level. So no, I think in generally, the outlook remains the same. You need to have a decent amount of inventories to be able to encash opportunities, which market throw up at times. You need to have decent inventories at the facilities here in the RMPM. So U.S. remains to be a high working capital market, but there's a trade-off on what you want to keep and how ready you are to encash the opportunities if they come to your way.

And what is the kind of price erosion we see in our base portfolio in the U.S. currently?

High single digit, High single digit, yes.

And my last question is about the emerging markets. So we have seen a lot of companies facing pressure on ForEx exchange, especially in the last few quarters. But for some reason, Ajanta hasn't seen that. So how have you managed our ForEx so well so that we haven't seen any large ForEx losses? I think we have actually made gains -- net ForEx gains over the last year and that too quite systematically across quarters. How have we managed to accomplish this?

Simply the discipline. You see we have a ForEx policy in place, which is approved by the Board of Directors, and we follow that very, very strictly. And that is what has really helped us to manage it very well because, see, ultimately, it all depends on how you will get your -- with the movement in the ForEx. Sometimes, you take a call, which may not be very disciplined way. But I think we have been very disciplined, and we have been able to really maintain that discipline all throughout and that is helping us to really manage our exchange risk very well.

And our policy has been maintaining 75% of our receivables hedged and keep the remainder as open. Is that our policy?

Given that 50% is minimum, which a policy prescribes. More than that, it will depend on how we really see the market and how we predict that market is going to move. Depending on that, we take the call.

The next question is from the line of Ankush Mahajan from Axis Securities.

I joined the con call in a latter part. Sir, as we have seen in the PPT, in the Indian business, the cardio region is showing some decline. So what was the reason? And sir, what is the outlook for it? And related to this, sir, U.S. business, the growth is there, it's quite a commendable growth. And what are the reasons behind it?

For the cardiac business, it is not showing a decline. It is growing slightly lesser than the cardiology segment in India. The reason is only because our lead brand Met XL, which contributes the majority to the cardiovascular business for Ajanta. There has been a price reduction done by NLEM in the month of March, which is what is affecting us, because if you normalize the price of Met XL and calculate as per the previous old price, which was prevailing until March, then we are growing at par with the segment growth rate or slightly better than the segment growth rate. So honestly, I don't see any reason for us to worry about it. These growth rates will bounce back next year once the price is -- this price becomes the base price as such. So that's...

And sir, anyone is taking market share from the cardiology?

Come again?

So any competition, sir, any competitiveness that we are losing market share in the cardiology?

Are we losing market share? As far as the company cardiovascular segment is concerned, no, we are not losing market share. There may be 1 or 2 brands where the market share may be going up or down, but nothing that worries us largely.

Okay, sir. And sir, maybe the U.S. business, sir?

Sorry, can you come back with your question again? What was the question on the U.S. business?

So it's quite very strong growth in the U.S. market. So what has contributed to it, sir?

So it's a combination of 2, 3 things. One, we've seen the price erosion to be normalizing, which we've said. We've had a number of good launches, and we've done fairly well in those launches. We've increased the market share for a number of our products. So a combination of all the 3 things, it has resulted into the -- yes. And a very high level of compliance -- supply compliance. Our fill rate is one of the highest in the industry. So a combination of all these 3, 4 things, it has resulted into a very good set of numbers for the quarter and for the first half.

And sir, when we are going to launch the Chantix?

Chantix is still work-in-process. So as I shared with you in the last conference call, it could be Q4 or Q1 of the next year. Still we are awaiting the final approval from the FDA. We believe we are at advanced stage of -- we've met all the requirements, whatever they've asked for. So now it's just a wait and watch game. And once we get a go ahead, we should be able to hit the market very, very quickly because we've seen there are some other competitors also who have got approval. So the name of the game will be who can come to the market first. So we are -- yes.

So any update on this Topiramate?

Topiramate, no, I think it is in the -- we've done the -- we've settled it under confidentiality. Yes. But I think we are not giving out the -- it's -- we have signed the confidential agreement. So I think we are not able to share the launch date for the product.

We'll take the next question from the line of [ Harsh Beria ], a professional investor.

I have a question about the diabetes franchise in India. So recently, we have seen a lot of patented products going off patent. So can you talk a little bit more about our diabetes product offerings? And how have we managed to gain incremental market share in these new products that have come into market?

You're absolutely right. There are many molecules that are going off patent. And along -- I mean every company along with us also are launching the same molecules and same combinations. There are the typical SGLT2s, there are DPP4s that are being launched. There are combinations with that. There are combinations with metformin. So our product portfolio will pretty much be similar to what other companies are also launching in the diabetics segment. Since we have had a late start in antidiabetic, for us, it's increasingly more difficult to gain the market share. But having said that, we have started on time, I still feel, and we have a long way to go in the segment. So I think next couple of years, we hope to be having some kind of a meaningful presence at least within our own sales contribution. It should have some meaningful contribution to our internal sales. So that is what the aim is.

And another question on this. So in the past, Ajanta used to do a lot of these clinical trials within India to launch -- to bring to market newer products. How is that segment proceeding? So earlier, we used to have a very large proportion of our new launches as new product approved -- or as first to market in India. How is that strategy panning out?

The last 3 years -- 3 to 5 years, the regulatory requirements of the Drug Controller General of India has become very, very stringent. Getting approvals have been increasingly difficult in the last three years. We still have new product first time through the market. Like, for example, in cardiovascular, we have had a triple-drug combination product that we have launched in Q2, which is the first-time product in the country and for which we have conducted clinical trials. So that's the requirement -- regulatory requirement of the country if it's a first-time product. But all the new launches that we are making along with many of the industry players have a combination of both internal new product development and approval as well as sourcing it from other channel partners in which case then either they do it with clinical trials or then we partner with them to conduct the trials. So that is how it is.

Okay. And I have one last question, if I'm allowed, which is -- so Ajanta is a formulation company which doesn't have much backward integration in terms of API. We have presence in institutional segment as well as generic or generic-generic segment. Despite that, we maintained one of the highest gross margins that are seen in the industry, which is close to 75%, 80%. How do we do that?

It's the outlook of the business, right? As we said, the strong focus on the Branded Generic business, 73% contribution, which is there. In U.S., we've been very selective in the product portfolio. So outlook has been not necessarily to just build the volumes at the cost of the margin. So that's a discipline which we have followed for, I think, over a decade. And I think that's the result we're trying to continue posting, I think, slightly above industry EBITDA margins or PAT margins. Yes.

Ladies and gentlemen, as that was the last question for today, I would now like to hand the conference over to Mr. Yogesh Agrawal for closing comments. Over to you, sir.

So I want to thank each one of you for joining this call. If there are any questions which got left out or remain unanswered, please feel free to reach out to our Investor Relations team. Once again, thank you so much for joining. Bye.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ajanta Pharma, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.